The risks of Chile’s postponed law on mining concessions
The increasing tax burden from the royalty law isn’t the only thing worrying Chile’s mining industry, which is also tracking the so-called Law 21,420 that modifies exploration and mining concessions in the local mining code.
The law was seen as having such a potentially negative effect on the industry that congress earlier this year decided to postpone its implementation until January 2024 and to work to improve it with the help of the mining ministry and sector groups.
BNamericas spoke about this legislation and other key issues for the industry with Rony Zimerman, a mining lawyer at Lembeye Abogados.
BNamericas: The royalty law’s lack of incentives, such as tax invariability, has been criticized. Is there still work to be done on this front?
Zimerman: Yes. Congress’ mining committee is reviewing possible modifications to law 21,420, which is basically a tax law but also significantly modifies the regulations surrounding mining concessions. This law was poorly drafted, both in technical and substantive aspects, due to the accelerated manner in which it was drafted and promulgated.
Perhaps they can discuss tax invariability or some other type of incentive as they revise it. We have to look at what is happening in other jurisdictions, such as Canada and Australia, where incentives for mineral exploration are being established.
There is very little exploration and new projects in Chile.
The future health of the Chilean industry depends on discovering new deposits. Without exploration, the industry will fade away. In this context, obtaining permits is an extremely relevant issue. Delays and uncertainties in permitting processes can
make Chilean projects less attractive.
BNamericas: Law 21,420 raises the cost of exploration and mining patents but offers discounts if the company can prove it is advancing a project. Are these good ways to encourage the good use of concessions?
Zimerman: Conditioning the payment of a less onerous patent on mining work in a concession seems like a good policy and can boost exploration and development. In addition, it minimizes speculation through the holding of concessions.
Something similar already exists in water use rights, but in this case, it’s a better-regulated proposal because even by presenting a pending environmental permit, it is understood that mining works are being carried out. In water rights, the interpretation does not have such a broad definition.
However, the law was left with a very drastic increase in patents and it seems to me that it should be more gradual.
BNamericas: Changing the coordinate system from UTM (Universal Transverse Mercator) to Sirgas is worrying because delimiting each territory again in a short time could bring consequences such as overlapping properties.
Zimerman: That is a problem, and also the penalties that accompany not completing the process in a timely manner, which could result in the loss of a concession. It is a very sensitive issue. Large mining companies probably have greater capacity and equipment for this task. For medium and small players, it will be more complex.
BNamericas: This law will require the delivery of all geological information within three years after the expiration of the exploration concession. It is believed that certain information should be treated confidentially because it is strategic for the company.
Zimerman: Exploration companies that obtain financing on the stock exchanges, whether from Australia, Canada, England or the US, are already obliged to provide information to the market on a regular basis. I know many do not agree with this, but in practical terms, I see it as less complex than other aspects of the law.
BNamericas: Apart from this law, what other issues are unfavorable impacting Chilean mining?
Zimerman: The delay and uncertainty of the permit system is the most damaging for the industry. All the miners with whom we work have an interest in taking all necessary measures to protect the environment and carry out sustainable mining.
The problem is that the deadlines are longer than in other comparable jurisdictions, and there is a lack of certainty about the environmental standards that must be met.
When they are finally obtained, it is unknown if they will last or be the subject of endless administrative or judicial processes. This makes moving forward with mineral exploration projects in Chile complex.
If the government wants to implement incentives for mining, one suggestion is to establish a much more accurate project creation route with reasonable terms. And there shouldn’t be an unlimited ability to challenge projects.
BNamericas: What other factors impact mining competitiveness in Chile?
Zimerman: The industry faces several complexities such as lower ore grades, rising costs, delays and lack of permit certainty. Companies in Chile also have projects in Peru, Ecuador, Australia and Canada.
So if they have to determine where to spend their investments, these factors make them evaluate all their options.
Written by: Elinor Trebilcock
Source: bnamericas