Mining is the economic engine of Chile. Indeed, the mining industry in Chile has been historically the most significant economic activity in the country. Chile has been blessed by nature with a large amount of mineral resources and, for this reason, during the last 100 years, mining has been - and will continue to be in the future - the main source of economic growth and development for the country. Geographically and geologically, Chile has favourable conditions for mining activities, combining attractive mineral resources with short distances between extraction sites and exporting facilities, which, in addition to large-scale government investment in transport infrastructure during the past 15 years, makes transit through the country swift, easy and safe.
Chile is the world’s number one producer of copper, iodine, rhenium and molybdenum. Chile is also the world’s number two producer of lithium, which is forecast to increase in the years ahead. The mining sector accounts for approximately 10% of Chile’s GDP.
The state-owned COLDECO, the largest copper company on the planet, operates the primary mining sites in Chile: Chuquicamata and El Teniente, the biggest open pit and underground mines in the world, respectively.
The mining legal system seeks to promote the exploitation of mining resources, establishing clear rules for those who invest and assume the risk of mining activity. Chile’s most important mineral resources are copper, molybdenum, silver and gold, exploitation which is concentrated mostly in the north, in the Antofagasta and Atacama Regions.
The Chilean mining regime is based on a civil legal system and it is regulated in three fundamental statutes:
The Political Constitution of the Republic of Chile states that the State is the absolute, exclusive and permanent owner of all mines, including metalliferous sands, salt pans, coal and hydrocarbon deposits, with the exception of surface clays.
The ownership of the State is independent and notwithstanding the rights of the owners of the surface land. An absolute distinction among ownership over surface land and ownership over the mining concession over the same piece of land exists (on the understanding that they are completely independent assets, even in cases in which they are both held by the same individual or entity). Note that the Constitution mandates that surface property shall be subject to the obligations and limitations established by law in order to facilitate mining exploration and exploitation as well as mineral processing, but these owners of surface lands must be compensated.
The State grants individuals the opportunity to acquire, explore and exploit mineral deposits, through a mining concession granted by the courts of justice.
The mining concession is always established by a judicial decision issued by the judge of the territory in which the concession is located. The founding process established by law must be duly complied with, otherwise the rights arising from these concessions may be subject to cancellation. The judicial resolution declaring the establishment of a concession must be registered in the corresponding Mining Registry/Register. Once this registration is completed, any transfer or granting of any in rem right over the concession must be executed by means of a public deed.
The territorial extension of mining concessions makes up a solid block, the upper face of which is, from a horizontal perspective, a right-angled parallelogram, and whose depth is indefinite within the vertical layouts that limit it. The parallelogram can be located by U.T.M. (Universal Transverse Mercator) Coordinates, and the length and width of the parallelogram must be oriented north to south.
In Chile the role of the State in mining is that of a grantor-regulator, but as previously expressed in 1.3 Ownership of Mineral Resources, the State is the absolute, exclusive and permanent owner of all mines and grants individuals or entities the opportunity to acquire, explore and exploit mineral deposits, through a mining concession granted by the courts of justice.
There is no mandatory national or government joint venture, contracting or participation.
Mineral rights in Chile have a constitutional basis but, as outlined in 1.2 Legal System and Sources of Law, it is also regulated in the Constitutional Organic Law on Mining Concessions, the Chilean Mining Code and the Mining Code Regulation.
In this context, mineral rights do not have the status of property because they are defined as a concession granted by the state over the minerals. Notwithstanding, the property rights held by the concessionaire over its concession are guaranteed under the constitutional right of (and to) property.
It is important to mention that Chilean mining legislation acknowledges two forms of mining concessions: (i) an exploration concession, with a duration limited to two years, which grants its holder the exclusive right to investigate and prospect the existence of all mineral substances that may be granted in concession; and (ii) an exploitation concession, with an indefinite duration, which grants its holder an exclusive right freely to explore and exploit the exploitation concession and become the owner of all the mineral substances (metallic and non-metallic) that are extracted from within the limits of the exploitation concession, with the sole exception of the minerals that the law has reserved to the State.
