Chile is one of the few countries in the world that holds vast mineral wealth. Since 1940, it has constituted the national economy's largest export product. Today, it represents 10 per cent of gross domestic product and it is the main economic activity in five of the country's 15 regions. Chile is the world's largest copper producer, accounting for 30 per cent of the world's production; it is also the world's largest producer of natural nitrates, iodine and lithium. These indicators make Chile a highly attractive destination for foreign investment – in fact, the mining industry accounts for 45.4 per cent of all foreign investment.
These circumstances require a constant review and implementation of standards to further optimise the aforementioned figures. This is why, for example, the state is implementing a new energy policy, taking into consideration that for several mining companies, energy accounts for about 20 per cent of their direct costs. Another long-term energy policy objective, proposed by the Ministry of Energy, is to become one of the three countries in the Organisation for Economic Co-operation and Development that has the lowest prices for electricity supply in residential and industrial sectors by the year 2035. In terms of world-class qualified suppliers for the industry, Chile is focusing its efforts in those regions where mining is the main economic activity, adding a skills certification system to allow technicians to cover the industry's demands. It is constantly promoting partnership and collaboration among all the parties involved in the mining industry to ensure favourable scenarios for suppliers and increase the market of mining services, both on a national and international scale. Through the Production Development Corporation, Chile has created new programmes with the collaboration of business enhancers for the development of start-ups within technology and platforms that serve the mining industry. Also, to promote the venture market, the Santiago Stock Exchange has completed an agreement with TSX Venture Exchange to promote capital investment for both exploration and exploitation through a double listing procedure that allows listed Canadian companies to be automatically listed on the Santiago Stock Exchange to raise capital for their projects.
In terms of foreign investment, there are different mechanisms under which a foreign investor can inject foreign currency for a specific project, with alternative mechanisms that allow the investor to participate in the formal exchange market.
In terms of mineral rights, any local or foreign person, whether natural or juridical, can acquire or apply for mining concessions; in order to carry out mining activities and operations, however, as a result of legal responsibilities, the owners of such concessions must have a company incorporated in Chile, which can be a subsidiary of the parent company duly integrated into the country.
II LEGAL FRAMEWORK
The system of mining property in Chile is mainly regulated by the following laws:
- Constitution of the Republic of Chile, Article 19, No. 24, subparagraphs 6 to 10 (CRC);
- Organic Constitutional Law No. 18,097 on Mining Concessions (from 21 January 1982) (OCL);
- Mining Code (Law No. 18.248, from 14 October 1983) (MC); and
- Mining Code Regulation (from 27 February 1987).
The main authorities regarding the mining industry are the Ministry of Mining represented by regional ministerial secretaries throughout the country, and the National Geology and Mining Service (Sernageomin), which is a decentralised entity with legal personality, aiming to advise the Ministry of Mining and contribute to government programmes for the development of mining and geological politics. Its main mission consists of the decentralised execution of politics for the regulation and control of a safe, sustainable, competitive and inclusive mining industry and in the creation of geological information about the national territory, in order to provide geological support.
III MINING RIGHTS AND REQUIRED LICENCES AND PERMITS
In accordance with Article 19, Paragraph 24 of the CRC, the state has absolute, exclusive, inalienable and non-prescribable ownership of all mines, which includes guano deposits, metalliferous sands, salt beds, coal and hydrocarbon deposits and other fossil substances, with the exception of surface clays, regardless of the property of natural or legal subjects on the lands that hold deposits. Surface lands are subject to the obligations and limitations established by law in order to facilitate the exploration, exploitation and benefits of such mines.
The law sets out which of these substances, except liquid or gaseous hydrocarbons, may be subject to concessions for exploration or exploitation. These concessions are always awarded by court ruling and have the duration, entail the rights and impose the obligations that the relevant law expresses. A mining concession requires the owner to undertake the necessary activity to meet the public interest that justifies the concession being awarded. Its responsibilities in terms of legal protection are established by law, with the aim directly or indirectly of obtaining compliance with that request and providing the grounds for revocation in the event of a breach or termination of single domain over the concession. In any case, the grounds and their effects must be established at the time of granting the concession.
ii Surface and mining rights
The CRC provides that the state has absolute, exclusive, inalienable and non-prescribable ownership over all mines, and is able to explore and exploit the mineral substances the OCL stipulates are subject to such labours through mining concessions.
