Spotlight: Mining law in Chile

This article is an extract from The Mining Law Review, 11th Edition. Click here for the full guide.

I Overview

Chile has a long mining tradition and it is well known for its world-class mining deposits. It is the biggest producer and has the largest reserves of copper in the world, and it has a significant production and reserves of molybdenum, lithium, silver, gold, iron and other minerals.²

The property of mines is mainly controlled by private companies, but state-owned companies, such as CODELCO,³ hold significant mines and large quantities of mining properties.

Concerning foreign investment, Chile has a solid and competitive economy, being the Organisation for Economic Co-operation and Development's first South American country and an active member of the Mercosur and the Asia-Pacific Economic Cooperation Forum. Chile has an open market and strongly incentivises foreign investment.

Mining is a sophisticated industry in Chile, implementing the latest technology, employing a remarkably qualified labour force and applying the best security and compliance standards. These factors, plus Chile's advanced energy infrastructure, transportation network and strong legal framework, together with the quality of the mining resources and reserves, have made Chile one of the most important mining countries in the world.⁴

Currently in Chile there is an ongoing Constitutional process, which an elected Constitutional Convention drafted a new constitutional text. This will be subject to a plebiscite on 4 September 2022. If approved, the mining industry will face several legal changes, due to new environmental requirements, the constitutionalisation of the rights of indigenous communities, the modification of the status of waters as well and other common goods, and the downgrading of the current mining legislation to simple quorum law.

II Legal framework

Currently, and subject to the possible changes resulting from the Constitutional process mentioned above, the main statutes concerning mining are the Chilean Constitution, the Constitutional Organic Law Concerning Mining Concessions,⁵ the Mining Code⁶ and the Mining Code Regulation.⁷ These laws provide the basic framework of the Chilean legal mining system.

Concerning the execution of mining activities, applicable laws will depend on the particularities of each project. In this regard, some of the most important laws are: (1) the Mining Safety Regulation⁸ that regulates mining safety related issues; (2) the General Environmental Framework Law⁹ that regulates environmental matters and responsibilities; (3) Law No. 20,551 and its regulation,¹⁰ which regulate the closure of mining operations and installations; (4) Law 20,235, that regulates the figure of Competent Persons and creates the Competence Qualifier Commission of Mining Resources and Reserves; and (5) Decree No. 104 of 2016 of the Mining Ministry, that regulates the delivery of general information obtained from basic geological exploration works.

The Chilean Mining Code has been reformed by Law No. 21,420, dated 4 February 2022 (the Reform). The Reform will be effective as of 4 February 2023, the details of which are described below.

Regarding access to water, according to the Mining Code, the owner of a mining concession has the right to use the waters found as a result of the mining activities performed within its concession, to the extent that this water is necessary for the exploration, exploitation or processing works that may be carried out depending on the type of concession. The use of other waters is subject to the general provisions of the Chilean Water Code.¹¹

The main mining authorities in Chile are the Ministry of Mining, in charge of the design, execution and assessment of public mining policies and general promotion of the industry, and the National Geology and Mining Service, responsible for generating, maintaining and disseminating information on basic geology and geological resources, and for regulating and monitoring compliance with mining regulations regarding safety, property and closure plans. This Service establishes and gathers the basic geological exploration information that explorers must provide. Another relevant public entity is the Chilean Copper Commission, which advises the government concerning policies, strategies and actions that contribute to the development of the industry and oversees the interests of the state in its mining companies.

Concerning international treaties, Chile has signed mining treaties with Argentina and Germany. Other international treaties ratified by Chile that are relevant for mining are the Basel Convention, the Antarctic Treaty, the Convention on Wetlands of International Importance, the United Nations Convention to Combat Desertification, the Framework Convention on Climate Change, the Canada–Chile Agreement on Environmental Cooperation and the International Labour Organisation's Convention No. 169 on Indigenous and Tribal Peoples.

