CHILE: An Introduction to Energy & Natural Resources: Mining

Chile is an internationally renowned mining jurisdiction, famous for its world class mining deposits. It is the biggest producer and has the largest reserves of copper in the world, and it produces significant quantities, and has large reserves, of molybdenum, lithium, silver, gold, iron and other minerals.

In recent years, the Chilean mining industry has been affected by the pandemic, local social unrest, a challenging economic scenario, and two Constitutional processes, where different Constitutional Conventions drafted and proposed new Constitutions for the country, both of which were subsequently rejected by a staggering majority of the population.

Currently, the country has returned to its traditional path of being a stable mining jurisdiction; one that provides significant certainty and protections for foreign investors and for the development of mining. Nevertheless, the Chilean mining legal framework has seen some recent relevant changes, such as:

• a significant increase in the mining fees applicable to mining concessions, both for exploitation and exploration, which can be attenuated based on a range of factors including permitting, operations and the size of the mining concern in question;
• a limitation on the renewal of exploration mining concessions, which together with the increase in mining fees is forcing many companies to reactivate or re-evaluate projects, or even consider abandoning mining properties that are not being used or try to reach deals with third parties that will allow them to have exposure to future discoveries;
• new obligations for the owners of mining concession to report to the relevant authority the geological information obtained from exploration activities;
• changes to water legislation, mainly to provide to water-use rights a temporary character, regulate their termination, and restrict certain uses, including limitations on the right to use water found as a result of mining works; and
• the approval and entry into force of the new mining “royalty” tax (Law 21,591), which after a long legislative discussion and multiple changes, was issued with the intention to raise public revenues and deliver funds for regional governments and municipalities where mining activities take place, providing much-needed tax certainty to the mining sector.

From a compliance point of view, the recently enacted “Ley Karin” (Law 21,643) compels companies to adopt protocols against workplace harassment and psychosocial harm, enforceable by labour authorities. Governance duties have also been intensified by Law 21,595, which expanded corporate liability to more than 200 offences, including environmental crimes, making comprehensive Crime Prevention Models — updated for ESG risks — essential.

Also, listed issuers must meet disclosure Standard 461 and risk governance Standard 508, while the forthcoming “More Women on Boards” statute will raise diversity thresholds.

Regarding environmental protection, Law 21,600 created the National Service of Biodiversity and Protected Areas (Servicio de Biodiversidad y Áreas Protegidas , or SBAP) and a stricter network of protected areas, requiring early biodiversity planning. There is also a pending reform to the Environmental Impact Assessment System (Sistema Evaluación de Impacto Ambiental, or SEIA) for its Spanish acronym) that will embed climate change metrics, delegate assessments to expert regional directorates and mandate early community dialogue. Changes that will lengthen scoping but reward well-designed projects. In addition, there are three bills being discussed in Congress, which aim to streamline the approval process for projects subject to environmental evaluation, to organise and increase the efficiency of the current system for granting sectorial permits and to strengthen and improve the effectiveness of environmental regulation enforcement and compliance.

The Chilean mining industry has also been transitioning for several years towards the use of clean energy and desalinated water, plus an effort to integrate new technology and AI, with an emphasis on reducing the environmental footprint of mining activity and raising performance and efficiency.

Financing trends mirror regulation. In such regard, since 2019, Chile has issued over USD7 billion in sovereign green, social and sustainability bonds, guiding banks to align lending with IFC Performance Standards, the Equator Principles and the forthcoming Sustainable Finance Taxonomy. A proposed greenwashing law will penalise unsubstantiated ESG claims, but credible emissions, water and human rights strategies increasingly unlock preferential pricing through green bonds, sustainability -linked loans and royalty finance.

The Chilean government has issued its National Mining Policy 2050, which, among other things, establishes the aim of carbon neutrality by 2040, the use of renewable energy, and limiting the use of continental water to 5% of the total used by industry by 2040.

Concerning lithium, in 2023 the government launched the “National Lithium Strategy”, which seeks to increase state involvement while allowing private participation, with partnerships between state-owned companies and private firms to develop untapped lithium-rich salt flats. In this context, in early 2024, the government invited investors to gather information for future bids on special lithium operating contracts. The strategy also included the renegotiation of contracts with current producers.

Due to the current positive political and regulatory situation of the country for the mining industry, and the current situation and forecast for the international commodities market, mining M&A activity in Chile is increasing and several relevant projects are advancing. Nevertheless, financing for the mining industry is still challenging in Chile, particularly for small and medium size projects. In this regard, mining royalties have become more relevant as an attractive source of alternative financing, especially for advanced projects. Likewise, the possible impact of the international tariffs war on the industry and Chilean mining products is yet to be seen. In this regard, notwithstanding the reawakening of the Chilean mining industry, many exploration companies are still struggling to advance their projects due to a lack of financing.

While Chile is a well-known mining nation, with a highly developed mining industry, there still are significant opportunities in the country, with significant unexplored areas, and huge potential to upscale existing deposits, particularly regarding mid-tier projects. This scenario, together with a strong and stable mining regulation, makes Chile today one of the most attractive mining jurisdictions in Latin America and the world.