In general, according to the mining law, after the concession has been established, its owner shall be empowered to make works required for exploring or exploiting the mine.
The owner of an exploration concession has the exclusive right to investigate and prospect the existence of all mineral substances that may be granted in concession; and the owner of an exploitation concession has the exclusive right freely to explore and mine his or her concession, becoming owner of all mineral substances mined within the limits of the concession.
Both the exploration and exploitation concessionaires have the right to impose easements or rights of way over the surface properties necessary for exploration works and for stockpiles, processing facilities, energy and communications systems, access roads, pipelines, channels, housing, and, in general, any other ancillary or supplementary facilities or components necessary for free and unconstrained exploitation of the mining concession.
As previously stated, the granting authority in Chile are the courts of justice.
The main national mining authority is the Ministry of Mining, whose mission is to generate, promote, disseminate and evaluate policies and standards that optimise the country's sustainable mining development, maximise its contribution to social economic development and consolidate its international leadership.
From a technical point of view, the main government body in mining issues is the National Geology and Mining Service (Servicio Nacional de Geología y Minería - SERNAGEOMIN), which advises the Ministry of Mining on geology and mining issues. This agency has an important participation in the procedures of establishing mining concessions, reviewing the technical aspects of the same, as well as in the approval of the exploitation’s methods and the closure’s plans of the mining projects. In addition, it performs geological studies and inspection works, to keep a special record of all the established/existing mining concessions over the Chilean territory and to supervise compliance with the Mining Code Regulation, among others.
There are no jurisdictional overlaps because there is a central administration responsible for the technical aspects and the courts of justice are responsible for granting concessions on mineral rights through judicial resolutions. However, these mineral rights can be transferred to third parties through private contracts, which must be registered in a Mining Registry.
Any natural person or legal entity, Chilean or foreign, is entitled to acquire or request a mining concession in compliance with the requirements established by law, with the exceptions mentioned in the Mining Code. However, there are some limitations/restrictions for foreign persons or entities regarding lands located close to the country borderline.
Both kinds of concession are granted after a judicial writ is submitted to the competent court. The date of initial filing for the establishment of a concession determines the preference to exercise the rights arising from the concession that is being established/founded. The law presumes that whoever first submitted for the incorporation of the exploration or exploitation concession is the discoverer.
An exploration mining concession is granted for a period of two years and is renewable for another two years. Holding this type of concession gives priority to those applying for an exploiting mining concession, which is granted to the requesting party without a time limit.
Both forms of mining concessions are in rem rights, enforceable upon the State and any other individual or entity. They can be freely transferred, transmitted, and encumbered by mortgages or other forms of in rem collateral if formal requirements are met, which are similar to any sale of property in the related regulation.
In addition, they are inherently conditional because, according to the mining law, the owner of the mining concession has the obligation to pay a yearly mining licence, to the benefit of the State, which is calculated based on the surface of the concession and the type of concession. The non-payment of the mining licence may give rise to an auction process affecting the concession. The highest bidder may acquire the mining concession, in the value of the unpaid mining licences. If there are no bidders in the auction, the judge must declare the land on which the concession is located as a "free land".
The grounds for extinction of termination of a mining concession are expressly stated in the law. Mining concessions can be extinguished by
The main environmental laws in Chile are Law No 19,300 (the Environmental Framework Law), Law No 20,417, which created the Ministry for the Environment, the Service of Environmental Assessment (SEA) and the Superintendence of the Environment (SMA) and Supreme Decree No 40/2012 that approves the regulation of the Environmental Impact Assessment System (SEIA).
Thus, the main agencies overseeing environmental issues are the Ministry of Environment, the SMA and the SEA. In addition, regarding mining, SERNAGEOMIN plays a relevant part in every aspect of the project and in the planning and approval of the mine closure procedure (regulated by Law No 20,551).
