The Covid-19 crisis has drawn attention to our role in society
07 October 2020
In an interview with Critical Resource, Antofagasta CEO Iván Arriagada shares his thoughts on the state of the copper market, the outlook for Chile following recent social unrest, and the merits of maintaining operations during the recent peak of the Covid-19 pandemic.
https://www.c-resource.com/2020/10/07/the-covid19-crisis-has-drawn-attention-to-our-role-in-society/
Covid-19 has emphasised the importance of resilience and flexibility
“I’ve been surprised by how quickly we were able to react and change very deeply ingrained working habits in response to Covid-19. We rapidly shifted over a third of our workforce to working from home and introduced a range of new sanitary protocols, which allowed us to keep operating during the worst of the pandemic in Chile. During the peak in June/July, there was a lot of discussion on whether the country’s mines should close. Looking back now, it is clear that continuing to operate was the right thing to do – both given our economic impact and because it enabled us to strengthen our resilience, enhance our risk management for our own people and support the communities around us.
In particular, the crisis has drawn attention to our broader role in society and our community relationships. In close collaboration with the authorities and community leaders, we have supported our communities on medical care and sanitation. Beyond this, we have also supported local small businesses that were otherwise thriving but needed help to bridge four to five months without orders. This ties in with another important theme emerging from the pandemic: supply chain risk. Global supply chains have proved riskier in light of quarantines and travel restrictions, causing a rebalancing towards local content and local knowledge. We’ve seen an increased potential for tapping into local expertise and further building capacity.”
The copper market will remain tight, with healthy prices
“Covid-19 and the lockdowns caused a significant contraction in copper demand in the first quarter of 2020. However, since around July we have seen a strong recovery in demand from China, the most important market. The question is now how Western markets can recover from the significant contraction in demand. However, if the current trends continue, we should be in good territory from a demand perspective.
At the same time, supply has also been impacted significantly. Not only did some operations in Peru, Panama, the US and elsewhere stop, but recycling – which supplies about a third of the world’s copper – also stopped because recycling can be labour-intensive and because of the disruptions in its trade logistics. This contraction in supply helped to balance the market by compensating for the drop in demand. We now have a tight market, which the copper price reflects. In fact, next year it is likely we will have a slight shortage in the market because demand will continue to recover at a faster rate than supply. I expect a continued tight market with copper prices above historical averages.”
Chile is at an inflection point – with potential for a strengthened social contract
“Given Chile’s economic reforms and successful growth over the past few decades, last year’s social unrest was a significant development. One must realise that since 2010, the previous impressive growth of the Chilean economy has plateaued. As a result, many people have become socially and economically vulnerable - over the past 30 years, growth in incomes allowed many to move out of poverty but now lower growth and fewer opportunities have created a sense of stagnation and increased the risk of some people falling back into poverty, for example should they fall ill or lose their job. This has been aggravated by the shortage in the provision of social services and protection by the State as a number of reforms are still being deliberated in Congress.
The constitutional referendum now scheduled for late October has introduced uncertainty but at the same time provides an opportunity to re-establish the social contract either through a new constitution or reforming the existing one. People remain divided on what this could look like and it will be some time until any constitutional changes are able to translate into new public policies and reforms that reach the people. However, if the reform process is adequately conducted it does provide a chance to improve and reform social benefits in Chile, including the provision of pensions, healthcare, education and social protection. This is therefore an inflection point for Chile. There is of course a risk that the situation could drift in a more polarised direction, causing divisions and changes that go against economic freedom and the promotion of long-term investments. However, I view it more as a chance to agree on a stronger societal foundation that would allow for increased levels of social cohesion and for investment to happen in a much more stable environment.
As for the mining industry, I expect the country will choose correctly and not move away from having a robust and predictable set of rules which allow mining investment to prosper and deliver growth in the sector as has been the case over the last forty years. People understand and recognize that Chile’s prosperity depends on having a strong mining industry - it has been contributing to the economy for over 200 years and investment and growth is required to fund in the long term the social reforms currently under discussion. Secondly, the State itself already has a stake in the success of the mining sector, through Codelco, the state-owned copper mining company. These elements provide a sense of future stability in the sector for me.”
Our industry is a key enabler for the low-carbon economy
“If you had joined the mining sector 30 years ago, you would have been told that 90% of your success depends on the ore body and 10% on sustainability-related issues, including relationships with communities. That has changed completely, especially over the last ten years. Today, sustainability comes first, as it gives mining a legitimate platform to operate from.
A crucial issue in Chile is energy. We have cheap renewable energy in the form of solar, and at the same time can produce a third of the copper that the world requires. At Antofagasta, we are on course to transition our entire energy supply to renewables by 2022. We consume a lot of energy as a sector and many see mining as an old industry that belongs to the age of the industrial revolution, but we firmly believe that more copper is part of the solution to climate change given its energy efficiency benefits. For example, copper, along with lithium, will be a key enabler for increased electro-mobility though improved battery technology and more efficient electric vehicles. In the case of Chile, with our renewable energy options, we can make green copper a reality.
Water is another important consideration. Mining uses water and in Chile some mining operations are located in arid areas. Traditionally, the industry has relied on continental water, but water availability and climate change considerations have challenged that. At Antofagasta we now use sea water for half of the needs of our operations, and we are building a desalination plant at Los Pelambres to release continental water for agricultural and other purposes in the local Choapa valley. This is another issue our industry is adapting to quickly.”
Iván Arriagada has been CEO of Antofagasta since April 2016. He has over 20 years’ experience working in the natural resource sector. Previously, Iván was Chief Financial Officer at Codelco and has held various positions at BHP Billiton and earlier with Royal Dutch Shell.