Remote possibility of radical measures in Chilean mining

Chile’s mining industry could face its biggest transformation since the nationalizations of the 1970s, as a convention dominated by leftist and independent members drafts a new constitution. But there are reasons to think that the most radical proposals will not prosper.

On Tuesday, the Environment Commission of the Constitutional Convention approved a proposal to nationalize the copper and lithium mines. Last week, the same body voted in favor of canceling mining operations that threaten indigenous lands. Any of these measures, if implemented, would disrupt Chile’s economy, global metals markets and the clean energy transition.

Although one industry group called the approval of the nationalization “barbarity”, the market reaction was moderate, with some mining shares reducing their gains, while the peso fell.

This is because motions tabled in the Environment Committee — which is packed with young activists — face a tougher test in the Convention plenary, where a two-thirds majority from an ideologically more diverse group is required. .

Claudio Fuentes, political analyst and professor at the Diego Portales University, said that the most radical proposals will face a complex scenario in the plenary session, since the commissions do not represent the composition of the entire Convention.

wide base

And even if the radical measures manage to be incorporated into the Magna Carta project in the coming weeks, the document must still obtain the support of the citizenry in a referendum in the second half of the year. A rejection of the bill by Chilean voters would end the process and prolong the status quo. That provides motivation to write a document that is acceptable to a broad base.

At first glance, the landslide victory of leftist Gabriel Boric in December’s presidential runoff suggests that those charged with drafting the new constitution have carte blanche to enshrine their environmental and social views in the new Magna Carta.

But Boric defeated his conservative rival only after toning down his approach after coming second in an earlier vote. The 35-year-old president-elect then appointed the central bank’s president, the centrist Mario Marcel, as finance minister. All this indicates that there may be behind-the-scenes pressure to moderate the most radical factions of the Constitutional Convention.

Another drawback to expropriating assets from private companies is the hundreds of billions of dollars in compensation. Those payments would jeopardize efforts to increase social spending and reduce inequalities, the goals that triggered the constitutional process. If Chile chose not to pay, it would find itself in international courts.

serious risks

One of the arguments in favor of nationalization — managing the price of copper — may not hold up under increased scrutiny as the constitutional process progresses, given that the metal is traded on international markets.

Still, the risk of jeopardizing some of the world’s largest copper and lithium mines — and the foreign and local private companies that operate them — is far from nil.

For Juan Carlos Guajardo, who runs the Plusmining consultancy, the fear is that it involves serious risks because there is a great reformist spirit and little willingness to listen to the technical arguments of the mining business.

If expropriating assets and rescinding concessions seem like a long shot in a nation known for its clear, stable and investor-friendly rules, less radical proposals that set time limits on concessions may stand a better chance.

The copper industry has lobbied hard to maintain the indefinite concession model, arguing that it is essential for long-term planning that underpins investments.

Permits for new projects may be more difficult to obtain, as the new constitution prioritizes the environment, including scarce water supplies, and communities over economic development.

For the time being, companies like Freeport-McMoRan Inc. and Lundin Mining Corp. are delaying their investment decisions until there is more regulatory clarity. Adding to the uncertainty is a congressional bill that would increase taxes on mining.

The copper and lithium supply chains are also closely following the constitutional process. Chile has the largest reserves of both metals and almost US$70 billion in potential mining projects for this decade, investments that are crucial if the world wants to stop using fossil fuels.