La Serena appeals court unanimously rejected a lawsuit presented by locals, which claimed the massive tailing dam had dried up a nearby stream and contaminated underground water.
Beijing had been widely expected to eliminate tariffs and quotas on rare earth shipments after a World Trade Organization panel branded them discriminatory last year.
Farmers, anti-mining activists and local leaders have opposed the project for years, claiming it will pollute key waterways for Arequipa, where the mine will be built.