Landau September 15, 2021.
This article is based on the article "Dominga, el Gran Engaño: ex Jefe de la Unidad de Geología de CMP afirma que Proyecto No es Viable Económicamente" in the online journal "Vocería virtual" (1). The article focuses on the aspects "quality of ore deposits", "production costs" and "history of the Dominga mine". Along these keywords, the interview of the Chilean journalist Lucía Escobar with the geologist Mario Rojo Lara is summarized.
In 2013, the company Andes Iron applied for the mining and port project "Dominga" in the region of Coquimbo, northern Chile. The project endangers one of the most valuable ecosystems in the world and has strongly been opposed by environmentalists since then. On their website (2) Andes Iron advertise that they produce high-quality and competitive iron ore and copper products. The investment costs are quantified at US$ 2.5 million. In mid-August, the online newspaper Vocería virtual (1) reported that this information is false. The Chilean newspaper bases its publication on investigations and expertise of the geologist Mario Rojo Lara. Being an experienced and recognized expert in uranium and iron ore mining, he worked at the Chilean Nuclear Energy Commission (CCHEN) for 11 years and at Compañía Minera del Pacífico (CMP), the largest iron ore producer on the Pacific coast of the Americas for 32 years. At CMP, he was head of the geological department for a decade before retiring.
The retired geologist knows the Dominga project very well. As head of the geology department of Compañía Minera del Pacífico (CMP), he had to review the project because it should be sold to CMP by Latin American Cooper company, the former owner. In addition, ore deposits of CMP and "Dominga" are located right next to each other, they rest on the same deposits (El Tofo district). The quality of the raw materials is evaluated by the retired geologist as follows:
Dominga is not economical
As mentioned, the company Andes Iron state on their website that they want to produce high quality and competitive products (iron ore and copper). The investment costs are quantified at US$ 2.5 million.
When the price of iron boomed in the late 2000s, Mario Rojo's department conducted metallurgical tests. These tests showed that the rock mass of their deposits were of poor quality (low concentration). As a result, the (weight) yield from the mining is too low to obtain a saleable product. For this reason, CMP canceled their research.
Then Andes Iron offered to sell the Dominga mine to CMP. The iron ore producer tested the deposits and confirmed what they already knew. After this failure "Dominga" was to be sold to Mitsubishi in Japan. At that time, however, the Japanese company was advised on all iron ore projects in South America by CMP - another flop. The next step was to sell to Chinese companies. China, however, does not exploit their own deposits which are of low quality. Why then should Chinese companies mine low-grade ore in remote countries? The Chinese have not made an offer either.
Technical Problems
The "Dominga" deposit (El Tofo district) consists of magnetite mineralized tuff. The material is below the cut-off grade (lowest grade of a raw material that is still considered to be worth mining). That means that the production costs are too high to achieve a profit. The average iron ore content of Dominga is 23%. In comparison: the average grade of the El Romeral mine near La Serena is 52%. So there much less rock has to be moved to extract iron ore.
The copper content of the Dominga mine is 0.09%. In copper mining, as little as 0.1% is considered to be unusable. Andes Iron have unusable rock, but declare it as a resource. With an iron content of 23%, Andes Iron can only extract an iron concentrate that does not meet international requirements. On international markets, the standard is 67-69 % total iron. "Dominga", however, can only reach maximum values of 64-65%. There does not seem to be much difference between 64% and 67%. However, it is necessary to know that enormously high penalties are imposed for every percentage point of iron which is not contained in the offered concentrate. Therefore, selling a 67% concentrate is much better than selling a 65% concentrate, since penalties for deviations exponentially affect the price.
Andes Iron aim to produce 12 million tons of iron concentrate per year. For that, in the meantime a capital requirement of only US$ 2.5 million is stated. Originally, Andes Iron had estimated US$ 3.2 million. This reduction has a simple reason: In mining, an investment of more than US$ 3 million represents a high risk. In order to attract investors, the capital requirements have been "adjusted". However, with this amount of money, mining at the Dominga mine is technically not feasible. According to calculations by the geologist Mario Rojo, the costs for a port and filtration plant, desalination plant and production costs amount to at least US$ 3.35 million. This does not even include the necessary stock market launch.
