Codelco said its relationship with Ecuador and Enami was based on a 2008 binational agreement and the subsequent signing of multiple agreements by the two nations and the two countries. In 2015, Enami and Codelco signed the terms of a shareholder agreement to form a joint venture company to take Llurimagua forward.
In 2016, Codelco notified Enami it had completed all the landmarks agreed and following negotiations.
In 2019 both groups agreed the definitive terms for the JV company, which has yet to be constituted, in which Enami would own 51% and Codelco 49%.
Although Enami owns the Llurimagua mining titles, it is unable to negotiate the Codelco agreement alone. Ecuador's energy and non-renewable resource ministry and the attorney general are also involved. Frustrated by the delays, Codelco wrote to Ecuador's attorney general in November 2020 requesting the start of "friendly conversations" to complete the Llurimagua agreements.
With Ecuador heading into the second round of a presidential election this weekend, the announcement by Codeclo could be viewed as insensitive to the local political situation or a deliberate ploy to force the hand of the incoming government by presenting it with an international controversy.
However, the potentially mercurial political situation in Chile is leading Codelco to exert pressure to conclude the Llurimagua agreement and keep its geographical diversification options open as mining investment risk in Chile rises.
Chileans go to the polls in May to elect a constitutional assembly to re-write the constitution, with a presidential election following in October along with elections for the entire Chamber of Deputies and half of the Senate.
Voter sentiment favours a windfall tax increase of 3% or more on copper to pay for COVID-19 measures, and miners face legislative measures including a revocation of their rights to use continental water sources in addition to restrictions on operating near glaciers.
"Codelco's senior management has been calling for diversification for years but the Chilean government has not allowed that. They would like to move now, before elections create a more left wing (nationalistic) government at the end of the year. Hence the strategy to invest in Ecuador," John Price, of Americas Market Intelligence, told Mining Journal.
Llurimagua is expected to progress to pre-feasibility in 2023, with potential production of 210,000 tonnes per year of copper for 27 years. However, with Enami unlikely to be able to fund its share of project development costs, in 2020 it said it would look to auction its 51% interest in Llurimagua once it had completed formation of the JV company, potentially for at least $600 million.
While Codelco has the first option on the Enami interest, there are questions about its ability to fund the project development given its extensive investment commitments back in Chile and so its end game may be to formalise the JV to then be able to monetise its participation.
