Mining is a major component of the Chilean economy. The world’s largest copper mine, Escondida, is located in the country and copper accounts for almost ten per cent of GDP and close to half of Chile’s exports. Many large copper mines are ageing, however, and the supply of high-grade ore has diminished. Copper miners are increasingly forced to exploit copper sulphide deposits, using a process that is more water-intensive. BHP, which is one of the largest copper miners in the country, however, has committed to ceasing the consumption of freshwater by 2030. It has invested in seawater desalination plants to enable it to do so.
The country is keen to develop its vast lithium resources. About two-thirds of global lithium reserves are located in South America and Chile alone possesses almost 60 per cent of the world total. Most of the lithium produced in Chile is extracted from salt flats in the hostile Salar de Atacama, located in the north of the country.
Water security is a major impediment to the expansion of the Chilean mining industry. Chile is a water-rich country, with 50,000 cubic metres of water available per person per year. That water is not equally distributed, however, with the vast majority of it located in the southern Patagonia region. In the Salar de Atacama, the water supply declines to 208m3/person/year, similar to parts of the Middle East.
The lithium mining process involves pumping lithium rich brine from a depth of 20-40 metres below ground, into evaporation basins. There the water evaporates over a period of several months until slag remains. That slag is mined and transported to refineries near Antofagasta, where seawater desalination plants are increasingly being used to supply the water necessary for processing. An analysis by the Chilean Government’s Committee of Non-Metallic Mining suggests that the amount of water pumped out of the salt flat is 21 per cent higher than the amount that filters in. Lithium production in the Salar de Atacama consumes about 1.5 million litres of water for every tonne of lithium carbonate produced, leading the government to impose new restrictions on mining operations. In 2019, the number of prohibition areas more than doubled, meaning that no new water licenses can be awarded in those areas and extensions to existing permits need to be approved by environmental authorities.
In December 2019, a Chilean court upheld a complaint by indigenous communities in the Salar de Atacama, who claimed that the expansion of mining operations threatened their water supplies. A report by the United Nations Conference on Trade and Development claims that mining operations account for 65 per cent of the water consumed in the Salar de Atacama, and that water withdrawals have a big impact on regional quinoa and llama farmers. It is not clear, however, what percentage of that is freshwater. While mining operations consume relatively little freshwater, there are concerns that freshwater could flow into aquifers after the brine is removed and thereby reduce supplies. The hydrology of the region is not well understood, however, and different interests use different models to support their claims. An earlier investigation by a Chilean environmental regulator found that one of the country’s largest lithium miners, Sociedad Química y Minera de Chile (SQM), had overdrawn aquifers in its mining operations. The court was not convinced that SQM’s new operational plans are capable of ‘containing and reducing or eliminating the negative effects generated by the breaches of the company’. That decision threatens to delay further investment into the country’s lithium mining industry, at a time when it already faces considerable economic headwinds.
The price of lithium has declined from its peak in 2018. Average prices have continued to decline, reaching levels last seen in 2014 during the first quarter of 2020. That decline is mainly due to an oversupply of lithium and a reduction in demand for electric vehicles, mainly in China. Lithium demand is still expected to increase over the next decade, however, particularly as European countries implement new environmental laws and introduce subsidies for electric vehicles.
Due to the economic headwinds that the sector is experiencing, SQM delayed the planned expansion of its mine in the Atacama salt flat until the end of 2021. The spread of Covid-19 in Chile could add another delay to that expansion as many new mining projects have been delayed and, in some cases, cancelled entirely. Chilean lithium production is expected to decline by 20 per cent in 2020. Those delays, however, could provide the industry with additional time to explore alternative, and less water intensive, methods of lithium extraction.
As the country with the largest lithium reserves, Chile will naturally be keen to develop a strong lithium mining sector. Water remains the main impediment, however, and a lack of access to it will frustrate those plans. Desalination could allow copper miners to expand their operations in the country, without consuming more freshwater. Lithium miners are also investigating methods to conserve water and move away from the brine evaporation model. If they are successful, Chile could rapidly retake the crown as the world’s leading lithium supplier.