In response to journalist Lucía Escobar's question about whether information on ore grades or capital costs can be given arbitrarily without government agencies confirming the data, Mario Rojo clarifies: "The Servicio Nacional de Geología y Minería (Sernageomin) or any other public body do not interfere. You can declare whatever you want. You can make up a project, and if it is convincing, you can even sell it. Although there is a peer review (a quality assurance process by independent experts from the same field) as in science, there is no obligation to conduct one. Andes Iron, of course, are not interested in peer reviews. So an investor has to hire own experts to review the project point by point.
In this context, the geologist recalls the major scandal involving the gold mine Bre-X in Indonesia. No ore was found there. That's why they cheated and gold was spread over the samples. After the scandal, mineral trading floors were established in Canada and Australia with credibility testing standards. When a mining company is questioned for misleading investors, the whole country is called into question, and the image of the country deteriorates. Andes Iron's approach therefore discredits the image of Chilean mining, which is so enormously important to Chile.
Pure speculation
The geologist Mario Rojo Lara describes "the "Dominga Mine Project" as pure speculation. It is not a real „mining project". The project began in the mid-2000s. The mine belonged to the Latin American Cooper company. At the time, geologist Iván Garrido worked for them. The British investors conducted a few surveys that did not yield significant results. They therefore considered the project unprofitable despite discrete copper and gold anomalies in the iron-bearing material.
In 2009, Garrido and the Larraín Vial Group founded „Minería Activa“, an investment fund for mining companies. Soon Larraín Vial were able to attract well-known, influential families such as the Piñera Morel family and the Délano Méndez family as investors. The "Minería Activa" fund bought the Dominga mine. In 2010, the year when Sebastián Piñera became president, Andes Iron acquired the mine. Iván Garrido took over the position of Chairman of the Board and General Director, which he held until December 2020.
Although the "iron business" is very difficult, the group bought Larraín Vial without consulting with experts in the industry. The geologist Iván Garrido, however, does not have the relevant experience and also does not communicate with colleagues in the industry. He neither has in-depth knowledge of the production nor of the market. Together with his friend, the geologist Armando Signa, he "made up" the project. Iván Garrido and Armando Signa, however, are primarily financial consultants and not mining entrepreneurs.
Andes Iron are in debt and therefore have to hurry to attract investors. Also for this reason the environmental problem had to be solved. In this respect, the worries were not particularly big. It was assumed that the current government under President Sebastián Piñera would solve the environmental problem. The real worries, on the other hand, were the technical problems (see above). When these problems could no longer be overlooked, confidence was withdrawn from Iván Garrido. He was dismissed.
Mario Rojo estimates that about $250 million have been invested in the Dominga project so far - a small amount for mining. Expenditures include costs for professional studies, renting very nice offices in "Sanhattan" and a lot of lobbying. Andes Iron could have promoted the project without a lot of media hype and thus causing chaos which has brought Chilean mining into disrepute. Any outsider who examines Andes Iron's figures will recognize the false statements. Therefore, the company will not find a buyer that will make investments profitable.
The port alone could save the project. If the Agua Negra tunnel (3) is built to get from the Atlantic Ocean to the Pacific Ocean, it will be a big deal. But the construction of the tunnel will be implemented in 20 years at the earliest. It takes at least seven years to launch a mining project, if everything goes well and Andes Iron comply with the law. Usually, investors, however, insist on separating the seaside project, the port, from the land project. Therefore, the port company cannot subsidize the mining company.
The geologist Mario Rojo sums it up: "In the Dominga project, some very serious mistakes were made".
Notes:
(1) Vocería virtual 17. August 2021. Dominga, el Gran Engaño: ex Jefe de la Unidad de Geología de CMP afirma que Proyecto No es Viable Económicamente
https://www.voceriavirtual.cl/2021/08/dominga-el-gran-engano-ex-jefe-de-la.html
(2) Website Andes Iron
https://www.andesiron.com/?lang=en.
(3) Agua-Negra Tunnel
https://www.worldhighways.com/wh10/wh8/feature/agua-negra-tunnel-between-chile-andargentina
G.K. & W.K.
translated by Angelika Veelken