The proposal, primarily targeting large-scale copper, lithium and gold mining, still needs to be approved by two-thirds of the plenary assembly to be part of Chile’s new charter, which will be submitted to a national referendum later this year.
The motion, seen by analysts as a direct attack on private interests given that the Chilean state already owns the underlying mining rights, gives the government a year to nationalize the companies.
These companies, which work with metallic and non-metallic minerals, as well as hydrocarbons, would probably not receive compensation for the loss of their mineral rights. The comptroller would determine this based on the companies’ book value, paid over a maximum of 30 years, the proposal says.
The text also stipulates that operations and projects that began before 1993 must be subject to an environmental assessment within three years. Concessions in excluded areas, such as those near glaciers and on indigenous lands, would be revoked.
The environmental committee – made up of young activists – voted on a first draft of this motion in early February, triggering an immediate reaction, even from the Chilean authorities themselves.
Diego Hernández, president of the National Mining Company, which represents companies in the sector, called the idea “barbaric” and “with clear and obvious legal errors”.
The center-left mining veteran said the measure targets both companies and resources, which would have a major economic and legal impact in Chile.
“Given global globalization, I would expect affected companies to use treaties to defend their legitimate interests,” Hernández said.
Socialist politician Sergio Bitar, who was mines minister in the ousted government of Salvador Allende in 1973, called the initiative a “delusional throwback to the past”.
Chile passed a law in 1967 requiring companies to be at least 51% owned by nationals. Four years later, the state bought the remaining 49% of the shares and the companies were completely nationalized.
“I remember all the problems we had trying to sell copper outside of the business circle, I remember when Congress voted to pay no compensation to companies for assets and lost profits, c am I listening [to] now,” Bitar said in an interview with MercoPress.
“One thing is dreams, wishful thinking,” the veteran politician said. “The other is reality, which shows how dependent Chile is on world powers (…) For example, China now buys a third of Chilean copper, so what will be our strategy with nationalized mining companies? Drop in exports? “, he noted.
Chile, the world’s largest copper producer and host to the two largest lithium miners, is rewriting its Constitution to replace a market-centric constitution that dates back to the military dictatorship of General Augusto Pinochet.
The country produced 5.6 million tonnes of copper in 2021, about 25% of the total generated globally, and has a pipeline of nearly $70 billion in possible mining projects this decade, much of it would never materialize if the country nationalized its resources.
Politicians in the world’s top copper-producing nation are also tweaking a new mining royalty bill, which will raise company rates based on gross sales and profitability.
“We estimate that, if the new taxes are approved, Chilean copper mining companies could see their tax rates increase by up to 80% and their profit margins fall by more than 50% at current copper prices,” said FTI in its latest report.
Analysts say that while the likelihood of outright nationalization as proposed is low, a sweeping new royalty regime has a much better chance. This could “push the Chilean tax system into pseudo-expropriation territory, especially with prices likely to stay above $4 a pound, which is where the 75% rate comes in.”
They conclude that Chile could become the country with the highest tax burden on copper mining, forcing companies to review the viability of their current and future investments.
(With files from Reuters, Bloomberg)