As Chile's ruling coalition suffered a crushing defeat in the election to amend the constitution, it failed to get even the 1/3 seats needed to veto the proposal. Because of concerns about radical policies, many areas, including mining, have entered a wait-and-see state of slowing investment.
Lucas Lundin, chairman of Lunding Mining, said on Tuesday that the company would suspend its next $500m investment after a recent $1 billion investment to upgrade its copper operations in Chile, while keeping a close eye on potential policy changes. While waiting on the sidelines, the multinational is discussing a multibillion-dollar project with the Argentine government.
It is important to note that Chile's ability to become the world's leading producer of copper is inextricably linked to high reserves, stable and business-encouraging policies. In contrast, Argentina, which is rich in reserves but with mediocre progress of development, has made it difficult for commercial activities to proceed steadily because of its perennial political upheaval.
With the left taking control of Chile's constitutional amendment body, it is imperative to impose stricter policies on mining companies, while raising hopes for passage of a heavy mining tax bill in the legislative process. The sharp shift in policy has also forced mining companies to suspend the pace of investment, even at a time when global demand for "green economy" goods such as copper is expanding sharply.
'We will wait and see before we invest more money into the country, and I'm sure other participants in the market feel the same way, 'Mr. Lundin said. If there is too much uncertainty in the next year or a year and a half, it is clear that we will not continue to press ahead with investment.
It is important to note that although the process of amending Chile's constitution will continue for nearly a year, the agreement signed between foreign investors and the government protects them from tax reform until 2023. But Chile's ruling coalition also suffered a crushing defeat in the provincial governor, mayor and city council elections, which made the November presidential election quite uncertain. Under the influence of the continuous unrest in Chile and the soaring copper price, the mining industry has become the focus of covetous eyes of all parties.
Mr Lentin said he understood that [Chile] wanted more revenue, but too much tax would discourage companies from continuing to invest.
