If it has not done so, it would be important for the government to review in depth what has happened in Indonesia to see what to replicate from that experience and even look for productive chains under the CPTPP, for example.
John Paul Glasinovic is lawyer
Chile is and has been a mining country, there is no doubt about it, and mining has had an important influence on its foreign policy, either due to its own actions or due to local, regional or global effects.
To exemplify that, let us remember that, in the 19th century, nitrate was at the center of the conflict that led to the War of the Pacific. Then, during World War II, 18% of the copper used in the allied war industry was Chilean. After being attacked by Japan, the United States imposed a war price on Chilean copper (also helped by the fact that the main mining companies were Americans), at 12 cents a pound, half what was paid in World War I and a third of the value. market. This price meant for the country an enormous loss of resources and a never recognized (although involuntary) contribution to the war effort of the allies (Chile declared war on the Axis on April 13, 1945).
Later, the nationalization of copper by President Allende generated serious problems with the expropriated companies and their countries of origin with lawsuits, confiscations, blockades and market closures, which was undoubtedly part of the economic disaster of those years.
With the advent of the military dictatorship, the direction of mining was modified, allowing foreign investment and total private control, although without undoing what had been nationalized. This attracted huge investments and made Chile one of the main mineral producers in the world, with the lead in copper. This mining development, which continues to cover around half of our exports, undoubtedly leveraged the development of other sectors, diversifying foreign investment.
Currently, as a consequence of the ongoing climate crisis, there has been an exponential development of renewable energies and electromobility (in addition to the electronics industry), for which mineral keys are copper, lithium, cobalt, molybdenum, nickel and others, many of which are exploited in Chile and therefore places us in a strategic position for this urgent global transformation.
The government of President Boric has promoted various initiatives in relation to the main sector of the Chilean economy. On the one hand, it has presented a new royalty project for large-scale mining whose stated purpose is to leave more resources in the regions and communes where the mineral is extracted, so that they enjoy development in accordance with what is generated and externalities are mitigated. negative. Obviously, the level of the royalty (on which there seems to be an agreement and which is in its final phase of legislative processing) will not only influence the results of companies in the coming years, it could also be a factor for future investment decisions, both of the companies installed in the country, as of potential new players, considering other countries that are developing their mining and that may become more attractive. As we know, the grade at our copper mines has been going down, which has increased production costs and will continue to do so, thereby decreasing profits. And there is no perspective in the medium term, as far as copper is concerned, new deposits that can take over from the current large exploitations.
Another milestone in the current government policy is the announcement of the so-called “national lithium strategy”, which seeks to promote this mineral, which already last year had the company SQM as the main taxpayer for the State of Chile. Basically what is aimed at is that the Chilean state has control of the entire production cycle of lithium, with the declared objective of giving it more value and generating more resources for the country.
Some, especially abroad, refer to this strategy as nationalization, although strictly speaking it is not, because the State is the owner of the resource, the one that can grant concessions. This is how the private companies SQM and Abermarle operate, which together represent 25% of the world’s lithium production. SQM has a contract to operate until 2030 and Abermarle until 2043. The government reported that it will negotiate with these companies to add them to the strategy (in other words, that existing contracts be modified to hand over control to the State).
What on the surface seems like a negotiation limited to 2 companies and the will to implement a system with state pre-eminence, has many derivatives. First, there is the ownership of the companies whose regime is supposed to change (which raises questions about their future). Abermarle is controlled by US capital and SQM is 24% Chinese owned. This is not coincidence. Lithium has become a strategic mineral and both countries are in the race for its control.
China currently processes and refines two thirds of the world’s lithium and controls almost 1/3 of its production, with a large industry related to this mineral. For this reason, the negotiation with SQM cannot be separated from China. This country may consider at some point that the aforementioned strategy threatens its economy and its plan for technological dominance. For its part, the United States, which is further behind in the race, could view this as favourable, at least instrumentally and temporarily due to the effects it could produce in China.
It is feasible to think that the Chilean government must have had in view what Indonesia did with nickel when proposing its plan. This country, which has the largest nickel reserves in the world, banned its unprocessed export in 2020 to force a related industrialization, which has resulted in the installation of battery factories, positioning Indonesia on the electromobility map. This was possible because said country has 25% of the estimated nickel reserves, which allows it to condition this market. In the case of lithium, the reserves are more distributed, but almost half are distributed between Bolivia, Argentina and Chile (in that order).
If it has not done so, it would be important for the government to review in depth what has happened in Indonesia to see what to replicate from that experience and even look for productive chains under the CPTPP, for example.
Lastly, and briefly because it will be the subject of another column, our authorities cannot ignore that the enormous need for certain minerals that the ongoing technological transformation opens makes mining exploitation at the bottom of the oceans and particularly in the area increasingly probable. that it is beyond the extended continental shelves and that it constitutes almost half of the sea floor. Said area is not subject to state regulation and depends on the International Seabed Authority, an institution created by the Law of the Sea Convention. In this context, there are several dozen exploration concessions and, theoretically, by law, the possibility of initiating the extraction could be open this year. What is interesting and relevant is that these concessions are in the hands of companies from developed countries and China, with which, if they proceed to extract minerals, they could substantially reduce their dependence on third parties, which are generally developing countries, in addition to having an impact on prices and therefore the viability of certain land projects.
In short and to close: Chile’s mining condition influences its foreign policy and its international positioning, and this factor takes on an increasingly strategic dimension. How to capture the greatest possible value from mining exploitation and scale in value, including technological development, without scaring away foreign investment, which is essential given the magnitude of the projects? How to delay the possibility of opening the underwater mining exploitation that can redraw the world mining map? All these questions should be considered in tax matters and the regime of exploitation of our minerals, because all this will have an impact on the sector and we could finally obtain results other than those sought.