chile’s mining industry on a global scale - alabc · source: cia factbook ... chile’s mining...

CHILE’S MINING INDUSTRY ON A GLOBAL SCALE

PEDRO PABLO DÍAZ HERRERA

AMBASSADOR OF CHILE TO AUSTRALIA

Brisbane, 18th May 2011

•Chile-Australia

AUSTRALIA CHILE

Population 21,766,711 (July 2010 est.) 16,746,491 (July 2010 est.)

GDP PPP (2010) 889.6 billion 260 billion

GDP PPP (2009-2010) 3% 5.3%

GDP PPP per capita (2010) 41,300 15,000

Work Force (2010) 11.62 million 7.58 million

Unemployment (2010) 5.10% 9%

Inflation rate (2010) 2.9% 1.7%

Exports (2010) 210.7 billion 64.28 billion

Imports (2010) 200.4 billion 54.23 billion

source: CIA factbook

Figures in US$ 2010

INTERNATIONAL INDICES

NAME SOURCE NUMBER OF PARTICIPANTS CHILE'S POSITION AUSTRALIA'S POSITION

Economic Freedom Index 2010 Heritage Foundation, Wall Street Journal 179 10 3

Quality of Life Index 2010 International Living 194 31 2

Environmental Performance Index 2010 Yale University-Colombia University 163 16 51

Human Development Index 2010 United Nations Development Program 169 45 2

Gender Inequality Index 2010 World Economic Forum 134 48 23

Travel and Tourism Competitiveness Index 2011 World Economic Forum 139 57 13

3

•Content

I. CHILE: A MINING COUNTRY

II. KEYS OF SUCCESS

III. OTHER LEGAL ASPECTS

IV. CURRENT TRENDS

3

CHILE’S MINING INDUSTRY ON A GLOBAL SCALE

4

Metallic Mining /

Industrial Mining

Copper

Molybdenum

Rhenium

Silver

Gold

Naturals Nitrates

Lithium Carbonate

Iodine

•I.- Chile: A Mining country

1.1. Chilean mining industry: Its worldwide relevance.

4

Production (TT)

(2009)

5,389,600

34,924

25.000

1,301

40,8

1,048,706

25,154

17,399

Worldwide

production ranking

1°

3°

1°

5°

15°

1°

1°

1°

Worldwide production

percentage

34.2%

15.3%

48%

7.1%

1.8%

100%

53%

61%

(Source: Cochilco & USGS).

5


1.2. Mining activity development

5

Chile’s copper production versus worldwide copper production (1974-2009).

(Source: Cochilco).

0,0

2.000,0

4.000,0

6.000,0

8.000,0

10.000,0

12.000,0

14.000,0

16.000,0

18.000,0

1974

1975

1976

1977

1978

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

Worldwide

Chile

6


6

Chile versus other copper producing countries (1980-2009).

(Source: Cochilco).

7

•I Chile: A Mining country Copper production by company (1985-2009).

(Source: Chilean Mining Council).

7

Main worldwide

mining companies

present in Chile:

BHP, Xstrata, Anglo

American, Teck,

Barrick, Antofagasta

Minerals, Freeport,

Kinross in addition to

Codelco.

0,0

1.000,0

2.000,0

3.000,0

4.000,0

5.000,0

6.000,0

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Others

Spence

El Tesoro

Los Pelambres

Lomas Bayas

Collahuasi

El Abra

Zaldívar

Quebrada Blanca

Cerro Colorado

Candelaria

Michilla

Compañía Minera El Indio

Escondida

Anglo American Sur

Anglo American Norte

Codelco

4

6

21

4 5

1

Sources: Brook Hunt, Codelco and AON Group.

*: Include High Probably, Probable and Possible projects.

**: Include factors like war, terrorism, strikes, sovereign non-payment , political interference, supply chain vulnerability, exchange rate, legal and regulatory,

resources of water and food.

2

1

4

2

3

6

27

38

9

16

1

1

1

3

8

Low risk

Medium –Low risk

Medium risk

High risk

Very high risk

Country Risk Level:**

Medium – High risk

2 1

1 17 1

2

2

3

31

8

2

1

1

9

1

1

22

1

1

Jorge Bande | November 2010

•I Chile: A Mining country Sites of the Future: Number of Copper Mining Projects by Country*

9


1.3. The Mining industry’s contribution to the Chilean economy.

9

• Gross Domestic Product

• Exports

• Fiscal Revenue

• Employment

• Foreign Investment

10


Gross Domestic Product

The mining industry’s participation within 2009 GDP: 16%.