The mining concession is an in rem right that is independent from ownership of the land upon which that right is established, even though both belong to the same person; therefore, separation of the ownership of the mining concession (which grants the rights to explore and exploit minerals) and the surface soil property where the exploration work and consequent mining exploitation work is intended to be executed is established.
The mining concession is transferable and transmissible; it is subject to mortgage and other real rights and, generally, subject to any act or contract. It is governed by the same civil laws as any other real estate, except when the OCL or MC state otherwise.
Mining concessions are awarded in a non-contentious legal proceeding and are one of two types: exploration concessions and exploitation concessions. An exploration concession authorises the holder to explore minerals located within its perimeter, while exploitation concessions authorise exploration and exploitation.
Regarding the area and extent of a mining concession, it must be a parallelogram with right angles (square or rectangle), the size of which can vary depending on the type of concession:
- Exploration concession: a minimum of 100 hectares and a maximum of 5,000 hectares for each concession. Only one concession request is allowed.
- Exploitation concession: a minimum of 1 hectare and a maximum of 10 hectares. Applicants are allowed to request a group of concessions together up to 1,000 hectares.
These mining concessions may be granted only with respect to minerals that the OCL states as eligible for exploration and exploitation – called concessible substances – that are defined as all metallic or non-metallic mineral substances and, more generally, all fossil substances as they appear in nature, except those the OCL declares as not grantable. In its turn, the OCL states as non-concessible mineral substances (1) liquid or gaseous hydrocarbons (therefore not including coal, which is grantable), (2) lithium, (3) deposits of any kind in sea waters subject to national jurisdiction and (4) deposits of any kind located completely or partially in areas that, according to the law, are declared important to national security. These substances may only be exploited directly by the state or its companies, or through administrative concessions or special operation contracts.
The two main charges or obligations in the Chilean mining legislation are the payment of an annual mining patent, in compliance with the obligation to protect the mining concession under the CRC, and the payment of a flat tax in the event that the mineral substances exploited companies exceed a certain volume of sales.
Being under an obligation to protect a mining concession in Chile entails the payment of an early annual patent, by March each year, the amount of which varies depending on whether a concession of exploration or exploitation has been granted. For every hectare or fraction covering an exploration concession, a sum equivalent to one-fiftieth of a monthly tax unit (UTM) must be paid, and for the surface comprising the exploitation concession, the equivalent sum of one-tenth of a UTM2 must be paid. There are no further obligations, such as a minimum investment or the execution of mining operations, in order to maintain the concessionaire's right.
iii Additional permits and licences
Given the separation of ownership of mining concessions and surface property, the MC establishes special rules in this regard. Access to surface lands during the process for the constitution of the mining concession is separate from when the concession is awarded.
During the procedure for awarding a mining concession, the holder of a mining petition (exploration concession) or mining claim (exploitation concession) may carry out any work needed to establish the mining concession (the required physical examination for these purposes, including the execution of the survey in the case of mining claims). The holder of a mining claim is also authorised to undertake any work needed to make the mine productive and become owner of the mineral substances.
In order to carry out exploration or exploitation work, the holder must, according to the nature of the concession, obtain written permission from the owner of the surface land and any administrative authorities if execution of the work affects or could affect populated areas, or areas of public interest or national security, as detailed in Articles 14, 15 and 17 of the MC. In the event that the owner of the surface land or any other person refuses access to the petitioner or the holder of a mining claim, the judge may authorise the assistance of the police, if Sernageomin reports favourably on the necessity of such work.
Also, once the mining concession is awarded, it entitles the holder to impose a special mining easement over the surface land after determining the compensation payable to the owner of the land, previously agreed or settled in court. Mining easements may encompass transit, electrical services and occupation, under the terms and extent of Article 120 of the MC.
iv Geological exploration work information
In May 2017, the Ministry of Mining, by Decree No. 104, created a new obligation for individuals or companies that carry out basic geological exploration work, either by themselves or by third parties. The new obligation imposes the duty to provide general information obtained from the basic geological exploration work to Sernageomin. Once the geological information is provided to Sernageomin, it becomes public information. As a first request this year, Sernageomin has required information on some territorial areas regarding exploration work carried out in the past four years.
v Closure and remediation of mining projects
This procedure applies in general to all mining work that has an extraction capacity of more than 10,000 gross tons per month for mine sites; in a simplified version, it applies to those sites that have a level of extraction capacity equal to or less than that amount, and to mineral exploration. Planning and implementation is progressive during the various stages of mining operations and lasts for their duration. Amended by Law No. 20,819, issued on 14 March 2015, a new method was added for calculating the useful life of mining projects of extraction or benefit, whose ore capacity is between 10,000 and 500,000 tons per month and should be measured according to the 'measured mineral resources', indicated and inferred, certified by a competent person in reserves and mining resources, according to a diagnostic study. Under the procedures and parameters established for these purposes by Law 20,235, the amendment refers to 'mineral resources' instead of 'probable or proven reserves'.
