By Hernán Araneda
Manager of Innovum Fundación Chile
Published in English in International Investor magazine.
“Mining of the future: a challenge for our present days”. With this statement starts the report produced by a highly influential group of stakeholders linked to the mining industry. The report “Mining: A Platform for Chile’s Future” was delivered to President Michelle Bachelet in December of the same year, is an unparalleled joint effort between the public and private sector to promote the future development of mining activity in the country. An important part of the measures put forward in the document deal with a concern that not only affects the mining industry, but also the country as a whole: the need for a shared long-term vision.
The vision itself assumes that the mining industry should be structured according to certain attributes. i) It must be ‘virtuous’ in the sense that, at the same time as strengthening its competitiveness and productivity, the industry must create the necessary conditions for the emergence of an ecosystem of innovation that will contribute to the establishment of a knowledge economy. ii) It must be an inclusive industry, encouraging participation from the local communities and sharing the benefits it generates. iii) It must be sustainable and include all the critical variables in its operational design in order to prevent, avoid, mitigate and compensate for the environmental, social and cultural impacts generated throughout the lifecycle of a project.
To move in this direction will require substantial changes to the way in which the mining industry develops going forward. History had shown us that most transformation processes are triggered by critical situations, and this particular instance is no exception. Thus, the aforementioned agenda must be understood as an aspiration resulting from a set of challenges that, if not resolved, could affect the competitiveness of one of the main national industry.
It is very difficult to think about Chile without the mining industry. During the last 10 years, the industry has contributed 14% to the national gross domestic product, accounting for 56% of total exports and 19% of total tax revenues. On average, around 11 per cent of the country’s total workforce is directly or indirectly involved with the mining industry. In fact, it is often referred to as ‘the backbone of the economy’ and viewed as ‘Chile’s salary’.
Despite its importance, mining has been wrongly labelled as a “cash cow” with the sole purpose of bolstering state coffers year-on-year, thus prevailing a vision of a rentier state, whom had not been taking care of progress towards a more sustainable mining industry and use this industry’s ability to create local production chains that drive the country’s development.
Today, questions surrounding the future of mining in Chile have become more relevant as the challenges faced by the industry become increasingly urgent. Ore grades are decreasing and extraction now takes place at greater depths, while costs related to energy and water have increased significantly and are considerably higher than other mining countries with which Chile must compete and what has been increasingly influenced by public opinion, such as social and environmental requirements, are complex and have become considerably more demanding than previous decades. Thus, in this context it is important to ask ourselves if the agenda of strategic priorities, set out in the report, is analysed to discern whether the stated goals are achievable and if they can firmly locate mining at the centre of sustainable development. The majority of the proposed measures seem to be more than adequate in terms of focus and approach.
“Mining: A Platform for Chile’s Future” agenda’s is twofold. First, it aims to consolidate the leadership of Chile’s mining industry at the global level, allowing the country to fully capitalize on the continued and significant demand for copper projected for the coming decades. The export target outlined in the report’s vision has been set at 130 and 150 million tonnes of copper and other minerals between 2015 and 2035. The second purpose proposed in the report is to take maximum advantage of the opportunities provided by mining to improve the diversification of the country’s productive and export industries. By 2035, it is expected that Chile will be home to 250 world-class suppliers that will export approximately US$10 billion in technology-related and knowledge-intensive services.
In order to achieve this, the report calls for a strengthening of the institutional framework to ensure better coordination between the private sector and the government through the creation of a public-private council, which would strategically guide long-term decisions concerning the mining industry (to allow planning to extend beyond the particular government of the day), advocates better financing for research, development and innovation projects undertaken by suppliers, mining companies and research centers, as well as improving the regulatory framework that relates to consultation processes with indigenous people. The authors suggest that greater availability of geological information and improved access to mining property, plus, the creation of a database for mineral exploration and geological resources, following the standards of the most developed mining economies, should be done.
Although this agenda is relatively new, some programmes that facilitate a move in the aforementioned direction are already being implemented. For example, the National Mining Programme, driven by Corfo (the Chilean Economic Development Agency), the Ministry of Mining and the Ministry of Economy. The initiative, which will be implemented by Innovum Fundación Chile, aims to strengthen the ecosystem of innovation, research and development of the mining industry, that is to say, assumes full leadership in developing the virtuous mining dimension in Chile.
The results of all these measures can only be assessed over the long term, and although the vast majority of the actions proposed accurately reflect the needs of the sector, success will depend on the willingness and ability of the different stakeholders to discuss and support this effort in the long run. The magnitude of today’s challenges requires the joint effort of all players linked to the industry. Otherwise, the possibility of maximising mining as a tool for Chilean development will be increasingly difficult.