Set out below is a part of an interview that highlights the difficulty in getting mine, especially copper mines up and operating in Chile. It's a dry read but worth a few minutes to understand how this might impact copper supply going forward.
Cheers.......D
***************************************************** The legal uncertainties putting pressure on Chilean mining
The mining royalty law, changes to the mining concession system, the penalization of environmental offenses, permitting processes to develop projects and the national lithium strategy are seen as some of the legislative matters that require greater clarity to promote mining growth in Chile.
In the latest ranking by the Fraser Institute, the world's largest copper producer was placed 38th out of 86 countries and jurisdictions, after having been sixth in 2018 as one of the most attractive destinations for mining investments. The Canadian think tank highlighted the process to obtain licenses and permits and the inconsistent application of environmental regulations.
To talk about these challenges, BNamericas spoke with Alfonso Domeyko, a mining lawyer at Chilean consulting firm Next Legal, who is a former director of the national geology and mining service Sernageomin and a former prosecutor at the ministry of national assets.
BNamericas: What do you think of the mining royalty? Domeyko: It’s a good idea to apply a tax or direct the payment of a tax to the communities near a mining project, since there are many jurisdictions where mining is not possible, such as in Colombia, Panama or Honduras, and in Mexico there is talk of prohibiting it. Therefore, the country must ensure reasonable social support around mining.
In general, there’s a good perception of the royalty among citizens, since it increases remuneration in the area where mining is carried out, but there must be effective control of spending. BNamericas: How can effective delivery of royalty collection to the communities be guaranteed? Domeyko: The finance ministry should promote an improvement in the management of public sector funds to avoid problems in distribution or cases of corruption. Although regulations, deadlines and tenders do not completely prevent corruption, they are a barrier and help maintain a certain order in the use of resources. BNamericas: What impact does the royalty have on mining companies' costs? Domeyko: There are different extraction costs. Some companies operate with low grades, such as Sierra Gorda, which has not yet begun to pay for the mine, so there will be an impact. In others that have higher grades, the effect will be less. If you transparently demonstrate the future harm, for example, in Sierra Gorda, there could be popular and parliamentary support to modify the rules, since the communities support the royalty.
This bill was greatly improved so as not to harm the competitiveness of the Chilean mining industry compared to other mining jurisdictions that have lower taxes, and to compensate for the tax increase, it was promised to reduce permit times by at least 30% and streamline project approvals. BNamericas: Are the government's legislative proposals enough to accelerate the processing of permits by the environmental review agency? Domeyko: There are several issues that require regulation to make it more expeditious, such as citizen participation and the efficiency of services.
Obtaining a certificate for a construction project in the municipality of Santiago can take two years and there are final receptions of buildings that take up to three years. When I was director of Sernageomin, we implemented technologies to reduce the processing of large-scale mining permits by an average of almost 50%. We increased inspection and work on the ground and with less money. BNamericas: What are the keys to speeding up permitting of mining projects? Domeyko: Laws must adapt to heterogeneous mining because the impacts are different. It cannot be that there is no regulation for those under 5,000t [a year copper production] but you cannot apply all the regulations for those over 5,000t or apply the same to a 10,000t project as to one of 1Mt. On the other hand, exploration is closely related to small-scale mining, but there is no financing for this sector in Chile.
Canada is the mecca of small-scale mineral exploration and they have a specialized exchange that gives investors certainty that the money will be invested in exploration. In addition, they have a system that certifies the veracity of the findings.
In Chile there is a project to incorporate mining companies into the stock market, through the ScaleX market, to capitalize on exploration projects, but that has to come with a tax benefit, just like in Canada where you get up to a 30% discount in taxes or like in Peru where VAT is not paid. BNamericas: How will the increase in the fees for concessions under law 21,420, which was regulated with the purpose of energizing the mining concession system and eradicating hoarding by a few companies, have an impact? Domeyko: The new fees are too high and concessions will indeed be released in the short and medium term, but in the long term we have to see what the effects will be, since to benefit from the reductions in payments, the norm requires that a project have geological and environmental impact studies prior to entering the environmental evaluation system.
With this, you annihilate the exploration segment that is carried out with few resources, such as small-scale mining, which is a great driver of the initial exploratory stages. On the other hand, there is fear that there will be a hoarding of concessions by the State in lithium. BNamericas: In the discussion of law 21,420, the importance of legislating on kinship ties in the domains of mining concessions was addressed. Domeyko: Much small and artisanal mining is carried out through family businesses where the business of having mines is part of the family heritage. These regulations are absurd since they are not based on reality, and they harm the weakest. This could force means to be generated to maintain properties, since the family business will not necessarily give up mining. BNamericas: Another pending aspect of this law is the possibility of changing the geodetic coordinates of the mining properties to the SIRGAS datum. That would be positive? Domeyko: We should give it a chance and adopt an efficient coordinate system, with technology, artificial intelligence and satellite information, in addition to improving inspection and control. The current system generates uncertainty. There is no clarity about which procedures are in progress and which are pending in the registrar, in the notaries or in the courts. BNamericas: Law 21,595 on economic crimes incorporates new offenses, such as environmental crimes, and establishes a system of penalties, such as custodial or restrictive measures of liberty and fines. Is it risky for mining companies? Domeyko: There are mining companies that have a quite sophisticated environmental control and prevention system. According to figures from [environmental regulator] SMA, only 5% of sanctioning processes have been filed against mining activity, although they accumulate more than 50% of the amount of fines. That is, they are few, but serious.
That is why it would be good to criminalize some offenses, but we must clarify which ones to avoid an overload of criminal complaints in the prosecutor's office and not block the system. Given this law, mining companies must improve their environmental crime prevention models and control systems, especially because mining is embedded in nature and uses natural resources. BNamericas: The mining industry is called upon to build desalination plants with shared infrastructure to benefit communities. Is the regulatory framework adequate for this? Domeyko: Legislation must aim to massify the use of seawater with financial and tax incentives because we are in a climate emergency. Chile has done very little in terms of promoting desalination as a social benefit and solving the large operational energy expenditure it requires.
Despite the level of development and engineering we have, this matter is rather paralyzed. BNamericas: What do you think of the national lithium strategy? Domeyko: It’s a good political intention, but there is still little information. Furthermore, the legal structure of lithium is very poor. Codelco bought the Salar Blancoconcessions in Maricunga, but if it does not reach an agreement with the rest of the salt flat concessionaires, it will not be able to move forward. This is because suction affects the adjacent mining concessions.
Salt flats and hydrogeology are delicate topics that require management of the basin and large areas. This must be clarified to avoid cases going to court.
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