Via Financial Times

Some 3,500 metres above sea level in the desolate mountains of southern Peru lies one of the world’s biggest untapped deposits of copper. 

Quellaveco — or Ash Mountain — contains enough copper to wire 90m electric vehicles, according to its owner Anglo American, which is spending at least $5bn to unlock this vast natural bounty.

A great deal is riding on the project not just for Anglo, which has been transformed under the leadership of Mark Cutifani over the past six years, but also for Peru, where mining is the mainstay of the economy accounting for 10 per cent of gross domestic product.

Anglo is still scarred by a disastrous Brazilian iron ore project called Minas Rio and has not tried to build an entirely new mine in more than a decade. As for Peru, its president Martin Vizcarra was born in the local town of Moquegua and helped broker the 2012 agreement with local residents that underpins the project.

“This is a very important project for Anglo,” said Sam Catalano, analyst at Credit Suisse. “There is still a good portion of investors who are wary of Anglo’s large project delivery credentials post Minas Rio. If they can deliver Quevalleco on time and on budget it will put a lot of those fears to bed.”

But Quellaveco is important for other reasons, not least because it highlights some of the challenges facing the industry to sustainably produce the raw materials — particularly copper — needed for the shift to a low-carbon economy.

Map showing the location of the Quellaveco copper mine in Peru

“Quellaveco may be one of the last, if not the last [open cast] mine of this size and scale,” said Tom McCulley, head of Anglo American in Peru.

For most of the last century, the industry has responded to the challenges presented by ageing mines and declining ore grades by digging deeper and crushing more rocks. As a result it now takes double the amount of water and 15 times the amount of power to produce 40kg of copper than in 1900, according to the company.

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But this approach is increasingly at odds with a more environmentally conscious society. There have already been protests at Quellaveco by residents who claim Anglo has not honoured commitments made in 2012, especially on local employment and the environment,

“It’s contradictory that the company is claiming to be a climate leader, expanding its copper operation for the good of the planet, but it’s also happy to do so at the expense of communities, climate-critical ecosystems and vital water sources,” said Lucio Cuenca, director of the Latin American Observatory for Environmental Conflicts.

Like most of the world’s big miners, Anglo believes copper has the best long-term prospects of any leading commodity. 

As the world moves to cleaner sources of energy, copper — which is a very efficient at conducting electricity — will be increasingly in demand as more solar panels and wind farms are connected to the grid and the use of electric cars grows. 

A graphic with no description

However, big easy-to-mine copper deposits are becoming harder to find and most of the world’s big producers — a group that includes BHP, Codelco, Glencore and Freeport-McMoRan — are focused on expanding existing mines rather than new projects. Quellaveco is one of just a handful of large copper deposits being developed in the world.

Anglo acquired Quellaveco in 1992 but the project was not given the green light until July 2018, by which time its owner had “derisked” it by a selling a 40 per cent stake to Mitsubishi.

Anglo has been wary of developing new mines since Minas Rio, which it bought in 2008. The project ran years late and billions of dollars over budget.

Company executives say the longer gestation period for Quellaveco has given them a far better understanding of the deposit than at Minas Rio and time to secure all of the main permits before starting construction.

At Quellaveco, the company is planning to use a fleet of 30 autonomous trucks to haul rocks to a giant crushing machine. The pulverised ore will be placed on a 3.5km conveyor belt and sent through a hillside to a processing plant. Here it will be turned into feedstock for copper smelters and trucked to a port 165km away.

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However, the biggest engineering challenge has been changing the course of the Asana river — a main water source for Moquegua and the surrounding area. That has meant building a dam across the river valley and boring a tunnel through another mountain to send the river around the mine and back to its natural course — at a cost of $20m.

Building a new mine high in a river valley does have some advantages, said project director Christoff Kühn during a visit to the site. The Asana river has stripped away much of the waste rock and soil lying over the deposit, he said, leaving a layer of copper not far below the surface.

For the first five years, mining will focus on this area — with the aim of Anglo and Mitsubishi recouping their investment in just four years.

Overall, Anglo executives estimate Quellaveco contains enough copper to support 100 years of production — its official reserve life is 30 years — and say the mine has been constructed so that new technology can be easily introduced. 

One of the innovations Anglo is working on is called “coarse particle flotation”, a processing technique that will boost water recycling.

Water management is a key issue in Peru where there is a high risk of drought. Mines are heavily dependent on water to extract minerals from crushed ore and Quellaveco is no exception — it needs 22m cubic metres of water a year to function.

Anglo insists none of the water will come from the Asana river after construction is completed. Instead, it will take 18m cubic metres of water from a contaminated river higher up in the mountains and the rest from another river where the company is building a reservoir that will also be used to supply the local community.

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However, its plans have alarmed some activists who say the company has been responsible for the contamination of water and the displacement of communities across South America. 

“Anglo-American’s operations in Colombia, Chile and Brazil already face major community opposition for a long trail of devastating impacts on ecosystems, territories and water,” said Sebastian Ordoñez Muñoz, senior programmes officer at War on Want. 

Bar chart showing the largest copper mines by estimated production in tonnes thousand

Of course, the company sees things differently and said it has responded to the concerns of communities in Peru by spending $400m on water related infrastructure. It has also spent $30m of a $300m community fund to improve relations with locals. 

“Most of the protests are protests of opportunity not of: we don’t want you around,” said Mr McCulley. “These communities are poor . . . They may bring up an environmental issue, a job issue, but it is more: can you do something to help us?”

At peak construction, 14,000 people will be employed at Quellaveco, with 5,600 from the local community. Once the mine is in production that number will fall to 2,500.

If everything goes to plan, it will produce its first copper in 2022 and reach full capacity 18 months later. By that point it will be churning out 330,000 tonnes of copper a year.

If that target is met it will cap a remarkable turnround for Anglo, which was at a low ebb when Mr Cutifani joined. Under his leadership, the company has slashed its debts, slimmed down and dramatically improved its operating performance. His next goals are to deliver Quellaveco and roll out new technology.

“I’d like to be able to say we have delivered it . . . I think that is the right time to talk about succession,” he told the Financial Times in a recent interview.