Chile's government on Wednesday torpedoed a controversial billion-dollar mining project due to be built near a nature reserve that is home to a rare species of penguin.

Environmentalists had criticized the proposed open-pit mine and port project in the north of Chile close to the National Humboldt Penguin Reserve due to its potential ecological impact on a unique area known for its natural diversity.

The $2.5 billion project was unanimously rejected by left-wing President Gabriel Boric's cabinet.

"We are confident that a robust, traceable, evidence-based (decision) has been adopted here," said Maisa Rojas, the environment minister.

The project aimed at extracting millions of tons of iron ore and thousands of tons of copper in an impoverished area of northern Chile around 450 kilometers (280 miles) from Santiago, the capital.

But the area comprises a nature reserve encompassing three islands that are home to 80 percent of the world's Humboldt penguins, which are an endangered species, as well as whales, sea lions and the world's smallest otter species.

- 'Unique ecological value' -

Chilean company Andes Iron, which also wanted to build a treatment and deposits plant, a water desalination plant and a port for loading minerals, said it would appeal the decision.

"The port is in a place that has an absolutely unique ecological value," said Rojas.

When taking office in March 2022, Boric's government had expressed its rejection of the port's construction.

"The Dominga project doesn't just comply, but exceeds all standards and is aligned with principles established by the government for sustainable industrial and mining projects," Andes Iron said in a statement.

That was disputed by Matias Asun, the director of Greenpeace Chile.

"It's a project that not only does not meet the norms required for approval, but was also pushed by the main groups associated with corruption in our country," said Asun.

Right-wing opposition senator Matias Walker branded the decision as political.

Activists, though, applauded the decision.

"I'm defending my home, the place where I live, which is pristine," Maud Ferres, an activist who opposed the project and had traveled to Santiago to hear the decision, told AFP.

However, Alexis Sanchez, spokesman for a community association in La Higuera, where the mine would have been, said the project would have provided economic opportunities for the village of 3,700 people.

"This is project we want to achieve our development to stop being one of the poorest communes in the country," Sanchez told AFP.

Had it been approved, the Dominga project would have involved the extraction of 12 million tonnes (tons) of iron ore a year along with 150,000 tonnes of copper, over a 22-year period, making it the biggest such venture in Chile.

Andes Iron promised to create 10,000 direct jobs and 25,000 indirect ones during the construction phase of the project.

Once operational, the company said the mine would have created 1,500 direct jobs and 4,000 indirect ones.

- Pandora Papers scandal -

Andes Iron's Dominga mine project has had a controversial history in Chile.

It first underwent an environmental impact evaluation a decade ago before it was rejected in 2017 by the socialist government of then-president Michelle Bachelet.

But under her conservative successor Sebastian Pinera, the supreme court ordered a new evaluation.

The controversy then turned into a scandal in 2021 when leaked documents known as the Pandora Papers implicated Pinera -- then serving his second nonconsecutive term as president -- in a seemingly shady deal surrounding the Dominga project.

Dominga was sold through a company owned by Pinera's children to a businessman close friend of his for $152 million.

The leaked papers said a large part of the operation was carried out in the British Virgin Islands, a tax haven.

Despite the embarrassing revelations, the Senate voted against impeaching Pinera -- it failed to reach the two-thirds majority needed to do so -- thus sparing him a potential jail sentence of up to five years.

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