For centuries, pilgrims have thronged to the Chilean mountain town of Andacollo – to worship at the historic church and to mine the dusty hills for copper.
The Incas built parts of their civilization on the rich copper and gold deposits unearthed here before Spanish conquerors swept in. Since then, church and mines have become intertwined in the culture: The epic rescue of 33 Chilean miners in 2010 is attributed by many here to prayers uttered at Our Lady of Andacollo.
Now a new wave of pilgrims is worshipping at the altar of Andacollo – Canadians, in the form of Teck Resources Ltd., the Vancouver-based mining giant that has spent more than $440-million (U.S.) expanding an open-pit copper project on the edge of town.
It looks to be a wise investment. Strong demand for copper, coupled with the mine’s expansion, allowed revenues from the site to triple last year to $600-million (Canadian), and gross profits to triple as well to almost $290-million, over the previous year. The mine has an estimated 20-year life, with a potential for 40 years.
But copper, an economic bellwether, has had a choppy ride recently, with a stretch of dramatic price gains followed by a pullback as Chinese growth shows signs of slowing and parts of Europe fall into recession crisis. In the first quarter of 2012, Teck reported lower copper margins from a year earlier, resulting from price softness and higher costs.
Still, the metal is expected to rebound as global growth ultimately recovers and China restocks, according to the World Bank. That means a multinational miner like Teck, if it wants to be a copper player, has to be here. Even with northern neighbour Peru stepping up activity, Chile leads the world with about 30 per cent of copper production.
“If you want to hunt elephants, you have to go to elephant country,” says David Baril, Teck’s vice-president, copper, for Chile.
For residents of this remote community on the southern fringe of the great Atacama Desert, about 350 kilometres north of Santiago, Teck’s hunt for copper means money and jobs. The company has almost 800 employees at Andacollo, and another 850 work for contractors.
That makes it a microcosm of the metal’s prominence in the national economy. Chile is a familiar kind of place for Canadian companies, given its heavy – some say dangerously so – reliance on cyclical commodities. Mining, led by copper, makes up about 20 per cent of the economy, and contributes a lopsided 62 per cent of export revenues.
“Mining is the pillar,” says Hugo Herrera Carvajal, the manager of Teck’s Carmen de Andacollo mine. “If you stop mining, where would you get the money?”
In the massive open pit at Carmen de Andacollo, loaders shovel raw ore into 200-ton trucks, to be transported to crushing plants, and by conveyer to a new ore concentrator. The concentrated metal – forecast to hit annual production levels of 80,000 tonnes – is carried to the Pacific port of Coquimbo, an hour away. From there, it is shipped to India, Germany – and, of course, China, to meet that country’s demand for copper cable, plumbing supplies and components vital in building new power-generation plants.
Teck acquired its 90-per-cent share of the Andacollo mine in its 2007 takeover of Aur Resources Inc. The mine is a good deal, say Teck officials, who have invested $440-million in an operation that would have cost $1-billion to develop as a greenfield site.
Andacollo is not even the biggest Teck opportunity in Chile. The company is undertaking studies on whether to expand an operating mine, Quebrada Blanca, in far northern Chile, and open a new mine at Relincho, closer to Andacollo. If both were to go ahead, Teck could double its copper output from Chile, which already contributed about a third of its $3.1-billion in copper revenue in 2011.
And the rewards from gold on the same site can also be compelling: In 2009, Teck sold a maximum 75-per-cent interest in the gold mined at Andacollo to Royal Gold Inc. for about $300-million.
Teck has also achieved a degree of cost stability by recently signing a four-year labour deal, paying its average worker at Andacollo about $2,200 (U.S.) a month – plus the potential for 30-per-cent performance bonuses. The compensation, including benefits, is highly competitive in the mining sector, and the deal locks in labour security at a turbulent time, when copper union strikes have been frequent and rising political opposition to the centre-right government is drawing attention to the wide gap between rich and poor in a country blessed with resources.
The gap is evident in the drive from the resort town of La Serena with its luxury hotels, to the more basic abodes of the rural poor. As the road makes its steep ascent to Andacollo, the legacy of generations of rogue miners is apparent in scattered piles of tailings.
But much of the outlook for local jobs and salaries depends on global forces. In Chile’s copper country, all eyes are on China, which consumes a third of the world’s copper. Miners know their big Asian customer could not sustain 10-per-cent growth forever. Now, the worshippers at Our Lady of Andacollo are praying for just a moderate pullback, and deliverance from any potential crash in copper prices for some time yet.