A new constitution in Chile: What changes could occur for the mining sector?

After the comfortable triumph of the Approve option in the referendum of October 25, a complex process of election of conventionals begins, who will have to write a new Constitution. What modifications could mining have on their pages? We spoke with the lawyers Cristian Quinzio and Ernesto Barros to elucidate the possible changes that could occur for the sector in the coming years.

Until the second mining code issued in Chile, the one dating from 1888, the country founded its economy on the agricultural sector. This changed with the War of the Pacific and the annexation of Antofagasta and Tarapacá, where the wealth of nitrate and its high demand made the country put special concern about this sector.

Since then, Chile has based its economy on mining, and today it is a key sector for the country’s growth and the financing of social policies in pursuit of a better future. Faced with a new constitution, one wonders what role the mining industry will play in it, what aspects could be modified, and how this could affect the mining sector.

Some history

But the path that national mining has traveled over the years has been varied. As the main constitutional milestones, it is necessary to highlight the first major approach to the interference of the State in mining, which occurred in 1955. “This occurs concerning how copper was exported, by the North American companies that exploited Chuquicamata, Salvador and El Teniente, who did so at values ​​estimated by their parent companies, and the true profits were given in the parent companies with the subsequent sale”, the lawyer Cristian Quinzio explained, during a talk at the Institute of Mining Engineers of Chile. “Law 11,828 is enacted, called the New Deal Law, which creates the National Copper Commission as a department of the Central Bank, to endorse copper exports, which allowed establishing the first tribute in the sector”.

During the government of Eduardo Frei Montalva, the first phase of the Chileanization of copper mining began, through Law 16,425 of 1966, where the State of Chile would participate as the initial owner of 25% of the property of differentmining companies such as Chuquicamata, Salvador, El Teniente, and Andina, having over the years to have 51%.

Subsequently, the candidates for the presidency of 1970, Radomiro Tomic, and Salvador Allende, agreed to further Chileanization, and fully enter into nationalizing the large copper mining industry. This materialized with Law 17,450, which was approved unanimously and promulgated on July 16, 1971, and which led to the creation of Codelco.

“This law is fundamental, because for the first time the treatment of the original domain of mining wealth is incorporated constitutionally, and it is incorporatedconcerning the property right that was contemplated in article 10 of the 1925 constitution, as a treatment of the original domain of mining wealth with four attributes”, said Quinzio.

These four attributes are absolute domain (characteristics of the civil domain, use, enjoyment, and disposition), exclusive (no one can threaten it), inalienable (cannot be transferred), and imprescriptible (which cannot be lost over time by the State).

Under the military regime, the Ortúzar Commission was created to study a new constitution, which culminated in the 1980 constitution. There, the mining sub-commission was created, chaired by Samuel Lira Ovalle, which decided that to attract mining investment it was necessary to reverse the measures adopted in the Allende administration regarding the nationalization of copper, specifically about the mining domain.

“That mining domain was changed from an original domain of a patrimonial nature such as the one we have today with those four attributes, for an eminent domain, which means that it only gives the power to the State to dispose of mining wealth and to put requirements for such an arrangement”, Quinzio explained. “Colonel Gastón Frez, who led Codelco, convinces General Pinochet that what was being proposed in the mining area was not good for the state company, because it threatened its permanence in time by changing the nature of the domain”.

Subsequently, Pinochet asked the lawyer Carlos Ruiz Bourgeois to draft a new article for the constitution different from that of the Ortúzar Commission, where two things were determined: that the domain of the State of a patrimonial nature should not be discussed, because the patrimonial domain is necessary of the State on mining wealth, and to encourage the entry of capital to Chile or investment in mining, it was essential to create the strength of the figure of the mining concession.

The concession title, according to the 1980 constitution, indicates that it is protected by the constitutional guarantee of property rights, and also contemplates obligations and confers rights that will be established in a constitutional organic law. “In this way, it closes the domain issue and the issue of individuals, giving real strength to the rights of individuals. This governs us to this day in matters of mining domain”.