III Mining rights and required licences and permits

i Title

According to current Chilean Constitution, the Chilean state has absolute, exclusive, inalienable and imprescriptible ownership of all mines, regardless of the property rights over the superficial lands wherein those mines are located.

With a few exceptions established by law,¹² in general any person or legal entity, without discrimination, is able to obtain mining concessions to explore or exploit all metallic, non-metallic and fossil substances located in the area of the relevant concession, with the only exception being liquid or gaseous hydrocarbons, lithium, deposits of any kind located in maritime waters under Chilean national jurisdiction, which cannot be accessed by tunnels from land, and deposits of any kind entirely or partly located in areas classified by law of importance for national security with mining effects.¹³ Such mining concessions can be subject to any valid contract and can be freely transferred, assigned and encumbered.

Exploration or exploitation of substances that cannot be subject to mining concession can be executed by the Chilean state or its companies or can be subject to administrative concessions or special operation agreements, in the terms and conditions established by the President by Supreme Decree.

ii Surface and mining rights

There are two kind of mining concessions in Chile, exploration and exploitation,¹⁴ and both are granted by means of a judicial process regulated by the Mining Code and its Regulation, which is characterised by being technical, based on a first claim priority system, and, with the only exception of some overlapping cases with other claimed or granted concessions, not allowing the intervention of third parties.¹⁵ In the case of exploration concessions, the process usually takes five to seven months, and in the case of exploitation concessions, 15 to 18 months.

Exploration mining concessions have a legal term of two years, unless prior to the expiry of this term the holder requests an extension for a maximum of two additional years upon waiver of half of the area of the concession. Currently, as a result of the Reform, exploration concessions will now have a fixed term of four years, and there is no possibility of renewing the concession. There will be a prohibition on the holder of an exploration mining concession or an interposed person requesting a new exploration mining concession in the same area. In order to enforce this prohibition, the Reform creates a legal action that anyone can file to object to this situation. Exploitation mining concessions have an indefinite duration. Both types of concessions must pay an annual mining fee regulated by law; also as an effect of the Reform, the fee for exploration mining concession mining will be tripled, and the fee for an exploitation mining concession will progressively increase depending on the years of validity of the respective mining concession. For mining works or the entry of a mining project to the Environmental Assessment System, the concession will be a benefit from a reduced mining fee. If this fee is not timely and fully paid, the concession enters a judicial process in which it can be auctioned or declared expired. Except for the payment of this fee, there is no other payment and no minimum investment or work requirement necessary to maintain title over mining concessions.

Claimed and granted mining concessions are immovable property, different from the property of the surface land, protected according to the Chilean Constitution by an ownership right, which can be enforced against the Chilean state or any third party, granting its holder all legal remedies available under law to protect this ownership right. In some situations, regulated by law, the state can expropriate mining concessions in a judicial process paying a fair market compensation to its owner.¹⁶

In general, and in the current Constitutional framework, there are no limitations concerning the ability of foreigners to claim or hold mining concessions in Chile. However, there is some discussion regarding whether foreign nationals of bordering countries can claim or acquire mining concessions located at the Chilean border.¹⁷

The holder of a mining concession or a treatment facility has the right to establish the easements described in Article 120 and following of the Mining Code over superficial land.¹⁸ These easements can be granted by agreement of the parties or imposed by a judicial process. In both cases, the relevant damages must be indemnified.

iii Additional permits and licences

In Chile, any person is entitled to dig test holes and to take samples in search of mineral substances in open and untilled lands, regardless of the land ownership, as long as the area is not located within a third-party mining concession. Any damage caused by these activities must be indemnified. If the area is not open and untilled, written permission from the owner or holder is required.¹⁹ If the permit is denied or if this faculty is obstructed, it is possible to ask for a judicial permit,²⁰ but for houses and their outbuildings, or fields planted with vineyards or fruit trees, only the owner may grant the relevant permit. In this last situation, the owner's permit is required in general for mining exploration or exploitation.