This regulatory structure is set on a nationwide basis and forces all regions of the country to follow an administrative process once the regional office of the SEA where the project is located has received environmental approval applications. This process has some differences, depending on whether the project is subject to an environmental evaluation through an environmental impact declaration (DIA) or environmental impact study (EIA). The DIA is needed for minor projects where the potential impact to the environment is limited, whereas the EIA focuses on major and more environmentally perilous activities.
Mining projects (including phases of exploration and mining) are expressly mentioned as one of the activities subject to the SEIA in accordance with the provisions of Articles 10 letter i) of Law No 19,300 and 3 letter i) of Decree No 40/2012. These Articles define the strict characteristics that these mining projects must have in order to be subject to a mandatory evaluation before the SEIA environmentally (for example: projects whose mineral extraction capacity exceeds 5,000 tons per month)
With regard to the efficiency of environmental authorities, it should be considered that the SEA, once receiving the required documentation, has 60 or 120 days to communicate a decision on the application (DIA and EIA respectively). However, in practice the SEA on average approves environmentally the projects in ten months in the case of DIA and 16 months in the case of EIA.
After an administrative process, the SEA will issue a resolution that will allow the construction, operation and closing of the project and certify that it complies with the applicable environmental regulations (RCA).
The SMA is the authority responsible for monitoring and sanctioning compliance on environmental regulations (including RCA).
Protected Areas (PA) are regulated in Chile and they are legally defined as “Portions of territory, geographically delimited and established by an administrative act of competent authority, placed under official protection in order to ensure biological diversity, protect nature preservation or conserve environmental heritage”. The National Forest Development Corporation (CONAF) manages them.
In Chile there are 15 categories declared under official protection for the purposes of the SEIA, which are congruent in part with those established in the Washington Convention as they are the most important (for example: National Parks).
Article 10 letter p) of Law No 19,300 establishes that the projects or activities that may cause environmental impact, in any of its phases, which must be submitted to the SEIA “the execution of works, programmes or activities in national parks, national reserves, natural monuments, reserves of virgin regions, nature sanctuaries, marine parks, marine reserves or in any other areas placed under official protection, in the cases that the respective legislation permits”.
In this regard, the SEA has interpreted that not every project (including mining projects) that is intended to be developed in a PA must enter the SEIA simply because it is located there. Characteristics of the magnitude and duration of the impacts of the projects should be considered and how these affect the object of protection, which is resolved on a case-by-case basis.
Additionally, in accordance with the provisions of Article 17 of the Mining Code, special permits must be obtained before certain authorities in the case of development of mining projects in certain areas. The most relevant from the environmental perspective are: i) from the Regional Major, to execute mining work in places declared national parks, national reserves or natural monuments; ii) from the President, to carry out mining work in “covaderas” (guano deposit) or in places that have been declared of historical or scientific interest.
Mining projects that are environmentally evaluated in the SEIA have a stage of citizen participation (the EIAs and the DIAs in specific cases) whereby any interested party can comment on the project, which must be reviewed by the authority and answered by the owner of the mining project if appropriate.
In turn, the Mining and Society Unit of the Ministry of Mining helps strengthen the relationship and trust between mining companies and local communities from the early stages of a mining project (exploration). It also facilitates the participation of local communities in the identification and implementation of economic and local development opportunities. In addition, this department encourages the development of alliances between mining companies, local communities, and NGOs, encourages the development of education and training instances for local residents to qualify in mining jobs, and disseminates policies and/or good social practices in regions/communities associated with mining operations, among other tasks.
Prior and informed consultation is not mandatory in Chile for mining projects (unless there are indigenous communities located in the area, as explained in 2.5 Specially Protected Communities).
However, once a mining project enters the SEIA through an EIA, it must have a citizen-participation process for the communities to make their observations regarding the Project (PAC). In specific cases, the PAC is contemplated in the DIA. In both cases, this process is carried out by the State through the SEA.
