Legal and tax certainty in mining: Changes in the rules of the game?

By: Manuel Viera F. President of the Chilean Mining Chamber and CEO Metaproject

There are unequivocal signs that Chile is systematically losing “mining competitiveness”, and with it leadership in the region. The first sign corresponds to the repeated changes in the rules of the game such as tax reforms, labor reforms, increased the tax burden, reform of the pension system, strikes, elimination of DL 600 instead of perfecting it, new presidential elections, constituent assembly, and now a new Constitution is added for the Republic that generates not only uncertainty, but fear in what could result, driving away investors and with it the development that Chile needs for its social works.

The second signal has to do with the political stability of the country that generates low competitiveness, social outbreak, protests, conflicts in Araucanía, increased crime and insecurity, among others, which also affect not only the country’s image, but also impact in competitiveness.

Some multinational companies have already announced the transfer of some areas of their business to countries that give them greater stability.

It is important that those who have in their hands to change the destiny of the mining sector, through various projects that are being discussed in the National Congress, consider the importance of this activity for Chile; from the country image; the contribution it makes to the fiscal coffers; The generation of employment, the creation and introduction of new technologies, thanks in large part to the mining sector, 2.5 million Chileans stopped being poor in 2019 before the pandemic, that means that something is being done well.

The third sign has to do with public policies, these can be favorable or unfavorable in the “natural costs” that are directly related to the “natural competitiveness”, there are countries that have a large natural mining district as geological and mining potential, but Due to the absence of public policies, investment in geological exploration in the country does not flow adequately, Chile has not had new projects for more than 10 years, and the country has been stagnant for a decade, without being able to exceed 6 million tpa ( tons per year) of fine copper, this is concerning.

The fourth signal corresponds to the loss of attractiveness to invest as a country according to the annual survey of mining and exploration companies developed by the Fraser Institute that was published in June 2020, marked by the pandemic and strikes. We must remember that in 2003 Chile led the ranking, obtaining first place in 2005, it fell to fourth place when the discussion of the specific tax for mining, better known as Royalty, was consolidated. Now it falls again from place 17 to 30 among 77 participants in the Ranking, reaching 72 points. This is already alarming because since 2003 it continues to decline and there is no plan or public policy to at least contain or promote and return to the first places, this meant the loss of leadership in the region, leaving Argentina and Colombia better positioned than Chile for first time in the history of the ranking. This index has two components as an additive score:

The mining potential index (60%)
The public policy perception index (40%) which measures the impact of government policies on attitudes, fostering investment in exploration, there is still a lot to do here.
In both indices, Chile is in debt due to the absence of smart, modern public policies with a country vision.

The fifth sign corresponds to poorly designed or poorly studied laws that affect competitiveness, such as the glacier law and the law of the new Royalty, which in our opinion should be studied more in depth with all relevant industry players. If the glacier law is approved as presented, Chile would stop producing 1 million tons per year of fine copper due to the stoppage of operations near glaciers, and we consider the Royalty law perverse because it does not consider all the variables at stake. . The Chilean Mining Chamber proposes to study all cargo in its entirety, without comparing it with other countries that have other technological realities. As we are doing, we not only lose regional leadership but also the image that has been hard-won as a mining country.

We have indicated that we agree that the taxes that mining companies must pay for extracting non-renewable natural resources should be reviewed, with these new geo-metallurgical mining realities, with very low grades, increasingly hard and complex rocks, and deeper deposits. , and an increasingly expensive cost of capital, we run out of oxidized copper resources, which was a contribution in the increased production of copper; However, we insist that all aspects must be considered, such as underlying prices that are cyclical, seeking a balance between what the State must receive for extraction of the resources and the economic profitability of the mining companies in a perfect socio-economic balance and sustainable development, that is the challenge we propose.

The sixth sign has to do with the intellectual myopia of the authorities on duty to only sell raw materials, leaving many minerals contained in the concentrates to the buyer who transforms and recovers them for free, it is imperative that the mining industry must take the step towards industrialization of its mineral wealth, with it it will generate more quality jobs, increase the scientific R&D villages, and generate greater foreign exchange for the country, import substitution among other advantages. In the same way, it must replicate a national geological exploration plan at the level of all regions in order to know each mineral well and prioritize them.

The community and society in general suffers from the lack of information on the work of the industry, and the importance for the country, there is an urgent and pending task

Seventh sign the certainty or legal security for all the above it is clear that the legal and tax certainty of the country is at stake, one of the most important variables that investors evaluate before investing in projects and prospects in a country, which It is clear that Chile is ceasing to be an attractive country as a mining district, being replaced by countries such as Peru, Colombia, Argentina, Mexico, and Ecuador, meanwhile our authorities continue to think of mining as a dairy cow, but the cow is running out milk before the indifference of all sectors.

The little legal certainty in the face of the potential change of the rules generates high uncertainty; This is in addition to all the facts indicated above, to which we must add the little information regarding mining exploration; the judicialization of projects, conflicts with communities and project stoppages due to environmental non-compliance; the closure of the Winter Mine, an epic case in the history of mining; the low incentive for investors. Ultimately, if the rules change, “legal security, which is a fundamental principle of law, and is expressed when the individual or company as an active and passive subject of social relations, knowing and having to know what the current legal norms are, could be at stake. , has well-founded expectations that they are met ”, legal certainty defines us as a serious country and will get us out of this stagnation in investments.

We call on the authorities, the political world, businessmen to put down personal attitudes and put the future of the country as the dream of making a fair equitable, inclusive, safe, reliable and above all sustainable country, having as the engine of reactivation mining.