Attract investment

Vizcachitas is located in the Rocin Valley, Region V, 150km NE of Santiago
Vizcachitas is located in the Rocin Valley, Region V, 150km NE of Santiago
March 2018: Now that Chile occupies the eight place in the Fraser Institute’s annual ranking of attractive destinations for mining investments, a challenge for the incoming government will be to reactivate foreign investment and ratify the country’s leadership in the mining industry.
According to the Ministry of Mining, led by Baldo Prokurica, with Pablo Terrazas as secretary,  measures that revitalize the industry are required. The team will work on a National Mining Policy for the period 2018-50 with the aim of attracting US$40B in investments.
The goal of the government is to increase the investment rate by three percentage points by the end of the presidential period—not only in mining. Currently, the mining sector generates approximately one tenth of the country’s GDP and half of its exports.
Following the recommendations of SONAMI and Alianza Valor Minero, the new authorities have also recognised the need to create a Project Management Office to speed up the approval process for mining permits. According to figures issued by Cochilco, the mining investment portfolio for the next 10 years (totaling US$64.8B) contains initiatives valued at US$ 11.7B, some of which have yet to be given environmental approval.
The rejection of the Dominga mining project in the Region IV has generated a distrust in the institutional framework, therefore, the reform of the Environmental Impact Assessment System (SEIA) will be another topic of discussion for the new government. The lack of clarification regarding Project approval terms could negatively affect investment decisions for companies, as investors would not know until the last moment whether their projects are approved or rejected, regardless of the amount invested or the obstacles they had to overcome. Foreign direct investment demands legal certainty.
Modernize the current regulation
In Chile, Mining Concessions or Pedimentos generate a form of income both for the owner and the federal government. However, not all Pedimentos are filed with the intention to explore and/or exploit minerals.  Official figures reveal that out of a surface area of 75,610,240 hectares (ha) dedicated to land use, 30,720,729ha are exploration (15,285,300ha) and exploitation (15,435,492ha) concessions, but only 23% of these are actively used for those purposes.
Concessions are speculative in nature due to the absence of work programs, which reduces investment possibilities. In fact, during the past year, only 38% of small and medium sized exploration businesses reported activity.  Acting as part of the Exploration Business Registry, Cochilco identified 114 companies, 79 of which are junior (69.3%), operating with caution and focusing on advancing their projects without taking major risks.
Joe Mazumdar, analyst and co-editor of Exploration Insights, believes the cost of acquiring concessions may be detrimental to many junior companies, who have limited budgets. “Gold sector exploration is mainly being driven by junior companies, so if you cut them out of the equation, you get less exploration at these projects,” he explains.
According to Mazumdar, junior companies have to contend with an antiquated system that includes an overlap of mining and exploration concessions in certain zones, “The government should provide more funding to its mining agencies to make the process of granting concessions better and faster. Also, it should try to prevent companies from holding concessions for protracted periods of time when they are not advancing the Project,” he suggests. In Chile, exploration and exploitation concessions are issued by judicial resolutions from the Civil Court for a period of two years and half the allocated area can be renewed for an additional two years.
There are various legal mechanisms in place throughout South America that could be used as an example. In Peru, mining concessions (from 100ha to 1,000ha) are granted by the Geological Institute of Mining and Metallurgy (INGEMMET), with the concession requiring work and  an operation fee for two consecutive years to avoid lapsing. The same occurs if a minimum production level is not achieved by the end of the fifteenth year.
Mining concessions in Ecuador are granted by the Ministry of Mining through a bidding process which grants rights that cover up to 5,000ha for a term of 25 years, which can then be renewed. The legislation establishes that concessions may be sold, assigned or transferred, provided that the owner holds environmental licenses and submits an annual report of exploration activities and investments.
To attract a larger investment, the mining department of Chile must devote more attention to security of tenure while modernizing the acquisition of mining and exploration concessions making them simpler, quicker and more efficient.
Modernize institutionalism
During the next four years the supervisory role of Cochilco will be reinforced and the creation of a Geological Service of Chile and a National Mining Service will be considered, tasks which are currently assigned to Sernageomin.
The Ministry of Mining will also seek to strengthen the independence of Codelco’s corporate governance by  implementing a dividend policy to replace the Reserved Copper Law (Ley Reservada del Cobre).
“The law gives us the broadest investigative powers and we want to ensure that Codelco complies with the regulations, but also make sure that its procedures, operations and commercialization are correct,” said Sergio Hernández, VP of Cochilco, when CER asked about strengthening the supervisory role of the agency as part of the targets set by the incoming government.
Cochilco also expects to receive sanctioning powers that go beyond those available when they are not given the required information to perform audits or conduct investment evaluations. It also anticipates an increase in the number of inspectors (it currently has 13).
“It’s not about arriving and penalising. It is necessary to understand what resources are available to act later… We have strengthened the institution, but we want to continue improving,” says Hernández.
Regional competition
Close to 90% of mining investment in Chile over the coming years will be dedicated to copper projects (US$43.9B), with 63.4% of this capital provided by Chilean companies (US$31.2B), 11.2%, by Canadian companies (US$5.5B), and the remainder divided between Australian, British, Japanese and Korean companies.
Chile and Peru are the two largest global copper producers, but now that Peru is on the verge of a political crisis, local Chilean industry could benefit.
“This is an opportunity for Chile to repair the mistakes of the last four years, as the crisis scenario in Peru leaves Chile attractive not only for explorers but also for established companies,” said Maurizio Cordova, CEO of Auryn Mining.