Chile's mining chamber reflects on changing times

Chile's mining sector is awaiting the result of the national referendum this Sunday on a proposed new constitution. The text contains few articles related to mining, leaving the future of the sector subject to the enactment of legislation.

In addition to this, a reform to the mining code will be implemented as of February 2023, implying increases in the fees for exploration and mining concessions, and a change to the system of geographic coordinates that delimit mining properties, among other aspects.

The sector is also waiting for details of changes to mining royalties that are likely to bring new tax burdens on copper and lithium, and on what policies President Gabriel Boric's government will implement in the areas of innovation and adding value to lithium via a public-private partnership.

BNamericas spoke with Miguel Zauschkevich, president of the Chilean chamber of mines, to find out more.

BNamericas: What do you think of the constitutional proposal for Chile?

Zauschkevich: The most worrying thing is that everything is subject to laws. If approved, the senate will be eliminated and the legal changes will be voted on by an absolute majority in the chamber of deputies. And precisely what has allowed the development of mining in the last 50 years is having mining properties awarded by court rulings. But as the proposed constitution says nothing about that, it is worrying.

BNamericas: What do you think of the reforms to the mining code?

Zauschkevich: It will lend itself to bad practices, especially due to the new protections for workers. Most miners who have mining properties want them to be producing, but since mining depends on several factors, if they are stopped it’s because it’s not the time to exploit them.

The reform also incorporated the Sirgas system to measure mining properties, establishing a term of only six months to register new inscriptions. If not, their leases will expire. This will clash with the constitutional organic law of mining concessions, since among the grounds for annulment, this form of expiration is not considered. Six months is not feasible. It should be at least two years. Those who will pay the bill will be the small miners who don’t have the professional skills or the resources to do the work so quickly. This reform will further concentrate ownership [one of the arguments of the reform is to reduce the hoarding of concessions by a few companies].

BNamericas: Some experts say that this short period would generate overlapping mining concessions...

Zauschkevich: Without a doubt. We already had this problem when applying the 1983 mining code. Repeating the scheme again will generate a large number of lawsuits due to the differences that exist between the current UTM system and Sirgas. We don’t understand why change a consolidated system. Those who will suffer the most from the consequences will be the small and medium-sized mining companies that do not have the economic capacity of a large mining company. As a mining chamber we are interested in these mining groups prospering. We have raised this problem with the authorities.

BNamericas: Regarding the tax reform, what do you think of the royalty proposed by President Boric's government?  

Zauschkevich: The problem with governments is that they ask for taxes without giving anything in return. We have the problem of ore grades that inevitably decline over time. To obtain a minimum quantity of copper or another mineral, a greater tonnage must be moved, therefore, the cost is higher. If we establish a tax on gross sales, companies with higher costs will be punished. Current taxes are on operating income and not on gross sales, which should be maintained. Not only the companies will lose, but also the workers, since if they were to close down operations, many people would be left without work.

BNamericas: The constitutional proposal establishes the right to strike without restriction. Is this a risk for mining?  

Zauschkevich: Being able to call strikes for any reason opens up the possibility of paralyzing the country's productive activity at any time. The right to strike is already regulated in Chile, but we cannot reach the point where there are no limits. Mining in Chile is more than an economic activity, it’s part of the culture of the people. In small and medium-sized mining there is a tradition of several generations, so this does not only affect entrepreneurs, but all the players in the sector.

BNamericas: President Boric has said if ‘reject’ wins the referendum, in any case he will advocate for a change of constitution. What do you think?  

Zauschkevich: There would be no problem, as long as it’s done within the congress with people who understand and are well advised to draft a new constitution.  

BNamericas: Regarding lithium, do you think the government's proposal to set up a national company based on a public-private partnership will serve to boost the industry?

Zauschkevich: The shortest way would have been to use [state minerals company] Enami, which has the power to promote the exploitation of all minerals in Chile. Part of its resources could be used for the development of lithium. It’s not necessary to create a new body, which will be more expensive and take more time. If we delay making decisions, I fear that lithium could be replaced by another mineral, there is talk of zinc, for example. The lithium bonanza could pass and we will remain only in studies and with little production. This already happened with saltpeter in Chile, when there was a great deal of exploitation during the War of the Pacific [with Peru and Bolivia], but then during the First World War Germany invented a substitute and the industry ended.

BNamericas: How are investments in mining currently?

Zauschkevich: Some large mining companies have said that if the tax reform that includes the mining royalty is approved, they will begin to review their investments. Even so, mining production continues, but it’s necessary to understand the forecast of these companies. I hope that a balance will be struck between the political authorities and the mining sector. I’m optimistic and I believe that it can be achieved.

BNamericas: Regarding the challenge of the drought affecting the country, how do you see the interest of miners in desalination plants?

Zauschkevich: Large-scale mining is capable of carrying out this type of project, but without a tax incentive, a medium-sized mining company cannot build desalination plants. Mining consumes only 3% of Chile's water supply, the rest is consumed by agriculture and other industrial sectors. And the medium-sized mines are, for the most part, near agricultural zones. So if they started building desalination plants, it would not only benefit mining operations, but also agriculture and rural water associations. Collaboration on this issue is crucial.