The Mining Code also regulates different permits that are required to conduct certain mining activities in specific sensitive areas.²¹ Besides such permits, there are several municipal and sectorial permits that may apply to mining activities, which will depend on their nature and characteristics. Nonetheless, in most cases the main permit that it is required is the environmental permit, technically named the environmental qualification resolution. This permit is granted by the environmental authority after an environmental assessment process, in which all public entities with environmental competence participate in a centralised manner, and citizen participation processes and indigenous consultations are performed when applicable. This process is conducted by the Environmental Assessment Service in collaboration with other relevant sectorial authorities.

iv Closure and remediation of mining projects

Pursuant to Law No. 20,551 and its regulation,²² a mining closure plan for mining projects must be approved by the National Geology and Mining Service, in accordance with the requirements established during the environmental impact assessment process of the project. The purpose of the closure plan is to assure physical and chemical stability of the abandoned mining facilities, mitigate any negative effects and protect the life, health and security of the people and the environment.

Financial instruments to guarantee the implementation of the closure plan – including the cost of the post closure measures and monitoring – shall be granted by the owner of the project since its beginning. This guarantee shall be kept and updated throughout the lifetime of the project and will be gradually returned to the project owner while the closure plan is implemented.

IV Environmental and social considerations

i Environmental, health and safety regulations

The current Chilean Constitution establishes the right to live in an environment free of pollution, with the state having an obligation to protect the preservation of nature. This right can be enforced against the state and private bodies.

Relevant regulation in this field includes the General Environmental Framework Law²³ and the Environmental Impact Assessment System Regulation.²⁴ Likewise, Chile has subscribed to all the landmark environmental international treaties.

The main Chilean environmental authorities are: (1) the Ministry of Environment, in charge of the design and implementation of environmental policies, plans and programmes; (2) the Environmental Superintendence, responsible for the control and enforcement of environmental regulations; (3) the Environmental Assessment Agency, in charge of the Environmental Impact Assessment System; and (4) the Environmental Courts, that are specialised courts competent to resolve environment-related judicial issues.

Concerning health and safety in mining operations, the Mining Safety Regulation²⁵ is the primary applicable disposition, which regulates in detail the standards and rules in this regard. Compliance with this regulation is supervised and enforced by the National Geology and Mining Service. Likewise, the Chilean Labour Code and the Occupational Accidents and Professional Diseases Act²⁶ regulate several matters concerning health and safety that are generally applicable in Chile, which also apply to mining. Such regulations are overseen and enforced by the Labour Directorate Agency.

ii Environmental compliance

Mining projects that consider a monthly production of over 5,000 tons of mineral shall obtain a favourable environmental qualification resolution prior to the beginning of construction and operation.

For this purpose, the project owner shall submit the project to the Environmental Impact Assessment System, which consists of a sophisticated and centralised evaluation process, comprised by several steps and aspects, managed by the Environmental Assessment Agency. The process begins with the submission by the project owner of an environmental impact declaration (EID), in case of projects that do not consider the generation of significant environmental impacts, or an Environmental Impact Study (EIS), in case of projects that consider the generation of significant environmental impacts. An EID is subject to a shorter and simplified assessment process, which has the purpose of assessing and ratifying the inexistence of significant impacts. This process usually takes from six to 12 months. An EIS is subject to a longer and more comprehensive process, to recognise, establish and evaluate relevant impacts and the corresponding mitigation, reparation or compensation measures. This process also considers citizen participation and, if indigenous communities are affected, a special consultation process. The EIS assessment usually takes from 12 to 24 months.

Depending on their technical capacities, different public entities will participate during the environmental assessment process with the purpose of reviewing and analysing the information submitted by the project owner from a technical standpoint, issuing their observations and requests regarding the project, according to their specific competence and standards. During the process, the project owner shall respond and clarify all the observations and requirements submitted by the relevant public entities. The final decision to grant a favourable environmental qualification resolution to a project corresponds to an Environmental Commission headed by the Regional Supervisor and formed by several regional authorities. Against the environmental qualification resolution there are administrative and judicial remedies available.