The legislation provides for two types of procedure for the approval of a closure plan, depending on the mineral extraction capacity of the workers or the facilities. If it exceeds 10,000 gross tons per month, the procedure is 'of general application'; if the capacity is equal to or less than 10,000 gross tons per month and in a mining exploration site, a simplified procedure applies.
A mining site in operation that qualifies for the general application procedure must provide guarantees for the closure plan. For this purpose, the closure plan, already approved by Sernageomin, must be assessed under the parameters of Law No. 19,300, the Environmental Act, within a maximum period of two years of the plan coming into force.
Sernageomin is the authority in charge of the review and approval of the technical aspects of a mining site's closure plans and any updates for the sector, and reviewing compliance.
Approval of the closure plan must be obtained before the start of exploration or exploitation work, or the operation of a benefit plant.
Warranties are provided for the cost of final implementation of the closure of the mining site or facilities, in a prospective system that is periodically evaluated (only the mining labour closure plans of general application). The warranty is created at the beginning of mining operations.
The types of warranties include:
- bank guarantee forms;
- debt instruments;
- letters of credit;
- bonds guaranteed by financial institutions;
- deposits, bonds or other titles representing catchment;
- Treasury, Central Bank or other state bonds; and
- bonds or debentures of public or private companies and insurance policies.
Audits must be carried out every five years to report on compliance with the closure plan, and updates and guarantees must be submitted. Audits are conducted by external auditors included in the Sernageomin Public Registry of External Auditors.
Necessary expenses to produce income equivalent to the amount paid to comply with the closure plan, or the guaranteed amount, are considered deductions. The value added tax (VAT) charged on the purchase of goods or services to execute the closure plan is considered a tax credit.
A fund for post-closure monitoring and controlling measures must be created to ensure maintenance of the site after the closure plan is completed. The fund is financed by contributions from each mining company (and may include donations). This contribution is equivalent to the current value of the total cost of the post-closure measures within the deadline established in the plan, including administrative costs and adjustments.
IV ENVIRONMENTAL AND SOCIAL CONSIDERATIONS
i Environmental, health and safety regulations
As regards safety standards and regulations, Chile has special regulations contained in its Labour Code and Law No. 16.744, which regulate social insurance against the risk of accidents at work and occupational diseases.
Relating to safety matters in the mining industry, both Sernageomin and the General Labour Bureau are competent through regional offices, along with the Ministry of Health, represented by regional ministerial secretaries throughout the country. Sernageomin is also responsible for supervising the compliance of mining companies with the law on such matters and for implementing an online information system for monitoring the status of requests or reports made by mining companies.
ii Environmental compliance
In compliance with environmental regulations, the legislator has created an environmental management tool called the System of Environmental Impact Assessment (SEIA), the management of which is based on the environmental assessment of projects adjusted to meet the regulations currently in place, which state that this tool is administered by the Environmental Assessment Service (SEA).
The rules that apply to this environmental management tool are the following:
- Law No. 19,300, the Environmental Act;
- Law No. 20,417, which creates the Ministry, the Assessment Service and the Superintendence of the Environment;
- Law No. 19,880, on the Basis of the Administrative Procedures that regulate the Acts of the State Administration's Bodies;
- DFL No. 1-19653, which sets the Consolidated, Coordinated and Systematised Text of Law No. 18,575, the Constitutional Organic Law on General Principles of the State Administration;
- Supreme Decree No. 95 of 2001 by the Ministry of General Affairs, on the Regulation System of Environmental Impact Assessment;
- Supreme Decree No. 40 of 2012 by the Ministry of Environment, on the Regulation System of Environmental Impact Assessment; and
- Law No. 20,749, which creates the Environmental Courts.
These regulations, specifically the first, establish the assumptions under which any person who attempts to develop a project (given the nature of this chapter, a mining project) must submit an environmental impact statement or environmental impact study. An environmental impact statement describes an activity or project to be carried out, or the amendments to be introduced, provided under oath by the respective owner, the content of which enables the competent authority to assess whether the environmental impact conforms to current environmental standards. An environmental impact study describes in detail the characteristics of a project or activity that is intended to be carried out or modified. Background checks must be provided for the prediction, identification and interpretation of its environmental impact and it must describe the actions to be carried out in order to prevent and minimise any significant adverse effects.
Notwithstanding the foregoing, it is the responsibility of each project or activity owner to avoid any element that could have an impact on the environment, during any of its phases, as the Environmental Assessment Service, as system administrator, can decide whether a specific project or activity must pass through the SEIA based on a request of appropriateness, that is, a request involving a decision as to whether a project or activity, based on the information provided by the petitioner, must be submitted to the SEIA.
iii Third-party rights
Chile has approved ILO Convention 169, which establishes for the subscribing governments the following obligations:
- to consult the people concerned, through appropriate procedures, whenever legislative or administrative measures may affect them directly;
- to establish means by which these people can freely participate in the decision-making process within the institutions responsible for policies and programmes concerning them; and
- to establish means for the complete development of these people's institutions and initiatives.
Under the new indigenous institutional framework that Chile has promoted, within the consultation procedure and public participation with the SEA for the evaluation of projects, there is also a specific consultation with indigenous peoples whose regions are affected by a project. All communities and associations recognised under the framework of Indigenous Law No. 19,253 can participate.
In November 2013, Chile also approved Executive Order No. 66, which regulates the consultation of indigenous peoples, and it has been implemented since March 2014.
iv The Environmental Conservation Right
The Environmental Conservation Right was established through Law No. 20,930. Its purpose is to promote the participation of private entities in the conservation of the environment, as a complement to the state's constant efforts regarding these matters.
Law No. 20,930 defines the environmental conservation right as 'a right that consists of the aptitude for preserving the environmental heritage of a land or its attributes and characteristics'. It underlines that it shall be awarded 'by a voluntary decision of the owner of the land in benefit of a specific person or legal entity'. This points to the fact that the establishment of this right cannot be enforced, as it occurs, with land easement in specific cases.
The title-holder of this environmental conservation right may be any public or private person, or legal entity, that differs from the original owner. The right is awarded by public deed and signed by the landowner and the new title-holder. This form of contract must have, as a minimum, one of the following conditions:
- It is forbidden or restricted for the land to be destined for the real estate business, commerce, tourism, industry and certain other purposes.
- There is an obligation to assume or hire services for maintenance, decontamination, repair and administration, or other services required for the rational use of the land.
- There is an obligation to execute and supervise the management plan established in the contract for the proper and rational use of the natural resources of the land.
The creation of this right is of interest to every third-party private entity that wishes to promote conservation actions towards environmental heritage, such as the owner of the contracted land or the new title-holder, for the development of preservation activities.
V OPERATIONS, PROCESSING AND SALE OF MINERALS
There is no specific regulation regarding this issue: mining is considered a general industrial activity. With regard to the design and construction of mineral processing plants, they are structured under general contractual agreements according to those commonly used in international mining markets, such as engineering, procurement and construction contracts and engineering, procurement and construction management contracts, for their design and construction.
Notwithstanding the foregoing, the MC enables those that build such plants to apply for mining easements in their favour under the same terms that have previously been explained for mining concessions. Also, considering the nature of such plants and the impact they have on the environment, they are subject to the general rules and requirements for their evaluation and entrance into the SEA, according to what has been noted in Section IV.
There is no special regulation for the commercialisation and sale of minerals, but standard international contractual arrangements such as off-take agreements are used.
i Foreign investment
Under Law No. 20,848, a new legal framework was set forth for foreign investments in Chile, replacing Executive Decree (DL) 600. It also creates new institutions responsible for the promotion and attraction of capital and direct investments from abroad.
The relevant aspects of the new law body are related to the concept of direct foreign investment and the definition of foreign investor, considered to be an individual or legal entity born or incorporated abroad, neither a resident nor domiciled in Chile, who transfers capital into the country under the terms indicated in the law.
In addition, the adoption of a national strategy was established for the development and promotion of foreign direct investment promoted by the President of the Republic.
Law No. 20,848 also creates a committee of ministers responsible for developing the national strategy, evaluation and implementation of matters related to foreign investment development and promotion, advising the President in such matters.
In terms of the creation of new institutions, a Foreign Investment Promotion Agency was created, replacing the former Foreign Investments Committee that existed under Executive Decree (DL) 600, to be responsible for the promotion and attraction of all kinds of capital and investments from abroad and the coordination of the actions needed to implement the development strategy.
All foreign investors qualified under the terms of Law No. 20,848 will have access to several protection regimes, including:
- guaranteeing access to the formal foreign exchange market and repatriation of capital and profits, in full agreement with the Central Bank foreign exchange authority;
- value added tax exemption for capital goods imports, under certain conditions; and
- no arbitrary discrimination guarantee with relation to local investors.
Notwithstanding the aforementioned, all investments that have entered the country through local bank entities and notifications are sent in accordance with the terms established in Chapter XIV 'Chile' of the Compendium of Foreign Exchange Regulations of the Central Bank of Chile. This is done in order to register foreign investors to protect their investments under Chilean legislation principles, and to allow them access to the formal exchange market with no discrimination regarding whether they are a national or foreign investor.
While it is not considered a 'royalty' per se, there is a flat tax on people who carry out mining exploitation and achieve mineral sales over a certain volume in Chile. This tax is progressive and is charged on the operating income (taxable net income less operating expenses) of a mining producer at rates ranging from zero (annual sales of less than 12,000 tons of fine copper or equivalent) to 4.5 per cent (annual sales of up to 50,000 tons of fine copper or equivalent). In the case of mining producers with annual sales of more than 50,000 tons of fine copper or equivalent, the tax applies to the 'mining operating margin' (the meaning of which is defined in Article 64-bis of the Law on Income Tax) from a rate of 5 per cent of a mining operational margin of below 35 per cent, gradually increasing to 14 per cent if the mining operation margin exceeds 85 per cent. This is a tax that only applies to mining exploiters and not to mining explorers.
Following amendments introduced by Law No. 20,780 in 2017, the shareholders or partners of enterprises subject to first category income tax must choose between the 'attributed income' or 'semi-integrated' systems depending on whether taxpayers wish distributions to be taxed on an accrual or a cash basis, respectively.
This tax is levied on sales and services at a rate of 19 per cent. The payment constitutes a tax credit for the taxpayer (vendor or service provider) to be charged against VAT debits resulting from sales or services rendered by the taxpayer. VAT accumulated in the acquisition of fixed assets is fully refunded to the taxpayer if, within six months of the acquisition, the credit is not yet charged to debit.
For exporters, the VAT charged can be recovered after each export when they purchase goods or use services for their export activity, and they can apply for a refund of VAT credits accumulated to date.
In the event that the exporter is not yet producing, it is allowed to claim back VAT credits accumulated in the month following the month in which they were incurred, in which case an investment project with an expected date for the start of production and export must be presented to the authorities.
Every company carrying out primary or extractive activities in exploitation projects involving a process that develops products, such as slag separation work, milling or concentration of minerals, must pay an annual municipal licence fee to the municipality in which it conducts its commercial activities.
This licence fee is between 0.25 and 0.5 per cent of taxpayer equity, with a cap of 8,000 UTM. This payment is an expense for the purposes of determining income tax.
Every company in Chile must pay death and accident insurance, with a fee capped at 3.4 per cent of the taxable income of workers. The percentage is divided into a base rate of 0.95 per cent and a variable depending on the kind of activity and the business risk.
VII OUTLOOK AND TRENDS
The state-owned company CODELCO has begun procedures to assimilate into its operations the Chuquicamata underground mining deposit, which encompasses a structural and strategic project representing an important part of the future of CODELCO. It will transform the world's largest open pit mine into a giant underground operation that will allow the exploitation of resources located underneath the current site. In the private sector, Antofagasta Minerals – the largest private Chilean mining company – merged Minera El Tesoro and Minera Esperanza, both belonging to the holding, into a new company called Minera Centinela. Through Minera Centinela, the Antofagasta Minerals group will take maximum advantage of the mining district located in the Antofagasta region, making it one of the country's largest mining companies.
In January 2016, the Chilean government announced the first measures to be implemented in the short term under the new policy and governance of lithium brines. The set of measures, based on proposals submitted by the National Lithium Commission, essentially aim to:
- establish a new regulatory framework;
- define operating conditions and establish a link with local communities;
- strengthen coordination between the two major public actors for the exploration and exploitation of the resource: CODELCO and The National Production Development Corporation; and
- allocate resources for innovation in this field for full expansion.
1 Marcelo Olivares is a partner at Quinzio & Anríquez Novoa Abogados (formerly Quinzio & Cía Abogados).
The information contained in this chapter is correct as at October 2017.
2 Possessions whose main economic interest lies in non-metallic substances or metalliferous placer deposits, such as those constituted over grantable wealth of existing salt beds, can obtain a discount and pay only one-thirtieth of a UTM per hectare.