10

GDP participation by Area (2009) (Source: Central Bank of Chile).

Agriculture 3%

Fishing 1%

Mining 16%

Manufacturing 13%

Power, Gas & Water 5%

Construction 8%

Market, restaurants & Hotels 9%

Transport 6%

Communications 2%

Financial Services 16%

12


Fiscal revenue

12

Mining revenue (US$) % Participation in GDP

GDP (million US$)

(Source: Ministry of Mining).

13


Employment

Estimation: Each direct employment in the mining industry generates 6.5 positions in other areas of the local economy.

13

Direct mining employment 1990-2009 (Source: Cochilco).

Contractor

Employees

14


Foreign Investment

Since 1974, the mining sector represents a 37.2% of the authorized Foreign Investment, and a 32.7% of the materialized Investment.

14

Foreign Investment 1974-2009 Thousands of US$ (Source:

Chilean Foreign Investment Committee).

0

20000000

40000000

60000000

80000000

100000000

120000000

140000000

Authorized Materialized

Mining

National Total

16

•II.- Keys of success

2.1. Geological potential and exploration

2.2. Mining culture

2.3. New Mining Legislation

2.4. New rules on Foreign Investment

16

17


2.1. Geological potential and exploration

Geological potential

17

Copper

Molybdenum

Rhenium

Silver

Gold

Natural Nitrates

Lithium Carbonate

Iodine

Participation in world’s

reserve

38%

12.8%

52%

17.5%

4.3%

100%

27%

60%

United States

Australia

Canada

Chile

China

Indonesia

Kazakhstan

Mexico

Peru

Poland

Russia

Zambia

Other Countries

Worldwide Copper Reserves

(Source: USGS).

18


Investment in exploration

• Chilean investment in exploration represents 5% of the worldwide exploration budget in 2009.

18

(Source: Metal Economic Group).

Other Countries 33%

Canada 16%

Australia 13%

Peru 7%

United States 6%

Russia 5%

Mexico 5%

Chile 5%

China 4%

Brazil 3%

South Africa 3%

19


2.2. Mining Culture

19

• General social agreement about the relevance of the mining activity on Chile’s

development and the need to promote its development.

• High quality of professionals and specialised manpower.

- Mining School of Copiapó (1857).

´- Mining Engineering Career: international recognition.

- Mining Law classes in Law and Business Schools .

20


2.3 New Mining Legislation

20

A. Legal framework

B. Mining concessions

C. Mining preparatory agreements

D. Business structures

E. Legal mining easement

21


A.-Legal framework

21

•Technology and foreign investment’s contribution (1920-1960): Development of the “Large Copper Mining Projects” by American companies.

•Economic Model changes (1960-1971): protectionism and statism to mining exploitation and lack of confidence on foreign investment.

Background

“Copper Chilienisation”: modest compensations. (1964-1970).

“Copper Nationalisation”: without compensations. (1971).

22


Political Constitution of the Republic of Chile. (“PC”).

22

•The State owns all mines (as general principle).

•Ownership of surface lands is different from mining concessions.

•Surface lands are subject to obligations and limitations to facilitate mining

exploration, exploitation and mineral processing plants.

•Minerals, with the exception of gas and liquid hydrocarbons and lithium, can be

subject to mining exploration or exploitation concessions.

•Ownership over mining concessions is protected by the Property Right’s

Guarantee.

23


Constitutional Organic Mining Law Nº 18.097 from 1982 (“COM”)

23

• An amendment requires a quorum of 4/7 of every representative and senator on exercise.

• Mining concessions’ rights and obligations.

• Mining exploration and exploitation concessions.

• Mining concession holder’s right to impose a legal easement.

24


Mining Code of 1983

24

• Further development of PC and COM’s regulations.

• Mining concessions’ characteristics.

• Legal protection of mining concessions (required steps to keep the mining concessions in good standing).

• Mining corporations regulation.

25


B.-Mining exploration and exploitation concessions.

25

GRANTING

EXTINCTION

CADUCITY

CONTROVERSIES

Granted on a first-come, first-served basis by a regulated judicial process, non-subject to a judge’s discretion or an arbitrary decision by the Administration.

