They may be less than a meter tall but they have conquered a Goliath: Chile's vulnerable Humboldt penguins have thwarted -- for now at least -- a billion dollar mining project in one of the country's most depressed regions.

The rare species is only found on the coasts of Peru and Chile, which has created the National Humboldt Penguin Reserve -- but it's also an area rich in natural resources which has put the animals on a collision course with mining giant Andes Iron and their $2.5 billion project.

Conservationists jumped to their defense when the company unveiled plans to construct a huge open-cast mine and a port near the reserve, 600 kilometers (250 miles) north of Santiago.

The Dominga mine would have produced 12 million tonnes of iron ore a year, making it the biggest of its kind in the country, and 150,000 tonnes of copper.

For months it made headlines amid a bitter national debate over economic development and environmental conservation that was fought out on social media and split the socialist government of Chilean President Michelle Bachelet.

The project was rejected in March by an environmental commission but Andes Iron appealed the ruling.

In August, a special cabinet committee which included the energy and mines, health and environment ministers, finally vetoed the project citing of a lack of guarantees for the penguins.

Humboldts have been protected here since 1990, when the reserve was set up to encompass the islands of Dama, Choros and Gaviota, a stunning nature trail beloved of whale, sea-lion and penguin watchers.

- Thousands of jobs -

Rodrigo Flores, vice-president of the fisherman's union in nearby Punta Choros, a jumping off point for tours of the islands, welcomed the move.

"Dominga is an invasive project, for nature and for society," he told AFP. "It is incompatible with a place considered a hotspot of biodiversity at the global level."

But that's not everyone's view.

Joyce Aguirre is one of the project's staunch defenders in the local community of La Higuera.

"Every project has an impact," she said, arguing that the government had a duty to come down on the side of jobs.

"We want to be vigilant and watch what's going to happen. We are the ones who live here and we would never want to damage the area."

The region is among the most underdeveloped in Chile and many locals lament the loss of thousands of jobs promised under the plan.

Conservation NGO Oceana warned of the risks to the ecosystem from the mine, whose port terminal was set to be built only 30 kilometers away from the island of Choros.

The conservation group argued that increased shipping traffic, with its greater risk of oil spills, would do untold harm to a known cetacean migrant route and pristine waters that provide a rich food source to several vulnerable species including the sea otter.

"I've been diving in other areas and I've seen that residue from mining activity is noticeable on the ocean bottom, killing all existing life," said fisherman Mauricio Carrasco. "That's what we're afraid of."

- Constant pressure on reserve -

In Punta Choros, 160 families in the fishing community play an official role in watching over the penguin reserve, an area of 880 hectares which is home to 80 percent of the species.

Recent studies have shown the water to be pristine, largely due to conservation efforts.

But the reserve "is constantly under threat from mega-projects," warned Liliana Yanes, regional director of the National Forestry Office in Coquimbo.

French giant Suez was forced to pull out of a project to build a power plant in Barrancones, near Choros, in 2010. The then-president Sebastian Pinera demanded that the power plant be built elsewhere after thousands of people protested.

Around 60 kilometers away in the town of La Serena, part of the population has come out strongly against the U-turn on the Dominga project.

"We feel the disappointment, as Chileans, because the government is clipping our wings," said Marta Arancibia, adding that the region was one of the poorest in Chile.

She is a member of a residents association which signed an agreement with Andes Iron in which they promised to invest heavily in local education, healthcare and potable water projects.

"The state hasn't been present for us over the last 20 years, so we see these private enterprise projects as opportunities," said Aguirre, who also signed the agreement.

Andes Iron has signalled its intention to continue the battle in Chile's environmental court and if necessary, take it all the way to the Supreme Court.

Round one to the plucky penguins, though it seems the war has only started.

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