Legal Framework for Mining Activities

Framework
Concessions
Environmental Issues
Foreign Investment

Framework

The constitutional and legislative framework applicable to mining activities in Chile comprises:

• the Constitution of 1980, which provides for the state mining domain and stipulates the fundamentals of the concession system;

• the Constitutional Organic Law on Mining Concessions (Law 18,097 of January 21 1982), which regulates the concession system; and

• the Mining Code (Law 18,248 of October 14 1983), which concerns mining companies, mortgages and concessions as well as the competence of ordinary courts of law and other relevant matters.

Article 19(24) of the Constitution defines the meaning of 'state mining domain' as follows:

"The state has absolute and exclusive domain of all mines, including guano beds, metallic ores, salt deposits, coal and hydrocarbon deposits and all other fossil substances, with the exception of surface clays. It pertains to the law to establish which of the substances referred to above, with the exception of liquid and gaseous hydrocarbons, may be a matter of concessions for the purposes of prospecting and mining. Such concessions shall always be established by judicial ruling and shall, in effect, grant the rights and impose the obligations that the law stipulates, with the character of a constitutional organic law(1)."

In referring to the state mining domain, the Law on Mining Concessions declares that a mining concession is a real right in the nature of immovable property. It can be transferred, conveyed, mortgaged or governed by the same civil laws as other immovables. Also, it may be opposed to any person or authority, including the Chilean government.

Concessions

Private investors may undertake mining activities by obtaining concessions, although the following issues must be considered.

Capacity to conduct mining activities
Current law recognizes the right of any natural or legal person to acquire mining rights. Such rights may be fulfilled by:

• filing for a concession;

• purchasing already awarded concessions; or

• buying stock in companies governed by the Mining Code.

Certain people are disqualified from exercising these rights by virtue of their position (eg, judges and state officials).

Nature of mineral substances to be mined or prospected
Certain mineral substances may not be awarded to private individuals in a concession because they are exclusively reserved for the state, which prospects or mines them through either its own companies or operational contracts with private agents.

These substances include:

• liquid and gaseous hydrocarbons;

• deposits of any type of substance that are located in maritime waters (and submitted to the national jurisdiction) or in areas declared to be of importance to national security; and

• lithium (with some exceptions).

All other metallic or non-metallic minerals may be the subject of a mining concession. Substances that are located beneath the surface of the ocean bed and submitted to the national jurisdiction can be the subject of a concession provided that they are accessible through tunnels.

Filing for a concession
The procedure for filing or obtaining a concession is initiated before the civil judge in the location of the relevant concession. Upon ascertaining that all necessary requirements have been met, the judge issues a ruling awarding the concession and ordering its publication and subsequent registration in the Register of Mines. The holder of the right may commence prospecting and mining activities from the date of registration.

Special characteristics of prospecting concessions
Prospecting concessions are valid for two years, with extensions for a further two years possible in certain cases.

Holders are entitled to:

• make trial boreholes and generally undertake prospecting activities;

• initiate the procedure for obtaining a mining concession;

• use the minerals that are the subject of the concession for the purposes of exploration and investigation;

• be indemnified in the event of an expropriation; and

• oppose mining activities that third parties may attempt to conduct within the boundaries of the concession.

Characteristics of concessions for exploitation
The concession for exploitation has an indefinite term and its holder is entitled to:

• explore and exploit the mines accordingly;

• hold title to all mineral substances that are extracted and are a matter of the concession; and

• be indemnified in the event of an expropriation.

Common characteristics of both types of concession
Concessions for the purposes of prospecting and mining share the following characteristics:

• They entitle concession holders to property rights that are different to those held by owners of the surface lot of land. Thus, two owners of a given tract of land may exist (one in the case of the surface lot of land and the other in the case of the mining concession);

• They entitle concession grantees to an easement in the surface land in order to permit prospecting and mining activities in connection with the concession, as well as the operation of facilities for processing minerals;

• They are subject to a licensing system, payable to the national Treasury. Failure to comply with this obligation may entail loss of the concession;

• They grant the right to hold title to any waters found during the mining activities provided that these are necessary for the performance of such activities; and

• They can be waived, notwithstanding the right of third parties to oppose such action to the extent that they are affected by it.

Environmental Issues

Article 19(8) of the Constitution asserts the right to live in an environment that is free of contamination. This precept has been expressed through a number of legal and administrative provisions, particularly the Law of General Aspects of the Environment. This law states that mining development projects that include prospecting, mining and processing plants may not be carried out or modified without a prior evaluation of their likely environmental impact.

The Law of General Aspects of the Environment creates the National Environmental Corporation, a public agency that manages the Environmental Impact System, among other things. The Environmental Impact System is a mandatory procedure that consists of (i) filing an evaluation of the result from such activities or projects with the National Environmental Corporation (or its regional branch) and (ii) setting out measures that will be adopted to minimize their externalities.

This analysis may be stated in an environmental impact study or an environmental impact statement/declaration, depending on the nature of the environmental alterations. A study involves a more detailed analysis and longer time frame for its approval than a statement or declaration.

In the event that the study or statement/declaration is rejected, an appeal may be filed with the same agency or, at second instance, with the ordinary courts of law. Also, a new study or statement/declaration may be filed with the same authorities.

The Constitution grants private parties the possibility of bringing a writ of protection in those cases where their constitutional rights are affected by an arbitrary or unlawful act originating from the authority or any given person. Accordingly, any person who claims that his or her right to live in an environment that is free from contamination has been affected may bring a civil proceeding for the suspension of the act that has caused the contamination.

Foreign Investment

Foreign investors wishing to undertake mining activities may opt for one of two investment practices. On one hand, they may enter into a contract with the state of Chile pursuant to the provisions of Decree-Law 600 (the so-called 'Foreign Investment Statute') by filing an application with the Foreign Investments Committee (an agency representing the Chilean state), which authorizes capital to enter the country and sets out the terms of the investment agreement. This agreement can only be modified with the consent of both parties. Under the provisions of Decree-Law 600 investors are entitled to transfer their capital abroad (together with any net profits generated) through any local bank or other authorized institution. Remittances of capital may be made after one year has elapsed since the date of entry. Profits remittance is not subject to time restrictions. Approval of an investment under this procedure may take approximately one month, although the investor can obtain provisional authorization to invest which is normally granted quickly.

The alternative investment practice concerns the Foreign Exchange and Administrative Rules established by the Chilean Central Bank (Chapter 14 of the Compendium of Foreign Exchange Rules). From April 19 2001 potential foreign investors have only three obligations:

• to effect the payments or remittances of money from and to the country through the formal foreign exchange market, that is, the market comprised of banks and foreign exchange dealers authorized by the Chilean Central Bank;

• to inform the Chilean Central Bank with respect to the loans and equity contributions at the time that they are made available to the beneficiary, and also to confirm whether the payments or remittances in foreign currency to another country correspond to capitals, interests and the like; and

• to inform the Chilean Central Bank of the modifications made to the foreign investment acts or contracts within 10 days of their execution (eg, changes in the payment schedule or the financial terms and conditions).

For further information on this topic please contact Patricio Prieto or Claudio Undurraga at Prieto & Cía by telephone (+56 2 280 5000) or by fax (+56 2 280 5001) or by e-mail ([email protected] or [email protected]).

Endnotes

(1) That is, a law requiring a three-fifths quorum of deputies and senators in office for approval or amendment.