There is a special status for indigenous lands and natural resources within the national territory. Law No 19,253, the Indigenous Law, and Convention 169 of the International Labour Organization (ILO) set this status.
This Law entered into full force in Chile in 2009, confirming the right of indigenous communities to be consulted regarding any rule, law or resolution that may affect them directly — a practice known as “prior consultation.” In the same year, the Ministry of Development and Planning issued Supreme Decree 124, which requires that the consultation be carried out through State agencies. This decree ends by limiting the range of applicability of the right to prior consultation by linking it to the result of the SEIA, required by the government in some cases.
According to this legislation, indigenous people cannot be detached from their land by any means without the approval of the Indigenous Development National Corporation (CONADI).
Because of the aforementioned law and regulation, the exploitation of a mining project might be hindered, thus the mining company must be aware of any indigenous land affected by its operations.
In Chile it is common for mining companies to have development agreements with communities that are close to the project site. However, they are not mandatory.
In the event that the mining project must enter the SEIA, there may be so-called “voluntary environmental commitments” in which development agreements can be included.
Minera Escondida is an example of good environmental and community relations/consultation behaviour. Operated by BHP Billiton, it is located in the Antofagasta region and produces copper concentrate and cathodes. It is the mine with the highest copper production in the world.
This is a good example because the company has not had any environmental problems or contingencies and promotes sustainable development in its operations. For example, in 2018 it inaugurated the largest seawater desalination plant in South America (with a treatment capacity of 2,500 litres/sec). In addition, Minera Escondida is highly involved with communities, consulting and communicating company decisions, providing support on important issues, and encouraging the development of different areas. For example, they promote “The World Class Supplier Programme” which has been designed to develop new solutions for the operational and environmental challenges faced by BHP operations in Chile, while strengthening the capacity of the company's suppliers so that they can compete in the international arena.
However, there are numerous examples of mining projects that may not have optimally managed their community relations, most of them developed in the Atacama and Antofagasta regions. In many of those cases, they reach judicial instances delaying their operation and even closing the project after a long process of administrative and judicial claims carried out by the communities.
The main conflicting issues have been indigenous consultation (ILO Convention 169) and the use and impact of water resources.
In the project “El Morro” (owned by Goldcorp and located in the Atacama region), the Supreme Court suspended the project, and ordered a new indigenous consultation process in accordance with ILO Convention 169, which implies leaving the RCA without effect.
After this ruling, Goldcorp started a joint venture with Teck, called “NuevaUnión” which combined and optimised their projects El Morro and Relincho, respectively.
In this new project, a very important effort is being made by both companies to develop initiatives that allow a good community relationship. In fact, this is one of the few mega projects in Chile that has carried out an extensive and complete consultation of the communities before entering the SEIA.
In 2017, Chile ratified the Paris Agreement on climate change, where it pledged to continue developing policies in this regard and move towards achieving sustainable development goals. The Agreement was subscribed by 195 countries in December 2015, during the Conference of the Parties to the United Nations Framework Convention on Climate Change (COP21).
In that context, some mining companies have been renewing their strategy on how to address different environmental issues, placing sustainability at the centre of its operations and emphasising its importance. Some of the initiatives that certain mining companies have taken voluntarily to deal with climate change are: i) set a target to reduce forecast carbon dioxide emissions; ii) encourage sea water consumption for their operation; iii) encourage renewable energy sources for their operation. Good examples of these initiatives are:
The Ministry of the Environment, through the Office of Climate Change, is leading the process of preparing the Draft Framework Law on Climate Change, through a broad participatory process in order to gather the vision and experience of the different key actors of society.
This law seeks the establishment of principles, governance systems, management instruments and adequate financing mechanisms, which allow movement towards a development low in greenhouse gas emissions, reduce vulnerability, increase resilience and ensure compliance with international commitments assumed by the State of Chile to face the challenges that climate change imposes.
Once this law is passed, Chile would be the first developing country that would establish by law carbon neutrality. The target is to reach that goal by 2050, fulfilling what is required for science and the commitment acquired in COP21.
