Not digging it

Chile’s mining industry continues to suffer under Boric’s watch.

Since President Gabriel Boric took office last March in Chile, no fewer than six mining projects have been rejected and the sector has been threatened with tax reforms that the government claims could amount to 4.1% of the country’s GDP over the next four years.

The latest victim is Anglo American’s El Soldado copper mine located in the El Melón mountains 125 kilometres north of Santiago. Anglo American has operated the site for almost two decades but in mid-July the Regional Environmental Evaluation Commission of Valparaíso (“CEA”) rejected the USD 40 million operational continuity project of El Soldado with ten votes against and just two in favour.

An executive director of a mining services business in Chile was becoming increasingly frustrated, “The decisions of the current government are not based upon credible technical arguments and very much based on ideology, making it very difficult to address the observations or propose measures that improve the proposals. Even the SOFOFA, Society for Manufacturing Development, has declared that the government is making political decisions without listening to its own technical experts.”

“The decisions of the current government are not based upon credible technical arguments and very much based on ideology, making it very difficult to address the observations or propose measures that improve the proposals.”

Executive director of a mining services business, Chile

Aaron Puna, president of Anglo American said that the company was surprised with the decision after having obtained the Consolidation Evaluation Report (“ICE”). He stated that the company would wait for the environmental qualification resolution to decide upon a course of action. The technical director of a mining company in Chile was equally surprised, “It’s impossible to imagine that Anglo American made any technical error, no one could have anticipated the authority’s change of criteria.”

The mining services executive continued, “There is no clarity in the industry as to whether this pressure is actually aimed at pressuring companies to achieve higher environmental standards or if, as many suspect, it seeks to encourage companies to be more generous with communities and with other interest groups, which presumably could improve the acceptance of the current government, which in its sixth month is the most unpopular on record.”

Chile’s copper production has been dropping for the last three years and despite continued declines in recent months; 7.2% in March 2022; 8.9% in April 2022; and 2.5% in May 2022. Nevertheless, a Mining Technology report published in May 2022 claimed that the country’s production is expected to recover by 4.7% in 2022 due to expected improvements as a result of planned mine sequencing. The commencement of operations in new mines will also include major development projects such as The Quebrada Blanca Phase 2, Esperanza Sur, Andes Norte, Los Pelambres Expansión and Santo Domingo.

“The fundamental problem of mining production is that the useful life of the mines in Chile is running out and no new projects are starting up, resulting in a persistent decline in production and in the contribution of mining companies to the national economy,” explained the mining executive, adding that “the outlook is bad and the general population is not aware of the enormous financial impact of the rejection of new mining projects.”

“The outlook is bad and the general population is not aware of the enormous financial impact of the rejection of new mining projects.”

A mining executive, Chile 

Despite declines in production and investment, on 1 July, president Boric proposed a tax reform for copper producers of more than 50,000 tonnes. Tax rates for large producers over 200,000 tonnes will range between 1% to 4% of revenue and rates for producers below 200,000 tonnes will be between 1% and 1.6%. This new tax package could result in increasing operational costs and a further decrease in mining investment. The Chamber of Mines of Chile has stated its opposition to the tax reform and claimed that the royalties were not viable for the development of the national economy.

For the time being, the uncertainty that has been created around the mining industry in Chile is making investors nervous, “The government has been characterised by constant contradictions, rectifications and lack of coordination. On numerous occasions the announcements of the new administration have been retracted and the policies adopted have been replaced by diametrically opposed policies, with examples in all areas of the Executive branch.”

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