Codelco's Llurimagua Mining Project: A Cautionary Tale for Investors

The Codelco Llurimagua mining project, a joint venture between Chile's state-owned Codelco and Ecuador's Enami EP, has become a poster child for how environmental, legal, and operational risks can coalesce to sabotage even high-profile mining ventures. Located in Ecuador's ecologically sensitive Intag Valley, the project's fate offers a stark warning to investors: in an era of heightened ESG scrutiny and judicial activism, extractive projects in biodiversity hotspots face unprecedented risks of stranded assets, reputational damage, and prolonged litigation.

A Biodiversity Hotspot Under Siege

The Intag Valley, nestled in Ecuador's Imbabura Province, is a biodiversity treasure trove. Home to 93 endangered species—including the critically endangered Harlequin Hocicuda frog and the recently discovered Intag Resistance Rocket Frog—the region is legally protected under Ecuador's groundbreaking rights of nature framework, enshrined in its 2008 constitution. This framework grants ecosystems legal standing, allowing communities to sue on behalf of nature itself.

The Llurimagua project's original environmental impact assessment (EIA) was rejected by Ecuador's courts in 2023 for grossly underestimating ecological risks. The Imbabura Provincial Court ruled that the project would cause “irreversible harm” to the valley's cloud forests, which are vital carbon sinks and habitats for amphibians that serve as ecological indicators. By May 2024, Ecuador's Constitutional Court had finalized the revocation of the project's environmental license, leaving it in a legally suspended state with no path forward.

Legal Quagmire: Arbitrations and Write-Off Risks

Codelco's legal battles highlight the peril of operating in jurisdictions with strong ESG frameworks. In 2021, the company initiated international arbitration against Ecuador, claiming $568 million in damages for breach of contract. While the International Chamber of Commerce (ICC) ruled in 2024 that Ecuador must pay $25.3 million—covering exploration and legal costs—the decision left Codelco nursing a $542 million shortfall. Meanwhile, a separate ICSID arbitration over geological data ownership and compensation remains unresolved, adding years of uncertainty.

The financial stakes are dire. Analysts estimate Codelco faces a potential $3 billion write-off if the project collapses entirely. For investors, this underscores a grim reality: even partial legal victories in such disputes may not offset the costs of prolonged delays and reputational harm.

Community Resistance and Reputational Risks

The Intag Valley's Indigenous and local communities have been relentless opponents of the project since its inception. Their activism, bolstered by biologists and international legal allies, has successfully leveraged Ecuador's rights of nature laws to frame biodiversity preservation as a human right. This strategy has inspired similar movements globally, such as Colombia's Los Cedros forest campaign.

The human cost of resistance is stark: Global Witness reported 2,100 killings of environmental defenders globally in 2023, 70% in Latin America. For investors, this signals heightened reputational risks, as projects linked to violence or ecological destruction face boycotts, divestment campaigns, and regulatory backlash.

Regulatory Shifts and the ESG Tide

Ecuador's stringent environmental policies are part of a regional trend. The Escazú Agreement, ratified by 23 Latin American nations, mandates transparency in environmental decision-making and protects activists—a direct challenge to opaque extractive projects. Meanwhile, global investors are pivoting toward ESG-compliant alternatives. ESG-focused funds now outperform traditional investments by 18% in markets prioritizing sustainability, according to 2025 data.

In the Intag Valley itself, communities are already capitalizing on the project's suspension. Ecotourism ventures like EcoJunín and organic coffee cooperatives like Café Río Intag now thrive, offering models of sustainable economic growth. For investors, backing such initiatives aligns with ESG mandates and avoids the pitfalls of stranded assets.

Investment Takeaways

1. Avoid Stranded Assets: The Llurimagua project exemplifies how ESG non-compliance can lead to permanent write-offs. Investors should steer clear of ventures in ecologically or socially sensitive regions without robust FPIC processes and biodiversity safeguards.
2. Legal Risk Premium: Ongoing arbitrations and judicial precedents suggest Codelco's legal path is costly and uncertain. The project's unresolved ICSID case alone could drag on for years, further eroding shareholder value.
3. Reputation Matters: Companies linked to projects harming vulnerable communities or ecosystems face reputational damage that outlasts financial losses. ESG-conscious investors increasingly demand divestment from such ventures.

Conclusion: A New Paradigm for Mining Investments

The Llurimagua project is a cautionary tale for investors. In an era where courts, communities, and markets are demanding accountability for environmental and social impacts, projects like this are increasingly untenable. For Codelco and its investors, the writing is on the wall: the costs of ignoring ESG principles far outweigh the rewards. The future belongs to ventures that align with biodiversity conservation, respect Indigenous rights, and embrace sustainable economic models—lessons the Intag Valley has already etched into law.