Although it is not possible yet to determine how mining projects should meet that goal, regulations will probably be incorporated that will affect the mining sector.
As indicated in 3.1 Effects and 3.2 Legislation and Proposals, there are different legislative and private initiatives related to sustainable development in Chile.
An important legislative initiative related to sustainable development in the energy sector was completed in 2013 when Law 20/25 was passed, which contemplates reaching 2025 with 20% of electricity generation in the country's energy matrix with unconventional renewable energy (NCRE). That goal has already been exceeded.
Concerning income tax, the Mining Industry is subject to the general tax system. In Chile, companies have to pay the Corporate Income Tax (CIT) at the rate of 25% in the Attributed Regime or 27% in the case of the Partially Integrated Regime.
In addition, the owners must pay Global Complementary Tax (residents) at a progressive rate ranging from 0% to 35% or the Additional Tax (Withholding tax) (non-residents) at a fixed rate of 35%. In both cases, the Corporate Income Tax paid by the company is creditable against these final taxes. It is important to know that the credit corresponds to 100% or 65% of the CIT paid, depending on whether the Attributed Regime or the Partially Integrated Regime is applicable, respectively.
In addition, there is a specific tax on the mining industry, which is a profit-based tax, and which is applied over the operational mining income of the company. The rate of the specific tax depends on the annual sales and in the mining operational margin of the taxpayer, according to the following:
In Chile, there are no special tax incentives for the mining industry, but they can use the general incentives provided for all other activities. For example, they can apply for special VAT exemptions related to investments in fixed assets and for exportations.
Related to tax-stabilisation agreements, Law No 20.848 established that, in order to assure the application of the current tax rates, foreign investors could apply to sign new invariability contracts up to December 31st of 2019. Notwithstanding, it is important to note that the Foreign Investment Contracts previously signed maintain their validity and assure the tax rates established in their clauses.
The transfer of property of a mining project is subject to the general tax regime. Therefore, the seller must pay taxes over the profit made at the correspondent regime rate applicable.
Besides, Chilean tax law regulates specifically the case of transfer of property through foreign corporate structures, determining that if there exist underlying assets located in Chile, the operation is taxable.
Chile is a global mining leader, has an excellent geographic location and years of experience to be a strategic partner in innovative projects that add value to the global mining industry.
Currently, Chile is the world’s biggest producer of copper, iodine and rhenium. In relation to other minerals, it ranks second in the production of molybdenum and lithium, third in the extraction of boron, and fourth in the production of silver. It has 22% of the planet's copper reserves, and 52% of the world’s lithium reserves.
The country also has a mature, transparent and stable market. It is highly technological and harbours specialised human capital that can facilitate the development of a cluster of suppliers that meets world-class standards.
The largest mining companies in the world operate in Chile and the investment forecasts are for more than USD60 billion over the next seven years.
In Chile there are programmes and government agencies that encourage investment in mining projects. Of particular note is the "Invest Chile" government agency responsible for promoting Chile in the global market as a destination for foreign direct investment and the "Office of Sustainable Project Management" (GPS), which has boosted foreign investment trying to reduce the time to obtain permits.
Additionally, the current government and mining minister are fully pro-investment and have tried to make a series of efforts to raise new capital.
The main regulations for foreign investment are: i) the Law of Foreign Investment (Law No 20,848), which replaces Decree-Law No 600 and creates the new legal framework for foreign investment; and ii) the Special Tax for the Mining Industry (Law No 20,026), which is a special regulation concerning taxation over mining activities.
Regarding the new Law of Foreign Investment, it is important to note that it replaces Decree-Law No 600, while maintaining, however, some of its benefits. Decree-Law No 600 was one of the mechanisms established enabling capital flows into Chile.