Compliance with the corresponding environmental qualification resolution is supervised and enforced by the Environmental Superintendence. Sanctions or decisions imposed by the Environmental Superintendence can be challenged before the Environmental Courts.

For projects with a monthly production under 5,000 tons of mineral, a consultation letter, together with the corresponding supporting information, shall be submitted by the project owner to the Environmental Assessment Agency, that will decide if the project must enter the Environmental Impact Assessment System or not.

iii Third-party rights

Law No. 19,253 protects Chile's indigenous people and their territories. According to this regulation, the judicial granting of mining easements in indigenous lands requires the consultation and authorisation of the National Corporation for Indigenous Development. Chile has also ratified the International Labour Organisation's Convention No. 169 on Indigenous and Tribal Peoples. After a brief period of jurisprudential uncertainty, it has become clear that Chilean courts grant full enforceability to this instrument, especially regarding the indigenous communities' right to prior consultation. In this regard, the Environmental Impact Assessment System Regulation²⁷ includes specific provisions requiring mandatory prior and informed consultation of affected indigenous communities during the environmental assessment of a project. This consultation is carried out by the Environmental Assessment Agency. If the project requires the displacement or relocation of indigenous communities, the acquiescence of these communities is needed.

Several mining projects have been brought before a court on grounds of lack or deficient consultation. As a good practice, many mining projects have implemented programmes to inform and allow participation of the relevant indigenous communities even prior to the submission of the project to the Environmental Impact Assessment System.

Courts have also acknowledged indigenous entitlement to lands, as well as water rights, based on ancestral possession of a territory. As such, it is important for a mining project to assess if the land over which mining property will be located can be disputed by indigenous communities.

If approved, the new Constitution will recognise in its text the rights of indigenous communities to a free and prior consultation and will also establish principle of indigenous consent in relation to territorial entities.

iv Additional considerations

The lack of community support (both indigenous and non-indigenous communities), particularly concerning environmental issues, has been a source of judicialisation and delay for mining projects in recent years. As such, the mining industry has devoted important efforts in the development of strong community relationships, as well as formal cooperation agreements with the communities and initiatives to generate shared value. According to the proposals advanced by the elected members of the Constitutional Convention, it is expected that the new Constitutional Convention could contain a greater recognition of the culture and autonomy of indigenous peoples, making the establishment of relationships of trust, respect and mutual benefit between the mining industry and the communities even more important.

If approved, the new Constitution will enshrine in Chile environmental protection public action, which will be handled by a new Environmental Defence Agency.

V Operations, processing and sale of minerals

i Processing and operations

The equipment and machinery used by the mining industry is mainly supplied through imports. In this regard, in general in Chile there are no limitations for the import of mining equipment or replacement parts. Nevertheless, the importing of explosives for mining purposes is subject to the previous authorisation of the General Directorate of National Mobilisation.

Imports in Chile are subject to a customs tariff of 6 per cent over cost, insurance and freight (CIF) value, but most of the trade agreements signed by Chile contemplate a lower rate or zero per cent import duties.

Concerning the processing of extracted minerals, there are no limitations, other than the applicable safety and environmental regulations. Nonetheless, according to the Mining Code, the Chilean state shall be notified of the existence of minerals that cannot be subject to mining concession under law, found during the processing of minerals. The state may demand that producers separate these minerals from mining products if they have a significant presence²⁸ to be delivered to the state or sold on its behalf.²⁹ Also, the state has a right of first refusal, at the customary market prices and terms and as regulated in the Mining Code, regarding mineral products when thorium or uranium have a significant presence,³⁰ a situation that must be notified to the Chilean Nuclear Energy Commission.

