Chile govt confident that royalty bill won't advance

The Chilean mining industry faced a challenging year in 2020 and now the sector is riveted by potential legislation on copper and lithium mining royalties.

BNamericas spoke with mining minister Juan Carlos Jobet about international interest in new projects, the role that integrated operations centers play in women's inclusion and why the mining royalty bill is considered unconstitutional.

BNamericas: You recently presented 33 investment projects at the PDAC annual conference. Was there interest from investors?

Jobet: Yes. We did indeed present 33 projects at the PDAC. It was a joint effort with InvestChile, which is our investment promotion agency. They were copper, iron, gold and zinc projects, although copper is obviously the strongest.

The projects are important, but so is the context. A presentation was made on the institutional framework, the geological potential and the attractiveness that the country has to develop these projects in a broader sense.

However, we’re at an early stage in the process. We have received questions, but interest is not formally expressed in just a couple of weeks.

We’ve had a good reception in general terms and despite the fact that last year was very difficult. There’s a lot of interest from companies in exploration in Chile.

Last year, for example, more than US$450mn was invested in exploration. We’re among the five countries with the most exploration in 2020, despite the pandemic. This figure represented an increase of approximately 14% compared to 2019.

BNamericas: Do investors continue to trust the country as a place with legal certainty?

Jobet: Yes, absolutely. The reception we’ve had is very good.

Mining is a long-term business and investors know the risks they face from the point of view of business, exploration, project development, risks associated with the price of the mineral and they understand that institutional stability is very important, but they don’t judge it based on what is happening at a certain moment, but rather they look at the trajectory of the countries in a longer time horizon.

And from that point of view, Chile has been and continues to be an attractive country for investment, with a very clear regulatory framework and natural advantages.

BNamericas: Now that you mention the regulatory framework… The discussion on the mining royalty has taken hold. How do you see it?

Jobet: The first thing to say is that Chilean mining has a huge opportunity in the years to come. There’s a very broad consensus that the demand for minerals, including copper, will grow in the coming years.

Chile still has the leading position in copper exports. The discussion we have to have with parliamentarians and political actors is what is the combination of rules that will allow Chile to take advantage of this opportunity for future demand growth and for the State, and all Chileans, to capture a fair portion of the value that is generated with this production and exports of copper.

The second thing that’s important to understand is that we already have a mining royalty or a specific tax on mining, which collects more when the price is high and, therefore, the company's profits, or operating margin, is higher. This is positive because as the price is very volatile, it allows for greater income in positive cycles, but not unnecessarily burdening companies and, therefore, affecting the development of marginal projects, when prices are lower.

We hope to have a discussion on this topic. There are no vetoed discussions, but it must have good technical foundations and be within the institutional framework.

This is a bill that doesn’t fit within the institutional framework of Chile. Parliamentarians have no prerogative to modify taxes and we also have to do it calmly, not as fast as some want. Things that are done in a race, except in athletics, don't work well.

BNamericas: If this bill is unconstitutional, how do you explain that it continues to advance in the chamber of deputies?

Jobet: The government considers this to be an unconstitutional bill and has said it in all possible instances. What happens is that, despite the fact that the chamber heads declared it unconstitutional, the house voted to continue advancing it.

But this bill is just beginning its hearings and we hope that the institutional framework will be respected and, when the time comes, it will be clearly established that it’s outside the institutional framework.

BNamericas: Moving on to issues of innovation and industry 4.0, you’ve started a tour of integrated operations centers. What will be the route that you follow?

Jobet: That's right… I visited Codelco's El Teniente [copper mine], I also visited Teck's [Quebrada Blanca] and I have a couple more scheduled to visit in the coming weeks. I think they represent an advance and a way to show the mining of the future and how we’re incorporating more technologies.

BNamericas: What are the benefits of these centers?

Jobet: These centers make operations more efficient, allow more efficient use of equipment and invested capital. 

They also contribute to improvements in safety, as they reduce the rate of accidents and take care of workers, which is the most important thing on a work site.

BNamericas: Do you think that this way of operating could lead to the inclusion of more women in the mining industry?

Jobet: I’m very happy that these centers facilitate the inclusion of more women in mining operations. Although we’ve made significant efforts to bring more women into the world of mining, it is still a male-dominated sector.

Just over 9% of the positions are held by women and we need more.

BNamericas: What is the percentage of female participation in the centers you’ve visited?

Jobet: About 20-30%. It's still less than we want, but more than the industry average.

BNamericas: What is the inclusion goal?

Jobet: We’re going to make it public in the middle of the year, together with the national mining policy. Definitely 9% is very low.

BNamericas: Do you think the pandemic helped speed up these types of centers and remote operations?

Jobet: These centers have terms of design, construction, and contracting of suppliers of greater than one year, but what we have seen is that the pandemic has accelerated the adoption of technologies and has contributed to the mining industry taking risks that, under normal conditions, it probably wouldn't have taken so quickly.

What happens is that the mining industry is very capital intensive, with very large investments, so the cost of a failure is very high and that makes it more averse to innovation and risk.

BNamericas: What is expected for this year regarding green hydrogen in both mining and energy?

Jobet: In mining we hope this year to advance with concrete commitments with mining companies in the adoption of green hydrogen. We believe that green hydrogen can help the mining industry reduce its carbon footprint, especially by replacing diesel in mining trucks.

But at the same time, if the mining industry embraces the use of hydrogen, that will accelerate the hydrogen industry. It’s a win-win.

In more general terms of the hydrogen strategy, we’re going to tour Europe and Asia to promote the development of the industry in Chile. We’re going to award US$50mn to support the development of hydrogen projects. We’ve identified 40 projects and we’re advancing in regulation to have the first stage ready this year.

On the other hand, we also expect the environmental approval of the first hydrogen projects this year so that they start operating next year.

This year will be intense in the development of the strategy. We hope to also present a bill to congress with some legal modifications that will facilitate the development of the industry.

BNamericas: When does the Europe and Asia tour start?

Jobet: We're looking at the dates considering the pandemic, but it's probably June.

BNamericas: What has been the international interest in the Kimal-Lo Aguirre transmission line?

Jobet: There’s a lot of interest. It’s an important line for the national electricity system that will strengthen the connection between the north and center of the country. It’s a large and technically challenging project.

But we’ve received a lot of interest and we’re moving forward according to the established deadlines.

Photo: Mining ministry