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.
Analysts consider the motion a direct attack on private interests since the Chilean state already owns the underlying mineral rights. The move provides the government with one year to nationalize companies.
Resource companies would likely not receive indemnification for losing their mining rights. According to the proposal, the comptroller would determine this based on the book value of the companies, paid over a maximum of 30 years.
According to a Bloomberg report, 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 president of the National Mining Society (SONAMI), Diego Hernández, has described the draft policy 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 significant economic and legal impact in Chile.
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 to the military dictatorship of General Augusto Pinochet.
SONAMI data shows Chile produced 5.6 million tonnes of copper in 2021, about 25% of the global capacity, and has a pipeline of almost US$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.
Analysts at FTI say in a report they 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 US$4 per pound, which is where the 75% rate kicks in.”
“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.
According to FTI, 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.