As per the use of foreign labour and services in the mining industry, the Chilean Labour Code requires companies with more than 25 employees to have at least 85 per cent national employees. This limitation does not apply when hiring foreign permanent residents or foreign specialised technical staff.³¹ Regarding foreign service providers acting in Chile, in general they will be subject to the same laws as Chileans.

ii Sale, import and export of extracted or processed minerals

Chile has no general restrictions for the sale, import or export of extracted or processed minerals. Nonetheless, minerals considered as radioactive or nuclear substances, including lithium, can only be exported after the authorisation of the Chilean Nuclear Energy Commission. Also, for the import and export of copper and copper by-products, the Chilean Copper Commission must verify and inform its value to the National Customs Service.

iii Foreign investment

Law No. 20,848 establishes the framework for foreign direct investment in Chile. According to this Law, foreign investors in Chile will be subject to the same common legal regime applicable to nationals and cannot be subject to arbitrary discrimination.³² Also, the Chilean network of international treaties provides most foreign investors with customs and tax advantages, further guarantees of non-discrimination, fair and equitable treatment protections, most-favoured-nation clauses, and recourses to investment protection bodies such as the International Centre for Settlement of Investment Disputes.³³

VI Charges

i Royalties

Mining companies with annual sales equal to or below the equivalent value of 12,000 metric tons of fine copper are exempted from any royalty. If the company's annual sales exceed the equivalent value of 12,000 metric tons of fine copper, a royalty is applicable, based on a progressive and incremental rate (between 0.5 per cent and 4.5 per cent) over the mining operational taxable income of the company. If the company's annual sales exceed 50,000 metric tons of fine cooper, the royalty to be paid will be defined according to a progressive and incremental rate (between 5 per cent and 14 per cent) to be applied over its mining operational margin.³⁴ A new bill is currently being discussed in Congress, which proposes a new royalty equivalent to 3 per cent of the nominal value of the minerals extracted, and which is considered by many, including the current government, potentially unconstitutional under the current Constitution.³⁵

In July 2022, the government permitted new legislation that will introduce a new mining royalty that will increase the taxation of large copper mining companies. This concerns copper mining companies with a production of more than 50,000 tonnes of fine copper (MTFC) per year. It will combine two elements: (1) an effective rate between 1 per cent and 2 per cent on copper sales for producers between 50,000 and 200,000 MTFC, and between 1 per cent and 4 per cent for those producers selling more than 200,000 MTFC; and (2) a rate on mining income between 2 per cent and 32 per cent on operating profitability for copper prices between US$2 and US$5 per pound.

ii Taxes

Small-scale artisan mining is subject to an overall income tax at a fixed rate to be determined according to the average price of the minerals and the taxpayer annual sales. Medium-scale mining companies can decide between the regular taxation regime and taxation based on a presumptive income (to be determined as a percentage, ranging from 4 per cent to 20 per cent, over their net annual sales, according to the average price of the pound of copper in the relevant period). For these purposes, a company is considered medium-scale mining if its initial equity does not surpass approximately US$1.2 million, and its annual sales do not exceed approximately US$600,000. Large-scale mining companies are subject to Chile's general income tax regime, with a corporate income tax of 27 per cent, unless the company is suitable to be considered in the Pro-Pyme Regime, in which case a 25 per cent tax rate will apply (to opt for this regime, among other requirements, the company's annual sales cannot exceed approximately US$2.6 million).

Concerning the owners of mining companies, according to the general income tax regime, Chilean residents' final income taxation (i.e., global complementary tax) will be subject to a progressive rate between zero per cent and 40 per cent. In the case of non-residents, their final tax (i.e., additional tax) will be withheld at a fixed 35 per cent rate. It will be possible to deduct as credit 100 per cent or 65 per cent of the corporate tax paid depending on different factors.

Until 2015, some foreign investors could sign a contract with the Chilean state according to Decree Law No. 600, which guaranteed tax invariability. Until 2019, there was also a tax invariability contract available for foreign investors. Rights and duties established on those contracts are valid and in force.

Regarding value added tax, export of minerals or any other goods from Chile to a foreign country are exempted. Sales of goods and services in Chile, as well as imports, are subject generally to a 19 per cent value added tax. Nonetheless, the import of capital goods can be exempted if they amount to an investment equal or greater than US$5 million, and they are used in the development, exploration or exploitation of projects associated with, inter alia, mining, energy, infrastructure and telecommunications.

