MAC/20: Mines and Communities

Chile: The Turbulent Waters of Pan de Azucar

Published by MAC on 2009-05-05

The mining company, Carmen de Andacollo (owned by Teck Cominco) has polluted the life of the town of Chepiquilla in Chile's Andacollo region for more than ten years. See http://olca.cl/oca/chile/chepiquilla.htm

Social organizations in Andacollo have built a campaign demanding that the government decree the area pollution-saturated, under the banner "Andacollo's children want to live". Carmen Mining operates virtually inside of Andacollo's urban area. Even though a declaration has been approved naming it an air-pollution saturated area, the declaration has not been signed by President Bachelet.

Additionally, the authorities have recently approved an increase in mining operations which will permit the extraction of water from an agricultural area and puts at risk the water supply of 30,000 people, thus only deepening the pollution crisis.

Comment by Jamie Kneen, MiningWatch Canada:

In 2001, a case was registered against the Andacollo company by OLCA and the Quebec Environmental Law Centre at the Canada-Chile Commission for Environmental Cooperation, the environmental tribunal of the Canada-Chile Free Trade Agreement (Andacollo was owned by Aur Resources at the time). Staff recommended that a factual record be created, but it was vetoed by the Council.

There is a case summary at http://can-chil.gc.ca/english/final%5Freviewccaec.cfm

The case is described in English in "Canadian Mining Exploitation in Chile, Community Rights and the Environment: Recommendations for Canadian Legislation", by César Padilla at http://www.miningwatch.ca/updir/Chile_case_study.pdf


The Turbulent Waters of Pan de Azucar

By David Pavez Torrealba

El Dia Newspaper,

La Serena

April 6, 2009

http://www.diarioeldia.cl

For decades, Carlos Erler and his family have dedicated themselves to farming in Pan de Azucar, considered the garden of the town of Coquimbo. From 2007 to the present day, every day of their lives has been accompanied by fear because they see a giant danger approaching that threatens to destroy the business they have built with great effort during many years.

Many farmers and neighbors of the Erlers are in the same situation and find themselves with the same perception. Several miles from this area the mining company Carmen de Andacollo is developing its project Hipogeno, an investment of more than 385 million dollars that employs more than 1,000 people.

The afternoon of April 9, 2007, the destiny of the farmers of Pan de Azucar and that of the mining company crossed when the Regional Environmental Commission (COREMA in its Spanish initials) approved the project's environmental rating study. The inhabitants of the region raised their voices and warned that the company's plans affect their future. The reason is that Carmen de Andacollo requires a great volume of water for its workings, a resource that will be extracted from the same aquifer that supplies water for the irrigation of some 8,400 acres, the aquifer El Culebron.

Last August, El Dia newspaper published an initial study by the mining company to determine the quantity and quality of the water in the aquifer, which concluded that extracting this resource in great quantity would put its sustainability at risk. This week a new study was published, this time by the sanitation company Aguas del Valle, which determined that if the mining company begins its extraction some 30,000 people could be left without water in Andacollo, Tongoy, Guanaqueros, Tambillo and Pan de Azucar, among other towns.

The CEO of the sanitation company, Ricardo Lalanne, confirmed that "Aguas del Valle's situation, and that of the rural potable water systems would be critical, as they are already left almost without water to meet the needs of the population."

LEGALITY

The study presented by Aguas del Valle indicates that today, without taking into consideration extraction by the mining company, the consumption of underground waters from the aquifer is greater than the supply of water. Lalanne maintains that, if the mining company begins to pump the 340 liters per second that it requires for its project Hipogeno, demand will excede the reservoir's capacity and create a grave imbalance. Based on this , his postition is clear, "Priority number one is that the aquifer remain as it is and that the extraction of water is not increased because we all know that this will kill the aquifer."

Government authorities have not shyed away from the topic. Cristian Saez, Regional Secretary of the Ministry of Agriculture, said that based on the study by Aguas del Valle "the risk that the project Hipogeno will create is evident and this information should have been taken into consideration when the project was approved."

Despite this situation, the mining company is not committing any crime and has every right to begin the extraction. It possesses the water rights and its project has followed all the regulations that the law demands, including the presentation of an environmental impact study that was approved by authorities with only 3 votes against and 14 in favor.

The mining company needs water for its works in Andacollo, it has the water and it will pump it out of Pan de Azucar. The farmers, Aguas del Valle, and the users of the rural potable water systems need water for their fields and for drinking and can see that the water will run out or be contaminated. Neither group wants the resevoir to run out, and even less for it to suffer irreversible damage.


Teck Announces US$300 Million Andacollo Gold Royalty Transaction

PR-CANADA.net (press release)

8- April 2009‎

Teck Cominco Limited announced today that Compania Minera Carmen de Andacollo has agreed with Royal Gold Inc. to sell an interest in the gold production from the Andacollo mine for US$300 million. Gross proceeds from this transaction attributable to Teck's 90% interest in Andacollo will be US$270 million. ENAMI, a Chilean State owned entity dedicated to the promotion and development of small and medium sized mining in Chile holds the remaining 10% interest in Andacollo.

Royal Gold will pay US$100 million in cash plus approximately 4.45 million Royal Gold common shares valued at US$200 million based on a 5 day trailing volume weighted average price of US$44.90 per share. To the extent that Royal Gold completes a public offering of shares prior to closing, the cash portion of the purchase price will be increased by 50% of the net proceeds of the offering and the stock portion of the purchase price will be decreased by 50% of the shares sold in the offering.

Under the agreement, Royal Gold is entitled to payment based on 75% of the payable gold produced until total cumulative production reaches 910,000 ounces of payable gold (the current projected life of mine gold production), and thereafter to payment based on 50% of any payable gold production above 910,000 ounces. As with royalty agreements in general, Royal Gold also assumes the production risk associated with the mining and processing of the gold. Closing of the transaction is subject to customary conditions, including satisfactory completion of limited due diligence, there being no withdrawal or threatened withdrawal of material project permits, and completion of concentrate marketing agreements for a specified percentage of concentrate production from Andacollo. The transaction is expected to close in the second quarter of 2009.

The transaction with Royal Gold will provide more than sufficient funding to complete construction of the Andacollo expansion project, relieving Teck of a substantial funding obligation in 2009, and will also enable Teck to repatriate surplus funds from Chile to apply to the bridge loan associated with the Fording acquisition. For accounting purposes, no gain or loss will be recorded. The proceeds received will be accounted for as deferred revenue and amortized to revenue based on the gold sold over the life of the hypogene project.

The Andacollo mine is located 350 kilometres north of Santiago. The mine is currently constructing a concentrate project that is expected to produce an estimated 168 million pounds of copper and 53,000 ounces of gold in concentrate annually on average over the first 10 years of production. The project is expected to be commissioned and achieve first concentrate production in the fourth quarter of 2009. Full commercial production is expected to be reached in the first half of 2010.

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