27


THE SAFETY OF A CONCESSION

27

• Constitutional's Guarantee of Property Rights.

• If an exploitation concession is expropriated, the indemnity’s calculation process must consider the present value of future cash flows corresponding to the proved reserve base.

• Express causes of caducity and extinction regulated by law.

• Independent judicial system, that adheres to the rule of law and due process.

30


D.- Business structures

30

General principle: Any kind of companies

Contractual mining companies

Mining Joint Ventures

31


31

2.4 New rules about foreign investment

Clear and solid foreign investment legal framework.

-Framework of both constitutional and legal status.

-Non-discriminatory treatment Principle.

-Non-discretionary Principle.

-Liberalisation of the formal exchange market.

-Right to repatriate funds and remittances of revenue from abroad.

34

•III. Other legal aspects

Taxes

Different tax provisions subject to scale and volume of mining industry:

• Small mining companies: to an overall income tax at a certain fixed rate.

• Mid-sized mining companies: taxed on a presumptive basis.

• General system;

Corporate income tax (called First Category Tax), 20% rate in 2011, 18.5% rate in 2012 and 17% rate in 2013 and thereafter.

Additional Tax, 35% rate, on dividends or profit remittances to foreign shareholders. The aforesaid First Category Tax can be deducted as a credit from the Additional Tax.

36


No specific restrictions or limitations are imposed to the importation of machinery and equipment or services required for mining activities.

37


Restrictions imposed to the use of foreign employees

• No less than 85% of the workers of one employer (with more than 25 employees) must be Chilean, though certain exceptions may apply.

•Foreign workers are required to obtain visas to work in Chile and individual employment contracts of foreigners must include certain mandatory clauses.

38


Environmental review and permitting process for a mining project.

The holder of a mining project must submit an environmental assessment of the project to the SEA (Environmental Assessment Service) which can adopt two forms, depending on the environmental impacts:

• An environmental impact study (EIA), which could take about 9 to 15 months.

• An environmental impact statement (DIA), which could take between 4 to 8 months.

40


International treaties that apply to the mining industry or mining investments.

• Agreements for promotion and protection of investments.

• Chile is a member of the WTO.

• Chile signed the Kyoto Protocol, the Washington Convention and the Stockholm Convention.

• Chile has a mining treaty with Argentina.

• Chile has also signed many double taxation treaties (i.e. Canada, etc), and free-trade agreements (i.e. Australia, Canada, U.S, etc).

42

•IV.- Current Trends

National level

- Same mineral deposit: different mining operations.

- Agreements between private parties: avoid eventual conflicts achieving joint exploitation synergies. The case of Codelco Andina and Anglo American Los Bronces.

42

4.1 Joint Mining

43


• Exploration and exploitation of border line mineral deposits.

• Power to create operational areas: easier processes for immigration, employment and environmental matters.

• Use of both countries’ natural resources, goods and infrastructure.

43

International Level: Mining treaty with Argentina

44


• Social License.

• Corporate Social Responsibility.

• ILO Convention 169

44

4.2 Mining industry and communities.

45


• Institutional mechanisms and legal instances for community participation.

• Communities with geographical, economic, cultural or ancestral traditions, should be rewarded if a mining project is implemented.

45

Social License

46


Mining Royalty(2005): The society was not receiving the benefits from the economic success of mining activities.

New company’s behaviour: 3 P

46

Corporate Social Responsibility

PEOPLE

PLANET

PROFIT

47


ILO CONVENTION 169: Related to aboriginals and indigenous tribes in independent countries, ratified by Chile in 2008.

47

Protection of lands, territories and indigenous tribes’ ancestral resources.

Consult Participation Rights.

48


4.3. Access to geo-scientific information related to mining concessions, surface lands and water rights.

48

49


4.4. Water for mining.

• Projects in dry areas are using sea water.

• For fresh water, state is investigating the basins, to make feasible new water rights

50


Energy for mining.

• Demand for energy is growing dramatically, as the mining and other industrial areas need it.

• Mining companies are seeing investment opportunities in the energy sector.

• Incentives for non-conventional renewable energies (“NCRE”).

•The 2010 Corruption Perceptions Index

52

53

Thank you !

chile’s mining industry on a global scale - alabc · source: cia factbook ... chile’s mining...

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