Law No. 21,210 introduced a new tax for the contribution to regional development. In this regard, all investment projects, including mining, involving an investment of US$10 million or more in fixed assets that are subject to the assessment of the Environmental Impact Assessment System shall pay a 1 per cent tax over the amount exceeding the US$10 million investment.

Chilean legislation also incorporates a green tax levied on sources emitting over 100 tons of particulate material per year or 25,000 or more tons of CO₂ per year.

iii Duties

Exports are free from any kind of duty, and imports are subject to a customs tariff of 6 per cent over CIF value. Nonetheless, the import of capital goods is exempted.

As Chile has several free trade agreements in force, a zero per cent or reduced custom tariff over CIF value of imports applies to imports subject to those agreements, when the corresponding certificate of origin is provided.

The import of gold, platinum, jewellery and gemstones is subject to an increased custom duty because of their luxury qualification.

iv Other fees

The owners of mining concessions must pay a yearly mining fee equivalent to approximately US$1.26 per hectare in the case of exploration concessions, and approximately US$6.3 per hectare in the case of exploitation concessions. These amounts will be increased as a result of the Reform to US$3.80 per hectare for an exploration mining concession and US$25.20 per hectare for an exploitation mining concession. Mining exploitation concession fees will increase substantially for each year of validity of the respective concession in the event that no mining work is carried out.

The latter, however, within certain limits, can be credited to income taxes originated by the exploitation of the concession. Payment must be made during March each year. Lack of payment may cause the loss of the concession through its auction or expiry within a judicial process. Small-scale producers may apply for a reduced rate of this mining fee.

The Mining Code also establishes the payment of a mining procedural fee to be paid as a requirement within the constitution process of mining concessions.

VII Outlook and trends

Among several initiatives, the Chilean government is currently working on the development of the Mining National Policy 2050, with the participation of public and private actors, to establish a new long-term sectorial policy based on four main aspects: (1) sustainable economic development; (2) social sustainability; (3) environmental sustainability; and (4) governance.

In relation to future normative changes relevant to the sector, be aware of the following:

1. it is expected that the main areas of focus in the current Constitutional process will be:
   • change in the rank of the current Constitutional regulation of mining, changing it to a merely legal rank;
   • increase in environmental and community protections and compliance requirements;
   • provide constitutional protection to water as a public good and include social utility criteria for its use and protection of glaciers; and
   • changes to the mining concession system and the obligations of the holders of mining concessions;
2. changes to the Chilean Water Code, mainly to give water-use rights a temporary character, establish termination and expiry causes, and restrict some uses;
3. the creation of a new royalty regarding copper and lithium production;
4. the creation of a National Service of Biodiversity and Protected Areas;
5. the modernisation and amending of the environmental legal framework and the Environmental Impact Assessment System; and
6. the regulation of glacier protection.

Other changes to the Mining Code implemented by the Reform are: (1) the incorporation of the new SITGAS datum in the mining property; (2) the need to have easements or other real rights in order to deduce possessory actions; (3) the obligation to submit to the National Geology and Mining Service all the geological information obtained from the exploration works carried out therein at the expiration of the mining concession under a fine of up to 100 UTM (US$6,290 at the time of writing); and (4) a benefit of reduced exploitation mining concession mining fees in some situations. These situations are: (1) mining works in the mining concession; and (2) obtaining an environmental qualification resolution for the project of which the mining concession is a part or its entry into the Environmental Impact Assessment System, which will set the value of the mining fee at US$19 per hectare for the mining concession.

The pipeline of projects in Chile is still significant, and there are relevant unexplored areas in the country, but the development of new projects has decreased in recent years, mainly because of the judicialisation of environment-related matters and community issues. Also, the mining industry has been affected by the covid-19 pandemic, notwithstanding that the industry has been able to continue the operations subject to safety limitations.