Chile's New constitution set to impact mining

The final draft of the new Chilean constitution was handed over to the country’s President Gabriel Boric during a ceremony held in the capital Santiago on July 4, 2022. A culmination of the protests that had rocked the nation two years ago, the document was drafted by Chile’s Constitutional Assembly, headed by the Mapuche linguist and indigenous rights activist Elisa Loncón, with the assistance of the UN Human Rights Regional Office for South America project, Chile. Public attention has now shifted to the upcoming “exit plebiscite” on September 4 in which Chileans will vote to determine whether this new charter will replace the current 1980 constitution written during Augusto Pinochet’s dictatorship.

If approved, the new constitution with its 388 articles will be the longest constitution in the world and will foreground indigenous rights, social guarantees, and decentralization of power. Interestingly, the draft accords Nature itself with rights and calls for the establishment of new state organs charged with protecting the same. The new constitution will also give official recognition to the indigenous peoples of Chile thereby making it the third plurinational country in South America after Ecuador and Bolivia. However, critics have raised concerns that the document might just be too long and unwieldy for its own good and could potentially damage Chile’s political stability and economic dynamism.

Impact on Mining

While rumours of a Chile mining nationalization had been floating for some time, these have proven false so far. That being said, the new constitution does broadly shift power to the state. Joaquín Villarino, President of Chile’s mining council, opined that “spaces of uncertainty are opening up” for the mining sector which accounts for approximately 12 percent of the Chilean economy. “Due to the way the articles can be interpreted,” Villarino added, the new constitution “might be more complicated than before”, thereby making mining “more difficult, with higher production costs” due to additional bureaucracy.

It is important to note that Chile is the world’s largest copper producer and accounts for 28 per cent of global production. The country is also the world’s second largest producer of lithium and accounts for 22 percent of global production. The mining industry represents over half of the country’s total exports and remains of paramount importance to the Chilean economy. Even though the Chilean state has played a significant role in the mining industry, especially via the government-owned Codelco, the vast majority of mines are operated by private companies that enjoy many protections under the current constitution. Suffice to say that the impact of potential Chile copper mine nationalization and lithium nationalization would’ve been felt well beyond the country’s borders.

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Initial proposals for the new constitution had indeed suggested Chile mining nationalization or at least a broad nationalization of the country’s natural resources. This would’ve given the state exclusive mining rights over lithium, rare metals, and hydrocarbons along with a majority stake in copper mines. Chile’s Environmental Commission had submitted multiple variations of this proposal for review but all of them failed to achieve the 103-vote supermajority needed to pass into the draft constitution. Similarly, some of the more controversial articles regarding Chile copper mine nationalization have not made their way to the final draft.

All is not well however. Commenting on the potential pitfalls of the new draft, the Chilean political scientist at New York University Patricio Navia stated that wide-sweeping environmental regulations could create “legal headaches that could drag on for years”. Furthermore, regional governments have been granted greater powers than ever before in the new text which complicates who will ultimately take a call on what the law is. The protections outlined for glaciers will undoubtedly create conflicts. Under the new constitution, mining in glaciers would be banned as part of the special rights allocated to Nature. This opens up a Pandora’s Box of potential litigations because it is hard to define where exactly a glacier begins and ends. Crucially, some of Chile’s biggest copper mines, including Los Bronces of Anglo American and Antofagasta’s Los Pelambres, are located near glaciers.

Potential territorial claims in mining areas are also an important concern. In the final draft, indigenous groups have been accorded significant autonomy over their own affairs and land. This includes the power to create separate indigenous courts and veto projects. Furthermore, the final text also establishes water as a “natural common good” that would not carry property rights. This would effectively mean that the final draft of the Constitution (if approved) would put an end to the current system of water rights and replace these with authorizations. This would crucially impact many sectors including mining and agriculture.

Finally, there is still the possibility of an excessive “mining royalty”. The Chilean Government had submitted a tax reform proposal that included a “mining royalty” provision to Congress on July 1, 2022. Along with this tax reform proposal, a separate “mining royalty” previously introduced in 2018 is still under review by the Finance Commission of Chile’s Senate. Thus, even if the tax reform fails, the “mining royalty” standalone bill could still pass.
Overall, the Constitutional Convention has not incorporated some of the more extreme proposals of the thematic commissions, including Chile copper mine nationalization, lithium nationalization, and the replacement of the concessions system with administrative authorizations. However, the new text does significantly reduce the legal certainty enjoyed by Chile’s mining industry thus far. The framework of the new Constitution also invites more radical measures which could potentially be incorporated later through legislation. Hence, even though the fears of Chile mining nationalization have been allayed for now, a rigorous assessment of the impact of the country’s constitutional process will extend well beyond September 4.