Mining and the new constitution: a necessary conversation

“It is natural that all kinds of questions arise, and also some levels of uncertainty”, said attorney Ernesto Barros. “But having said that, I believe that the Constitutional debate does not change the nature of a country or things, Chile is and will continue to be a mining country. The question is on what and how should a Constitution pronounce itself regarding those central issues that constitute or impact mining. In my opinion, the Constitutional debate should focus on the consecration and guarantees of essential principles, not necessarily regulating the activity itself”.

Barros explained that the principles are that minerals are public goods, not renewable, and belong to all Chileans. “At the same time, their exploration and exploitation, be it state or private, require a stable, fair, and clear regime. There is a lot of consensus on that. Chile has a mining destination, and that destination has to protect and preserve it, but also update and deepen it”.

For his part, Cristian Quinzio pointed out that the nature of the mining state domain, with the characteristics of absolute, exclusive, inalienable, and imprescriptible, would not enter into this discussion. However, the mining concession, and in particular the concessionaire’s need to satisfy the public interest that justifies the granting of the concession, would be a matter for discussion. “That is to say, the need to keep the concession in force is not enough with the payment of a patent, but that an effective mining activity is required”.

“Personally, I am in favor of continuing to strengthen the institution of the mining concession, and of continuing to strengthen the mining industry”, said Quinzio. “But I believe that the industry has been very reluctant and has been too conservative in accepting changes to the regulations in force, which are convenient and necessary for the benefit of the mining activity and its favorable perception by the community”.

In this regard, Barros assured that the sector must prepare to hold a fluid conversation and with data that show the role of mining in the development of the country. “The new Constitution is a great opportunity for dialogue and good agreements. Being a proactive and non-reactive actor, breaking with the idea or practice that miners take care of themselves. For this, it is necessary to offer a clear and shared diagnosis of the results of national mining during the last 40 years”.

To this, Barros added that “before discussing the rules, a comprehensive inventory of assets and liabilities generated by the mining industry must be made and offered and finally offer a vision of the development of world mining in the next 30 years and the role that Chile can have. In short, install and promote a dialogue based on the general interest and with verifiable data.”

Concessions, royalties, and investment

For Cristian Quinzio, regarding to concessions, one should opt for a single type and not two as it is currently (exploration and exploitation). “Hopefully we can discuss the benefit of having a single type of concession in order to check that the interest of the constituent is effectively fulfilled, that the overlapping of mining concessions with exploration concessions are avoided, that hoarding and non-compliance of the duration are being avoided, limited of the concession because that is not being fulfilled. I think it is essential that the guarantee of property rights be maintained as it is today for the mining concessionaire because it is a fundamental tool to promote activity.”

Likewise, the lawyer added that another topic that will be in the discussion is related to the mining royalty. “Let’s think about the benefits of a mining royalty. Let’s not think about the cons of incorporating it as an obligation of the dealers. A mining royalty has much more freedom of destination and would allow us to transform the regions into mining allies by contemplating that at least half of the royalty goes to the benefit of the regions, and the other half, for example, goes to direct benefit to education, through research and development, which is what they wanted to do in 2004, without success until today”.

On the other hand, Quinzio pointed out that lithium’s unavailability should be reviewed and discussed, given its relevance in research and development. In this regard, he explained that Chile declared the lithium reserve in 1979, and since then the State “has done absolutely nothing. The only thing that it has done is recently, to grant a Special Operation Contract for the Exploration, Exploitation, and Benefit of Lithium Deposits (CEOL in Spanish) to a Codelco subsidiary to be able to take advantage of lithium in the Maricunga salt flats”. Quinzio also recalled that the contract was given in 2018, and since then there has been no progress in the matter.

Finally, the lawyer considered it important that Chile should consider a tax stability agreement for new projects. “We are clear that these mining investments require many conditions, and that one of the most important conditions is the maintenance of the rules under which they are approved, and I believe that those rules should remain unaltered for the duration of the project, which they have countries like Peru, Argentina, Brazil, and others”, he concluded.