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Chile will amend the Constitution to promote the nationalization of Copper and Lithium
Mar 14, 2022 15:57CST

The Constituent Assembly, which is responsible for drafting the country's new constitution, approved a preliminary proposal on Saturday, opening the door for the world's largest producer of copper and lithium to nationalize some mines, the Mining.com website reported.

The proposal of the Environment Committee received 13 votes in favour, 3 votes against and 3 abstentions. Last weekend's meeting, the first since the committee was established, aims to complete the vote by the deadline.

The proposal, which targets most of the large copper, lithium and gold mining projects, has not yet been approved by the deputies to the Constituent Assembly and cannot be included in the new charter for a referendum to be held in the second half of this year.

Analysts believe that the proposal is a direct violation of private interests because the Chilean government already has basic mining rights and the government has a year to nationalize the company.

Some of these companies are engaged in the development of metallic and non-metallic minerals, as well as those engaged in oil and gas, and they may not be compensated if they lose their mining rights. According to the proposal, the Auditor General will determine the maximum repayment period of 30 years based on the book value of the company.

The proposal also requires that mines and projects prior to 1993 be submitted for environmental assessment within three years. Mining rights in prohibited areas such as glaciers and indigenous lands will be revoked.

In early February, the Environment Committee, which is dominated by young activists, voted on the first draft of the proposal, which immediately sparked strong opposition, including members of the Chilean authorities.

Diego Hern á ndez, president of Chile's National Mining Association (SONAMI), called the proposal "rude" and "clearly wrong with the law". SONAMI represents the interests of enterprises in this industry.

The centre-left mining veteran said the measure would have a significant impact on Chile's economy and law, targeting both industry and resources.

"given that globalisation has become a world trend, I expect affected companies to resort to treaties to defend their legitimate interests," Mr Hernandez said.

Sergio Bitar (Sergio Bitar), a Socialist politician who served as mining minister in the left-wing El Salvador Allende (Salvador Allende) government in 1973, called the proposal a "crazy retrogression".

In 1967, Chile passed a law requiring companies to hand over at least 51% of their shares to the state. Four years later, the country bought the remaining 49 per cent of the shares and the company was fully nationalised.

"I remember all the problems I encountered when I tried to sell copper outside the business circle, when Congress voted not to compensate the company for any loss of assets and profits, as I have heard so far," Bitar said in an interview with the Atlantic News.

"first, it is a dream and wishful thinking," said the senior politician. "the second is to face the reality and consider Chile's dependence on global powers. For example, China now imports 1/3 of Chile's copper, so what is the purpose of our nationalization of mining enterprises? Reduce exports? " He said.

Chile, the world's largest copper producer with two largest lithium miners, is revising its constitution in an attempt to change past market-led policies.

The country produced 5.6 million tons of copper in 2021, accounting for 25% of the world's output, and the total investment in project construction over the next 10 years is expected to be $70 billion. If the country promotes the nationalization of resources, most projects will be out of the question.

Politicians in the world's largest copper producer are also planning a new royalty bill to raise taxes based on corporate sales revenues and profits.

"We expect that if the new tax law is passed, the total tax rate of Chilean copper mining enterprises will be as high as 80 per cent, and the profit margin will fall by more than 50 per cent at the current copper price." FTI pointed out in the latest report.

Analysts believe that although the possibility of full nationalization in the proposal is small, the plan to implement the radical new mining royalty bill is much larger. It could "push Chile's tax system towards a similar levy, especially when the price of copper is kept at $4 per pound, which is a 75 per cent tax rate".

The conclusion is that Chile will become the country with the heaviest taxes on copper mining, and companies will be forced to reconsider the feasibility of investing now and in the future.

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