Chuquicamata's Life Underground Will Cost A Fortune, But Is Likely To Pay Off For Codelco

Chuquicamata's Life Underground Will Cost a Fortune, but is Likely to Pay Off for Codelco Chile's Codelco is planning to convert Chuquicamata, the world's largest open-pit copper mine, into an underground mine. The project is expected to be the most expensive such transition ever, with the cost of digging tunnels underneath the pit coming in at about $3.8 billion. But the investment may be worth it — it is expected to extend the mine's life by another 50 years.

Codelco is following in the steps of Rio Tinto (LSE: RIO,ASX:RIO,NYSE:RIO), which is making a $660 million investment to extend the life of its Bingham Canyon mine near Salt Lake City, Utah, from 2018 to 2029, and Xstrata (LSE:XTA), which has a AU$589 million plan to lengthen the life of its Ernest Henry mine in Queensland to at least 2024. Freeport-McMoRan's (NYSE:FCX) Grasberg mine in Indonesia will also go underground in 2016.

“Typically, the cost of mining ore will increase as a pit gets deeper,” Anthony Finch of mining consulting firm Snowden Group said. Chuquicamata is currently about 850 meters deep while Rio Tinto's Bingham Canyon, the world's deepest copper mine, is about 1.2 kilometers deep. The cost of transporting copper at Chuquicamata has become too high, as trucks use 3,100 liters of fuel each per day, driving 11 kilometers to the surface, according to Canadian Business.

For an underground mine, initial building may be more expensive, but in contrast to an open-pit mine, the cost won't increase the deeper you go, Finch said in an email interview. He said that typically at the point a mine transitions from open pit to underground, the costs will be similar. “It is not so much that the unit cost will drop, but that it would be maintained, rather than rising if the pit was continued.”