The situation of this place was admirably adapted for commerce, from the excellence of its harbour; as the bay extends six miles from east to west and nine miles from north to south, defended at its entrance from the sea by the pleasant island of Quiriquina. The passage into the bay on the north side of this island, called the bocca grande, is about half a league broad, and has sufficient water for the largest ships. That on the other side of the island, or bocca chica, is very narrow, and is only navigable by small vessels. The soil around this place, under the influence of an admirable climate, produces abundance of timber, excellent wine, and all the necessaries of life, and is not deficient in the valuable minerals; and both the sea and the adjoining rivers afford great quantities of fine fish. But owing to the lowness of the situation which was chosen for this city, it was much exposed to inundations of the sea during earthquakes, which are frequent in Chili. On the 8th of July 1730, this city was nearly destroyed by an earthquake and inundation; and experienced a similar calamity on the 24th of May 1751. In consequence of these repeated calamities, the inhabitants established themselves on the 24th of November 1764 in the valley of Mocha, nine miles south from Penco, between the rivers Andalian and Biobio, where they founded a city to which they gave the name of New Conception. The harbour named Talgacuano, situated at the south-east extremity of the bottom of the bay, is between six and seven miles from the new city; and a fort is all that now remains of the old city, now called Penco.

Perceiving the intentions of Valdivia to occupy the important post of Penco by a permanent settlement, the adjacent tribes of the Pencones gave notice of this invasion to the great nation of the Araucanians, their neighbours and friends, whose territories began on the southern shore of the Biobio; who, foreseeing that the strangers would soon endeavour to reduce their own country to subjection, determined to succour their distressed allies for their own security. Accordingly, in a butacoyog, or general assembly of the Araucanian confederacy, Aillavalu was nominated supreme toqui, and was instructed to march immediately with an army to the assistance of the Pencones. In the year 1550, pursuant to the resolutions of the Araucanian confederacy, Aillavalu passed the great river Biobio, at the head of 4000 men, and boldly offered battle to Valdivia, who had advanced to meet him on the banks of the Andalian. The brave Araucanians sustained the first discharges of musquetry from the Spaniards with wonderful resolution, and even made a rapid evolution under its direful effects, by which they assailed at once the front and flank of the Spanish army. By this unexpected courageous assault, and even judicious tactical manoeuvre, the Spaniards were thrown into some disorder, and Valdivia was exposed to imminent danger, having his horse killed under him; but the Spaniards replaced their firm array, forming themselves into a hollow square supported by their cavalry, and successfully resisted every effort of their valiant enemies, of whom they slew great numbers by the superiority of their arms, yet lost at the same time a considerable number of their own men. The battle remained undecided for several hours; when at length, rashly pressing forwards with impetuous bravery, Aillavalu received a mortal wound65, and many of the most valiant officers and soldiers of the Araucanians being slain, they retired in good order, leaving the field of battle to the Spaniards, who felt no inclination to pursue them after a so dear-bought victory.

Valdivia, though he had been present in many battles, both in Europe and America, was astonished at the valour and military skill of this new enemy, and declared he had never been exposed to such imminent danger in the whole course of his military service. As he expected to be soon attacked again, he immediately proceeded to construct a strong fortification for the protection of his new city; and in fact, the Araucanian confederacy was no sooner informed of the defeat and death of their general Aillavalu, than a new and more numerous army was ordered against the Spaniards, under the command of Lincoyan, who was elected to the vacant office of supreme toqui. From his gigantic stature, and frequent displays of courage, this officer had acquired great reputation among his countrymen; but, though well suited for a subaltern officer, he was timid and irresolute in the supreme military command, and greatly disappointed the expectations which had been formed from his former behaviour.

Having marshalled his army in three divisions, Lincoyan marched in 1551 to attack the Spaniards under Valdivia, who still remained at Conception, occupied in building and fortifying the new city. The Spaniards were so much alarmed by the approach of the Araucanian army, that after confessing themselves, they took shelter under the cannon of their fortifications, where the Araucanians boldly assailed them. But, finding the first assault unsuccessful, Lincoyan became apprehensive of losing the army which had been committed to his charge, and ordered a precipitate retreat, to the great surprise of Valdivia, who was apprehensive of some stratagem, and did not venture upon attempting a pursuit. When it was discovered that the enemy had actually retreated, the Spaniards considered their flight as a special favour from heaven, and some even alleged that they had seen the apostle St James, mounted on a white horse, waving a flaming sword and striking terror into their enemies. But the only miracle on this occasion proceeded from the timid circumspection of Lincoyan.

Being now in some measure freed from the restraint imposed upon him by the Araucanians, Valdivia applied himself diligently to the building of the city of Conception, for which place he entertained a strong predilection, as he considered that it would become the centre of maritime communication between Chili and the ports of Peru and Spain. Although he had fixed upon St Jago for the capital of the kingdom of Chili, he determined upon establishing his own family at Conception; for which purpose he selected a pleasant situation for his own dwelling, reserving for himself the fertile peninsula between the rivers Andalian and Biobio, and resolved to ask as a reward for his services the two adjoining districts of Arauco and Tucapel, with the title of marquis: For, although these districts still remained in the possession of the Araucanians, he fully expected to be able to subjugate that valiant people in a short time.

Having speedily reared the new city, in which he established a colony of his followers, he employed the remainder of the year 1551 in regulating its internal policy; for which purpose, after having established a Cabildo or body of magistrates, in imitation of those in Spain, as usual in all the cities of Spanish America, he promulgated a body of fundamental regulations, comprised in forty-two articles or statutes, some of which respecting the treatment of the natives within its territory and jurisdiction evinced much prudent humanity; yet, as in all the other subjected countries of America, he left them in a great measure subject to the control and caprice of the citizens to whom they were allotted.

After the settlement of his new city, and having received a reinforcement of soldiers from Peru, he resolved to attack the Araucanians in their own territories, believing that their courage was now entirely subdued, as they had made no attempt to molest him since their late repulse under Lincoyan. With these views, he passed the Biobio in 1552, and proceeding rapidly through the provinces of Encol and Puren, unopposed by the tardy and timid operations of Lincoyan, he arrived at the river Cauten, which divides the country of the Araucanians nearly into two equal parts. Near the confluence of this river with the Damas, he founded a new city which he named Imperial66, in honour of the Emperor Don Carlos; though some say that it received this name in consequence of finding some wooden figures of eagles with two heads, fixed on some of the native huts. This city was placed in a beautiful situation, abounding in all the conveniences of life; and, during the short period of its existence became one of the most flourishing in Chili. Being placed on the shore of a large and deep river, capable of allowing large ships to lie close to the walls, it was excellently situated for commerce, and had free access to receive succours of all kinds by sea in case of being besieged. By modern geographers, this place is still spoken of as an existing city, strongly fortified, and the seat of a bishopric; but it has been in ruins for considerably more than two hundred years.