Mining problems in chile

After a power failure plunged 90% of Chile's population into darkness Sunday night, mining companies quickly informed the world that their mines were back on line and all is well.

Not so fast.

In Nevada when the power doesn't function properly, mining processes are hit harder than the actual business of earthmoving. When too many brownouts or blackouts occur, mining companies start building and operating their own power plants because everyone knows a dependable, cost-effective supply of electricity is critical to a mining operator's bottom line.

No thanks to one of the most powerful earthquakes and its mighty tough aftershocks, no one can deny that Chile's power supply has become unstable. Yet commodities investors are told over and over that most of Chile's major mines are located in northern Chile, which was pretty much unaffected by the earthquake and its aftershocks.

In reality, Reuters reported that three Codelco mines, three Anglo American operations, one Antofagasta Minerals mine, and Freeport-McMoRan's Candelaria mine were all affected by Sunday's blackout. That takes at least small bites out of 1.5 million tonnes of annual production at the mercy of a power system which has been rendered unstable by the massive earthquake and its powerful aftershocks.

Chile's power supply is expected to be fragile for at least six months, the Chilean Government admitted Monday. A short circuit in a 500-kilowatt transformer was blamed for Sunday's blackout.

Energy Minister Ricardo Raineri said the nation's power network suffered various damage, "be it in transformers, switches and others." He cautioned the blackouts could happen again in the future and asked the public to moderate their power consumption to avoid putting an even greater strain on the system.

Raineri warned that, "As long as we do not recover the security level, we are going to be in a critical situation."

Despite the assurances from Codelco, Freeport-McMoRan, Anglo and other major miners that all is well with the power supplies of their Chilean operations, if nationwide power outages become a fact of life in Chile, mega-power consuming domestic mining operations could find their own electricity supplies rationed.

As long-time Chilean mining observers may recall, over the years, Chilean mining operators often have had to be concerned about power supply.

In 2006 roughly 2.3 Mtpy of Chilean copper mine capacity (13% of global copper capacity) was run either on hydroelectric power or power produced by burning natural gas from Argentina. As Bloomsbury Minerals Economics wrote in 2008, "Power supply in Chile has now become another stumbling block for copper and will lead to delays in production expansion in the near future."

Chile's power system is split into two major networks: Sistema Interconectado Central (SIC), which covers nearly 70% of power generation in Chile, failed Sunday; and Interconectado Norte Grande (SING), which produces 30% of total Chilean power and provides for mines in northern Chile.

The majority of power in the Atacama Desert, in which many copper mines are located, is produced by burning Argentinean natural gas.

Chile imported 72% of its energy in 2006 through petroleum, gas and carbon in 2006. Chile's National Energy Commission cautioned in the past that the nation's dependency on imported energy "puts the country in a vulnerable position given the volatility of international prices and supply interruptions."

Mineweb readers might recall that in May 2007 Argentina cut gas exports due to cold weather in Argentina, which forced mines in the SING power district in Chile to prepare for the rationing of power. As a result, many mining companies in northern Chile installed their own power plants. However, these plants are not adequate enough to wean mining from its reliance upon the SING network and gas imports.

Some gas-burning plants have been converted to diesel and fuel oil, which is also expensive. Codelco now develops power plants to service its operations.

Chile's lack of rainfall can also wreak havoc with hydroelectric power supplies during years of extreme drought. The inadequate rainfall which often accompanies La Nina weather patterns can mean inadequate rainfall in reservoirs and a loss of operational hours in hydroelectric plants.

Meanwhile, efforts to develop new hydroelectric plant reservoirs and dams are facing opposition and delays from local residents and environmental groups fighting the industrialization of Chile, Bloomsbury Economics' Christopher Welch has noted.

Even now, shaky, blackout-prone energy supplies could impact many medium-sized mines in Chile and reinforce world market concerns about supply disruptions in a country that mines one-third of the world's copper.

source: mineweb

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