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Chile miners sanguine about change

Chile’s mining sector is sanguine about a raft of possible regulatory changes facing the sector with 2022 representing the biggest upheaval in mining regulation in a generation.
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Paul Harris in Santiago, Chile

The Mining Code was amended in February, the Water Code in late March, a mining royalty is likely to be imposed in the coming months and a process to draft a new constitution is likely to strengthen environmental laws.

Despite the current uncertainites regarding future mining regulation and taxation, Chile continues to draw investment. "We have seen a number of deals recently with South32 [which bought a 45% stake in the Sierre Gorda copper mine in February] and Capstone [which merged with Mantos Copper in November 2021 to create Capstone Copper. Investment is not slowing down despite people acknowledging that it will become more expensive to do business in Chile," a Santiago mining layer told Mining Journal on the sidelines of the Cesco Exploration Forum.

While press headlines have focused on far-fetched proposals by the committees of the constituent assembly to ban mining in indigenous lands or to nationalise mining, the real impacts on mining of the new political consitutiuon are likely to be very different and much lower key, Marcelo Olivares of Quinzio & Olivares Abogados told delegates at the Exploration Forum.

"Climate change and ecology, the rights of nature, waste management and the protection of biodiversity are things which can really impact mining rather than the headline grabbers," he said.

As things stand, small, fury animals increasingly have the ability to halt a project in its tracks. Gold Field's has faced delays in the advancement of its Salares Norte project and been fined related to the relocation of a population of chinchillas. Michael Jones, CEO of Los Andes Copper, told delegates that a drilling programme at its VIzcachitas copper project is currently suspended after the company received a court injunction because the vibrations from drilling disturbed the Viscachas rabbit which is the main food of the endangered Andean mountain cat, which has been spotted within the project area in recent years.

Opinion is divided on what the outcoe of the constitutional process will be given the "pot pouri" of proposals coming from the various committees, the vast majority of which seem to have little to do with the issues which sparked a social crisis in Chile in 2019 and lead then president Sebastian Pinera to agree to the drating of a new constitution.

"Alleviation of the increasing cost of living, pensions reform, unaccessible education, and improving the poor public health system were the claims of the 2019 social crisis. None of these issues have been addressed in the proposals for the constutution," a leading Santiago mining analyst told Mining Journal.

While the nationalisation of economic activity including mining is highly unlucky to make the final draft constution in July, which the population will then vote on in September, efforts to confer rights on the natural world would be just as problematic, if equally unlikely to prosper. "If you give rights to the natural world, you won't be able to do anything," said the analyst.

With social issues not being addressed, the people of Chile may face a tough choice between voting for a new constitution which does not alleviate social issues, or rejecting it and remaining with the 1990 constitution, which for some is viewed as the constitution of former dictaror Augusto Pinochet, although this is a misnomer.

 "The idea that it is the Pinochet constitution is false. (Centre left president's) Edwin and Frei amended it, and Ricardo Lagos (also centre left) amended it 55 times," said the analyst.

While not involved in the drafting of the new constitituion, the new government of Gabriel Boric is thought likely to press for its adoption, warts and all, because it is a document drafted by the people. "Boric may only have a limited time with a positive public approval rating as there is so much expectation of change and only so much change he can try and do. Change takes time," the lawyer said.

One change likely to occur in the coming months is the implementation of a new mining royalty, with the Boric administration hitching its wagon to a bill already passing through Congress. "Boric has committed to a tax reform to pay for the social promises he made and he is going to adopt the royalty bill already before Congress which was introduced in 2018 by the Communist Party. The Ministry of Finance has reiterated that while there will be a royalty, Chile has to continue to be competitive," said the analyst.

The majority of large mines in Chile currently enjoy tax stability agreements but a large proportion of those are due to expire in 2023. With the initial 2018 royalty proposal including an ad valorum royalty rate of up to 12% being reworked into final figures which are likely to be more palatable to the sector, it is thought mining companies will voluntarily accept it, even before the expiry of their stability agreements.

One of the next big company projects to reach the investment decision stage is likely to be the development of a second concentrator at Antofagasta Minerals' Centinella operation. The company is cautious, but hoping to make a decision this year.

"We are in the final stages of engineering and we plan to take it to the board before the end of year. We would expect to have clarity on the changes in taxation and any key change coming out of the constitutional convention. Chile has been served by the mining industry since its inception as a nation, and if are more demands on the social agenda in the future that are legitimate, mining plays a key role in satisfying those demands, Ivan Arriagada told Mining Journal.

Taxation aside, some of the most impactful changes for the mining sector going forward may have already been implemented via the February modifications to the Mining Code which come into effect in February 2023, said Olivares.

These include the obligation of mining concession holders to provide state geological survey Sernageomin with all their geological information every two years without Sernageomin requesting it, or face a fine, the implementation of a use it or lose it mining concession system to disincentise companies holding concessions without undertaking exploration or mining work. Coupled with this will be the implementation of a mining canon scale whereby the cost of holding a concession increases each year.

Potentially more impactful is the change to the Sirgas coordinate system which requires companies to restate the coordinates of their concessions with Sernageomin within 10 months. "We are advising out clients to get on top of this right now so as not to face any risk of losing their concessions," said the lawyer.