Under this optional mechanism, foreign investors were authorised to bring capital, physical goods or other authorised forms of investment into Chile, through the execution of a foreign investment contract with the Chilean state. However, under Law No 20,848, foreign investment contracts shall not be entered into with the Chilean state - investors’ rights shall be evidenced through a certificate granted by the Foreign Investment Promotion Agency.
In the past 30 years, the Chilean economy has progressively become more open to the world. Under this policy, Chile has signed free-trade agreements with more than 60 countries and regions, the two most important being those with the United States and the European Union.
Particularly in the mining field, Chile has two important treaties: (i) a Mining Treaty with Argentina; and (ii) a Mining Treaty with the Asia-Pacific Economic Cooperation (APEC). In addition, Chile has signed several double-taxation treaties with Argentina, Canada, Mexico and South Korea, among others.
The Mining Treaty with Argentina created a permanent body whose mission is to review and propose legislation and solutions to binational controversies and difficulties that any mining project may have. One of the main examples of the execution of this treaty is the Pascua Lama project (Barrick).
Regarding APEC, Chile is an active participant in identifying modern solutions to mining problems and delegates of the Ministry of Mining concern themselves regarding the most recent situations in the international forum.
In Chile, project finance is the main source of financing for large-scale mining projects. Local commercial or syndicated loans are the source of financing or refinancing for medium-sized or small-scale mining projects. However, there are some mining companies on the stock market, to date; the stock market does not play a significant role in the financing of the Chilean mining industry.
In some cases the bond market is also a good available alternative, though only a couple of mining entities have issued bonds, either domestically or internationally. Recently, the purchase of a royalty, associated with future production of a mine, has appeared as an alternative to finance.
A good example of companies specialised in financing mining projects is “Mineria Activa”. Created in 2008, the company manages private equity investments in the Mining Industry. It currently has assets under management for USD160mm and is constantly looking for mining prospects at different stages, from mining property with no studies to productive projects. The company seeks control of the projects in which it gets involved and is focused geographically in Latin America with a special interest in Chile.
As indicated in 5.4 Sources of Finance, the stock market does not play a significant role in the financing of the Chilean mining industry. Project finance is the main source of financing mining projects.
It is globally known that the Chilean legal framework is effective, simple and fairly stable and is a leader in respect of security over mining tenements and related assets in the context of exploration, development and mining finance, compared to other countries in the region.
The granting of concessions through transparent, legally established procedures gives the necessary legal certainty to both national and foreign investors alike and is currently praised abroad. These conditions have provided a concrete incentive for national and foreign mining investment in Chile.
Nevertheless, public policies that contribute to the development of the industry cleaning uncertainties in the regulatory field must be strengthened, in order to simplify and accelerate the granting of permits (currently, in Chile there are over 400 types of permits that are granted by 53 different public entities, of which the greatest number that must be obtained are for mining projects).
However, it is important to mention that Chile is working on this issue. A clear example is the creation of the GPS, which is specifically in charge of co-ordinating the obtainment of permits for investment projects (speeding up response times) as well as maintaining the standards of environmental protection at all times, and proposing regulatory or management reforms that would improve the investment environment in the country (with an important focus on mining projects).
The annual 2018 survey of the Canadian study centre “Fraser Institute” has placed Chile in sixth place among the world’s most attractive countries in which to invest in mining. It also considered it to be the most attractive place in Latin America to invest in this field.
Moreover, lately Chile has again been sought after by investors. This situation is reflected in the investment portfolio that has been registered by the GPS for the 2019-2023 period, which reaches USD33,000 million (of which 74% corresponds to the private sector and 26% to Codelco). It should be emphasised that 82% of this investment is concentrated in the regions of Tarapacá, Antofagasta and Atacama.
Furthermore, besides copper, Chile has countless other resources that have been exploited on various scales for decades. This is the case with lithium, which went from being considered a contaminating element, to becoming highly sought after by industrialised countries today. In fact, Chile, together with Bolivia and Argentina, concentrates almost 70% of this resource in the so-called "Triangle of Lithium".
Considering this, the main challenges for the mining industry in the coming years are believed to be: