- 1.Provide an overview of the mining industry in your country. What significance does the mining industry have as a component of the national economy?
Mining is the fundamental support of Chilean economy and it is the country’s most productive sector. The present and future progress of Chile and its economy depends to a very large extent on mining. Mining exports represented an incredible 62 per cent of the total Chilean exports between 2007 and 2010, reaching an average that exceeded US$40 billion per year in this period. Copper continues to be the main export and, between the noted years it has accounted for approximately 53.7 per cent of Chile’s total mining exports, representing US$35 billion per year. Another demonstration of the importance of mining industry in Chile may be observed between years 2005 and 2010, when the mining sector contributed 25.1 per cent of the total government revenue, which was equivalent to US$48 billion. This industry is also a very important source of employment, where in 2009 more than 95,000 jobs were directly created in this industry, plus over 120,000 jobs with subcontractors.
In Latin America, Chile is the country with the second-largest level of mining investment, second only to Brazil. Investment in Chilean mining during the last decade exceeds US$50 billion. The foreign investment in Chilean
mining projects exceeded US$2 billion in 2008 alone. Chile has the largest number of copper mining projects in development for the period 2006 to 2015 in the world (26 currently) as well as a prosperous future due to the fact that for the period 2010 to 2017 capital investments of amounts of up to US$48 billion are therein committed, of which US$15 billion will be invested by the state owned mining company ‘Codelco’ (the world’s largest copper producer) US$33 billion million by the private sector. This amount almost matches the mining investment in Chile during the entire period of 1990 to 2009. Of this amount, almost US$6 billion will be invested in 2011.
Copper production is by far the most important mining activity in the country, however Chile is also world’s largest producer of nitrates and iodine, third-largest producer of molybdenum, fifth-largest producer of silver and fifteenth-largest producer of gold (Chile will become eighth-largest producer of Gold once Pascua Lama, Barrick’s project starts production).
The Chilean mining GDP exceeded US$30 billion per year in the period 2007 to 2010 (measures at current prices), and with an average superior to US$36 billion between those years. Mining represented 18.8 per cent of the total Chilean GDP for this period.
In the last decade, the private sector has been a key element in the increase in copper production. The public sector (mainly Codelco production) reached during the last year almost 2 million tons, while the private sector exceeded 5 million tons. As of year 2001 up to date, the production of copper in the public sector of the economy has maintained itself stable and close to 1.5 million tons per year, while the private sector production has increased from approximately 4.5 million tons in 2001, to approximately 5.5 million tons at the end of the decade, which represents an increase of almost 20 per cent in the production.
- 2.Describe the legal and regulatory framework. What laws establish and grant authority to the mining authorities?
The applicable regulations in effect in Chile allow any person, whether an individual or a company, local or foreign, to claim or apply for the granting of a mining concession. To that end, a non-contentious judicial proceeding must be followed before the ordinary lower courts with jurisdiction in the area where the concession is located. This judicial system made Chilean mining concession granting process very unique, since there is no intervention of an administrative or political authority. The concession is granted by a court resolution.
The mining property system in Chile is regulated principally by the following laws and regulations:
- Constitution of the Republic, article 19 No. 24, paragraphs 6 to 10 (the property right on a mining concession is constitutionally protected);
- Constitutional Organic Law No. 18,097 on Mining Concessions (of 21 January 1982);
- Mining code (Law No. 18,248 of 14 October 1983); and
- Regulations of the Mining code (of 27 February 1987).
- 3.Describe the investment regime applicable to foreign company involvement in mining projects.
Foreign investment regimes in Chile are mainly regulated by two legal bodies, the Foreign Investment Statute (Decree Law No. 600) and chapter XIV of the Compendium of Foreign Exchange Regulations of the Central Bank of Chile (Chapter XIV). Decree Law No. 600 provides a tax stability regime in benefit of foreign investors, and establishes a special tax stability regime for mining projects.
Article 11 ter of Decree Law No. 600 regulates investments made by non-Chilean individuals or companies in mining projects, in which the amounts of the investment excess of US$5 million. The investments comprise capital contribution, loans, physical assets, technology and capitalisation of profits or credits. Investments made under article 11 ter of Decree Law No. 600 are entitled to the rights described below, which are included in a foreign investment agreement signed between the foreign investor and the Republic of Chile.
Pursuant the article 11 ter of Decree Law No. 600, the foreign investor has the following rights regarding taxation whereby they will have stability, for a 15 year period in regard to the following:
- invariability regarding the legal provisions of the mining royalty, which involves the rate, the tax base and any other amendments to make mining royalty more onerous;
- the foreign investor not being affected for any new tax or royalty which affect the mining activity; and
- invariability regarding the legal provision of the mining patent.
Also, the foreign investors have several rights, such as the access to the formal exchange market, the capital and profit remittance, the access to all economic sectors and a discrimination complaint mechanism.
Chapter XIV regulates all foreign loans, deposits, investments and capital contributions for an aggregate amount equal to or higher than US$10,000, transferred into Chile from abroad. Pursuant to the current foreign exchange regulations, all transfers of funds into Chile from abroad such as loans, deposits, investments or capital contributions must be made through the formal foreign exchange market and be informed to the Central Bank. However, chapter XIV not has any tax stability regime in benefit of foreign investors. However, chapter XIV does not provide a tax stability regime in benefit of foreign investors.
- 4.Is your country a party to international investment treaties applicable to mining projects undertaken or sponsored by foreign companies?
The main focus of Chilean foreign policy in the last 20 years had been the development of commercial and economic relations with countries all over the world. As of this date Chile is a party to 40 Bilateral Investment Treaties (BIT) and several others are currently under negotiation. The BIT agreements signed by Chile normally include investment chapters, sector liberalisation, national treatment, minimum standard of treatment, performance requirements, free transfer of capital, expropriation compensation and dispute resolution, including investor-state arbitration (normally ICSID). Also, Chile is a party to 12 Free Trade Agreements and 21 Double Taxation treaties, with several other in the process of negotiation. No special agreements are requested to foreign investor in order to be protected by a BIT. As of this date, Chile had been involved in very few disputes with investors that claim the breach of an specific BIT, non of these dispute is related to investment in the mining sector.
In 1997, Chile and Argentina, signed a treaty for mining integration and complementation. The main purpose of this treaty is to facilitate the development of mining projects located in the border area of both countries. Pascua Lama, Barrick project, is being developed under the protection of this treaty.
- 5.What in general terms is the mining exploration and exploitation permit or concession regime? What is the licensing regime?
The Chilean Constitution provides that the state of Chile has the absolute, exclusive, inalienable and eternal dominion over all the mines. The constitution understands a ‘mine’ to include all the natural deposits of mineral substances. The mineral substances determined by Constitutional Organic Law on Mining Concessions may be explored and exploited through mining concessions.
For the purpose of taking advantage of the minerals substances, the Constitution distinguishes between mineral substances that are can be explored and or exploited through a concession and the second group refers to mineral substances that are not through such mechanism. Minerals in the first group can be explored or exploited by any person through the constitution of a mining concession, which can be either for exploration or exploitation. The mining concessions are granted by the civil courts.
As indicated, mining concessions can be constituted only with respect to the mineral substances that the Constitutional Organic Law on Mining Concessions determine to be susceptible of exploration and exploitation. Such minerals are called concedable substances, and are defined as all mineral, metallic and non-metallic substances and, in general, any fossilised substances regardless of the natural form in which they may be found with the exception of those that the Constitutional Organic Law on Mining Concessions declares as not concedable, which are:
- liquid or gaseous hydrocarbons, (therefore it does not include coal, which is concedable);
- lithium;
- deposits of any nature existing in the maritime waters subject to national jurisdiction; and
- the deposits of any kind situated, fully or partially, in zones that, according to the law, are determined as of importance for national security with mining effects.
These substances can only be exploited directly by the state or its companies, or by private companies or persons through and administrative concessions or special operating contract, granted by the state.
The mining concession is an in rem right, different and independent from ownership of surface lands, even if they have the same owner, that is, the separation of the dominion over the mining concession (that gives the right to explore or exploit mineral substances) and the ownership of the surface land where it is intended to perform mining exploration and exploitation work.
The mining concession, is freely transferable and transmissible, susceptible to mortgage and other encumbrances and in rem rights, and in general they are susceptible to of any act or contract; and is ruled by the same civil laws as the rest of the real estate properties, unless the applicable concession is contrary to the Constitutional Organic Law on Mining Concessions or to the Mining code. Mining concessions in the process of being granted are also transferable and transmissible. Mining concessions can be of two kinds: exploration concessions or exploitation concessions.
The exploration mining concession has an initial duration of two years that can be extended up to four, for which extension it is a requirement to waive one half of the concession surface area. The exploration concessions grants rights to prospect and explore the concession area and also it entitles its concessionary to the right to convert it into an exploitation concession during its effective period keeping the preference already granted by the exploration concession.
On the other hand, the exploitation mining concession (also referred to as ‘Pertenencia’) has an indefinite effective period and grants exclusive rights to prospect and mine the concession area. Having an exploration concession is not a prerequisite to apply for an exploitation mining concession.
With respect to the surface comprehended by a mining concession, these must configure a parallelogram of straight angles whose area, according to the type of concession, may be:
- mining exploration concession: a minimum of 100 hectares and a maximum of 5,000 hectares, per concession;
- mining exploitation concession: The minimum per concession is one hectare and the maximum is 10 hectares, a group of several mining claims that comprise up to 1,000 hectares can be requested jointly. There is no restriction to the number of concessions that can be requested.
For a concession to enjoy of pre-emptive rights over a given area, the grantee must be recognised as a ‘discoverer’. Such quality is granted under the Chilean mining law to the petitioner who first starts the procedure to incorporate a mining concession in a specific area free of mining concessions and who is granted the claimed mining concession rights. Hence, starting the procedure in an area which is free of mining concessions (granted or in the process of being granted) is critical to be awarded such pre-emptive rights so as to exercise the powers granted under the concession type.
The Chilean regulations allow a party to request a concession even if there are existing pre-emptive rights in the requested area. More importantly, an exploration mining concession maybe granted where another exploration or exploitation mining concession belonging to a third party exists. Under these circumstances, the new and over-lapped concession will not have pre-emptive rights in the area unless the existing concessions with pre-emptive are terminated. The mining concession granting procedure considers several publicity actions that allow the holder of a mining concession with pre-emptive rights to annul an overlapping concession.
- 6.What types of duties, royalties and taxes must be paid by the mining project company as a condition to obtaining or continuing a mining concession? What remedial actions are available to the granting authority when such levies are unpaid?
The only obligation imposed by Chilean legislation to maintain a mining concession is the payment of a annual fee. Payment of such fee is undertaken in fulfilment of the obligation of protection that the Constitution imposed on the titleholders of mining concessions (amparo). There is no exploration or work commitment required.
The amparo regime in Chile consists in the payment of an annual advanced licence fee (Patente de Amparo or Patente Minera) within the month of March of each year. The amount varies if it is an exploration or exploitation concession. For each hectare or fraction that comprises an exploration concession, the amount equivalent to one-fiftieth of a ‘monthly tax unit’ (approximately US$1.6) must be paid, and for the same area that the exploitation concession comprises, the sum equivalent to one-tenth of a UTM must be paid (approximately US$8). Chilean law establishes no other obligation to keep the mining concession in force, such as the minimum investment or performance of a mining activity.
In case of non-payment of licence fee, a legal procedure is started to get the concession into a public auction, which aims to obtain payment of the owed patents. In case that no bids are made to buy the concession in the auction, the concession is cancelled and the area is declared open or concession free.
- 7.What in general terms is the water rights regime? What is the availability of water for mining facilities? What techniques or activity have you seen in your jurisdiction to address limited or shared water resources?
Water is considered a public good or public asset and it is therefore possible for one to request to the government a right for the use of the water. The National Water Directorate (DGA) is the government office that grants the water use rights. In the granting process, the DGA will technically confirm the availability of enough water on the source where it will be extracted (surface water or underground) before granting the right. Any third party with an existing water right that may be affected if the new water right is granted, may oppose said water right request. Water rights have no term of duration and once granted can be freely transferred or transmitted and can be mortgaged as a security. In case a granted water right is not used, an annual fee must be paid.
Mining activity in Chile is mostly developed in the north part of the country where water is a very scarce resource. Due to this situation:
- the value of water rights in the northern mining regions has increased to incredibly high amounts; and
- the supply of water for most of new large mining projects under development will come from desalinated water, produced by desalination plants constructed by the mining companies ie, the Antofagasta Minerals ‘Esperanza’ project, Goldcorp-New Gold ‘El Morro’ project, the Quadra- Sumitomo ‘Sierra Gorda’ project and many others.
- 8.What in general terms is the surface rights regime?
In view of the separation of the property rights of the mining concession and surface land, the Mining code establishes special rules regarding this matter. The law distinguishes between access to the surface lands which is carried out for the mining concession, and access granted once the concession is constituted.
During the proceedings for the constitution of the mining concession the titleholder of a ‘pedimento’ (request for an exploration of mining concession) or a ‘manifestación’ (request for the exploitation of mining concession) may carry out all the work that is necessary to constitute the mining concession (the necessary physical recognition for these purposes, which includes the execution of the survey in the case of the ‘manifestación’).
Once the mining concession is granted, to carry out exploration or exploitation work as the case may be, its titleholder must obtain written permission from the titleholders of surface ground to develop the exploration or exploitation. In case an agreement is reached, the concession holder may impose an easement over the surface ground. In case is not possible to reach an agreement with the surface ground owner, the mining concession titleholder may request, at the ordinary court, a special mining easement. In this procedure, the court will determine the amount to be paid by the mining property title holder to the surface property title holder, as indemnification to the surface land owner. During the easement judicial procedure it is possible to request the right to use the easement immediately by establishing a guarantee for an amount define by the court.
- 9.What is the availability of power for remote mining facilities? May mining facilities generate their own power?
Mining companies normally contract the power directly from power generation companies, through direct contracts that are not subject to facility services restrictions. Due to the locations of the mining projects in remote places, is common that mining projects have their own power lines to transmit the power contracted with the generator.
There is no restriction for mining companies to self generate power to cover their needs. Currently many mining projects are considering self
generation of part of their power needs with renewable sources such as wind power or geothermal.
- 10.What are the grounds for lawful termination of rights under a mining concession, water rights or surface rights or power rights? What remedies are available to the concessionaire if rights are wrongfully terminated?
In general terms, a mining concession can only be extinguished through a court resolution, due to certain causes expressly established in the Mining code, such as the existence of a mining concession with pre-emptive rights in the same area or a fraud in the survey procedure of the mining concession. Exploration mining concession are extinguished after the expiration of its term (two years initially, which can be extended for two more years, however, one half of the concession surface area must be waived if it is extended). Finally, if the annual licence fee is not paid, a judicial procedure shall begin to put the concession up for public auction. If there is no bidder at the public auction, the judge will declare the area covered by the concession to free and will order cancellation of the mining concession.
- 11.Describe the extent to which the legal and regulatory regime is conducive to the installation or provision of essential infrastructure.
Once the mining concession is constituted, the titleholder has the right to impose special mining easements on the surface land required for the proper exploration or exploitation of the mining concession. The same right is
established for the benefit of mining plants. The special mining easement is granted in the benefit of the mining concession or mining plant (not the owner), so the easement will follow the mining concession or mining plant in case these are transferred. To establish the easement the owner of the mining concession or mining plant will have to pay an indemnification to the surface land owner. The indemnification will be agreed by the parties or by a court resolution if no agreement is reached. The special mining easements can be used for occupation, traffic or access, electric services, pipelines etc.
- 12.Please provide a description of the collateral security arrangements permitted in your jurisdiction, relating particularly to the mining project’s ability to grant to creditors a perfected security interest in concession rights, water rights, surface rights, related easements, permits, licences, land and bank accounts. Are there any limitations to the ability to transfer such rights to a successor owner/operator of the mine?
Mining concessions, water rights and surface rights can be freely transferred and granted in mortgage to creditors as security interest. Special mining easements are established in the benefit of the mining concession or mining plant, so will follow these in case of a transfer. In case of a default in the payment of a loan secured with mortgage over a mining concession, water right or surface land, under Chilean law, the mining concessions, water rights and surface will be sold in a public auction through a court procedure and the proceed of the auction will be used to pay the outstanding debt. Our legal system does not recognise the possibility of ‘stepping into the assets’ by the creditor in case of a default. However, in mining projects project finance agreements, some special contractual figures have been developed that give similar remedies to the creditors in case of a default, whereby the creditor obtains the asset and not just the proceeds from the sale of the asset.
- 13.Is it accepted practice for creditors financing a mining project to enter into an agreement with the mining authority in connection with the creation, perfection or acknowledgement of the collateral security interests granted to the creditors in mining projects, including to facilitate the transfer of such rights to a successor owner/operator? Is there any requirement, benefit or limitation to such agreements?
Is not relevant in Chile, as the mining authority is not involved in the granting of mining concessions, water rights, surface ground or its transfer.
- 14.What means of enforcement are available to creditors in connection with collateral security interests in mining rights?
- 15.What insurance must be placed with domestic insurance companies? Can insurance be placed abroad? Can claims be paid directly offshore? Are there restrictions with respect to obtaining reinsurance outside the country, and obtaining assignments or cut-through endorsements to permit claims to be made directly to owners or creditors outside the jurisdiction?
In general terms, Chilean insurance regulations allow companies to freely contract any type of insurance locally or outside of the contract. The insurance market is very big and competitive with good local companies and most of the large international insurance companies. Normally, large mining companies with presence in Chile, insure the Chilean assets with ‘umbrella’ insurance agreements that they have to cover asset in different jurisdictions.
- 16.Describe any requirements related to the use of domestic and foreign labour, suppliers and contractors.
Regarding workers nationality, the Chilean Labour Code states that at least 85 per cent of the employees serving a particular employer must be Chilean, unless the employer has less than 25 employees. In order to compute this number the following matters are considered:
- the total number of employees that an employer has in the national territory;
- such number shall exclude specialised technical personnel;
- the foreign employee whose spouse or children are Chilean, or who is Chilean widower will be considered Chilean;
- the foreign worker who resides for more than five years in Chile, without taking into consideration the periodical absences, will be considered Chilean.
In the case of suppliers and contractors, they must comply with these same rules but their non-observance will not transfer their liability to the main Company, because subcontracting regulation does not include the sanctions to this rule as one of those that can be pursued against it.
It should be noted that foreigners are required to possess a work visa in order to be able to work in Chile.
- 17.Can any liabilities extend beyond the mining project company to its owners, mortgagees, or creditors?
In general terms the Chilean legal system does not permit to disregard of the ‘corporate veil’ in case of liabilities is not applicable and liabilities stay at the level of the company that produce the damage or liability. There are very few limited situations, normally associated with civil fraud, where courts had accepted to extend liabilities to he owners of a company.
Chilean labour law does recognise a subsidiary responsibility of a company regarding labour obligations of a contractor with its workers. Due to the high use of contractors in the mining industry, this is a very sensitive issue.
Normally agreements with contractors include several clauses that allow the mining company to control the fulfilment of the labour obligations by the contractor and also to terminate the agreement in case of non compliance.
- 18.Describe any other relevant legal considerations related to financing of mining projects in your jurisdiction.
- 19.In recent times, several governments have mandated concession renegotiation, or revisited royalty and taxation regimes in light of increased commodity values. Has there been any such activity in your jurisdiction?
On the occasion of the earthquake of 27 February 2010, which affected the central and the south of Chile, the Chilean Congress increased taxes generally to finance reconstruction costs, some permanently and others temporarily.
With respect to mining, Law No. 20,469 increased the mining royalty rates. Indeed, prior to the amendment introduced by Law No. 20,469, the mining companies paid a 5 per cent flat rate if sold mining products in amounts that exceeded the equivalent of 50,000 metric tons of fine copper per year. However, pursuant to the recent amendments to the law, these mining companies will be affected to a tax whose rates varies between 5 per cent and 14 per cent, depending on the mining operational margin.
Mining companies that have tax stability rights in force are not subject yet to amended rates. These companies will be subject to amended rates when their corresponding tax stability regime or when the companies waive its tax stability.
Moreover, the Congress temporarily increased the rate of corporate income tax (first category tax), which until 31 December it was 17 per cent. Indeed, in 2011 the tax rate is 20 per cent and in 2012 the rate will be 18.5 per cent. As of 2013, the tax rate will be back to 17 per cent. The corporate income tax affects the tax burden for all companies incorporated in Chile, among which are the mining companies.
- 20.Please provide electronic links to any of the principal statutory and regulatory compilations referred to in your answers to the foregoing questions, including items such as Mining Law, foreign investment regime applicable to mining and environmental law and regulation.
- Ministry of Mining: http://www.minmineria.gob.cl
- National Mining Association: www.sonami.cl
- National Geology and Mining Service: www.sernageomin.cl
- Mining Law and Regulation: www.minmineria.gob.cl/574/w3-propertyvalue-1946.html
- www.sernageomin.cl
- Environmental Law and regulation in: www.minmineria.gob.cl
- Foreign investment regime applicable to mining in Chile: www.bcn.cl
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