Thousands of demosntrators took to the streets of Chile in 2019 to protest extreme inequalities and demand a new Constitution. (Image: José Miguel Cordero Carvacho | Wikimedia Commons..)
Chile’s constituent assembly, in charge of writing the country’s new Constitution, approved on Saturday an early-stage proposal that opens the door to nationalizing some of the world’s biggest copper and lithium mines.
The proposal, targeting mostly large-scale mining of copper, lithium and gold has yet to be approved by two thirds of the full assembly to become part of Chile’s new charter, which will be put to a national referendum later this year.
The motion, considered by analysts a direct attack on private interests given that the Chilean state already owns the underlying mineral rights, gives the government one year to nationalize companies.
These firms, which work with metallic and non-metallic minerals, as well as hydrocarbons, would likely not receive indemnification for losing their mining rights. The comptroller would determine this based on the book value of the companies, paid over a maximum of 30 years, the proposal states.
The text also states that operations and projects which began before 1993 would have to submit to environmental evaluation within three years. Concessions in excluded areas, such as those near glaciers and on indigenous lands, would be revoked.
The environmental committee — stacked with young activists — voted on a first draft of this motion in early February, triggering immediate backlash, even from Chilean authorities themselves.
Diego Hernández, president of the National Mining Society, which represents companies in the sector, qualified the idea as “barbaric” and “with clear and obvious legal errors”.
The centre-left mining veteran has said the measure targets both companies and resources, which would have a major economic and legal impact in Chile.
“Given the world’s globalization, I would expect affected companies to resort to treaties to defend their legitimate interests,” Hernández has said.
Socialist politician Sergio Bitar, who was Minister of Mines under the deposed government of leftist Salvador Allende in 1973, has referred to the initiative as “a delirious return to the past.”
Chile passed a law in 1967 requiring companies to be at least 51% owned by nationals. Four years later, the state bought the remaining 49% of shares and companies were completely nationalized.
“I recall all the problems we had trying to sell copper outside of the business circle, I remember when Congress voted not to pay any compensations to the companies for assets and lost profits, which is what I am listening [to] now,” Bitar said in an interview with MercoPress.
“One thing are dreams, wishful dreams,” the veteran politician said. “The other is reality, which shows how dependent Chile is of global powers (…) For example China now buys a third of Chilean copper, so what will be our strategy with nationalized mining companies? Lower exports?”, he noted.
Higher royalties
Chile, the world’s largest copper producer and host to the two biggest lithium miners, is rewriting its Constitution to replace a market-centric one that dates back to the military dictatorship of General Augusto Pinochet.
The nation produced 5.6 million tonnes of copper in 2021, about 25% of the total generated in the world, and has a pipeline of almost $70 billion in possible mining projects this decade, much of which would never materialize if the country nationalized its resources.
Politicians at the world’s top copper-producing nation are also fine-tuning a new mining royalty bill, which will raise tariffs on firms based on gross sales and profitability.
“We estimate that, if the new taxes are approved, Chilean copper mining companies could see their tax rates increase to as much as 80% and profit margins drop by more than 50% at current copper prices,” FTI said in its latest report.
The analysts believe that, while the likelihood of outright nationalization as proposed is small, a radical new royalty regime stands a much better chance. It could “push the Chilean tax system into pseudo-expropriation territory, especially with prices likely to stay above $4 per pound, which is where the 75% rate kicks in.”
They conclude that Chile could become the nation with the highest tax burden on copper mining, forcing companies to revisit the viability of their current and future investments.
(With files from Reuters, Bloomberg)
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