Expert Insights:
Attracting Sustainable Investment
Chile’s standing as a mining jurisdiction in the eyes of investors, and where capital should be deployed
“Chile’s project portfolio represents between US$50 to US$70 billion in investments, and within this, there are projects that are competitive but not extraordinary. They are attractive enough to obtain investment as long as there is legal certainty. Chilean projects need to have a certainty for at least 12 years to make investments worthwhile, because low-grade or smaller projects are less competitive on a cash-cost curve.
Medium-sized companies that work with deposits such as IOCG need competitive laws to make them more profitable. If you approach majors with projects that produce 60,000 t/y, that is the end of the conversation because they are not material to them. However, if enough medium-sized companies with competitive projects were active in Chile, it would add significantly to the country’s production. I think there is interesting room for growth there, and it has the advantage to be within reach of national investors.”
Diego Hernández, President, National Mining Society of Chile (SONAMI)
“From a mining standpoint, in the past, the likes of Australia, Canada, US and Chile were considered tier one jurisdictions. Looking at Canada, currently there are some tricky situations with First Nations and getting permitted. The same in the US and Australia. Chile does not come without challenges and permitting is also an issue here. Chile is still an extremely good mining jurisdiction from a legal standpoint as well as in terms of access to a skilled workforce and competent contractors. The noise around the constitutional reform might have downgraded Chile to a tier two jurisdiction, but I believe this will soon be something of the past. Chile is still one of the best mining jurisdictions in the Latam region.”
Martín Valdes, Partner & Head of Fund VII, Resources Capital Funds (RCF)
“The first question we ask ourselves is – if we ever had to go to court in that jurisdiction, will we have fair representation as a foreign company? If the answer is no, it really closes the door on investment. You want to make sure that it is a country based on fair representation whether you are local or not. Our investment portfolio is very Americas-centric and, although there are other jurisdictions we would invest into, we structure offers with risk priced in. Companies sometimes look at WPM as an opportunity to stream off some of their political risk. However, in riskier jurisdictions we specify that we need a corporate guarantee to get our money back if a project gets seized. We are happy to take on geological, metallurgical, mining, engineering, and even community risk to some extent, but we will not take on political risk ourselves.”
Randy Smallwood, President & CEO, Wheaton Precious Metals (WPM)
“We understand the impact this new constitutional framework could have on Chile and the region, especially considering the leading role Chile is playing in the clean energy transition. We are not particularly concerned about the current situation, because we see an ongoing dialogue to find a common ground on social and environmental considerations, in order to share the benefits of investments and realize the importance of those mining investments in the country to help achieve ambitious climate change goals.”
Guillaume Légaré, Head - South America, Toronto Stock Exchange and TSX Venture Exchange
“Every time investments need to be made in different parts of the Chilean economy, the government turns to the copper industry as its source of income, which represents a growing risk for mining companies and investors. For example, Chile has set up a mechanism/fund to stabilize fuel prices for the population and the government wants to capitalize this fund with revenue attained from the copper industry in 2021. However, if you do not create the conditions for investment, there will no longer be revenue to be used in other segments of the economy. This is what happened with Argentina’s meat and soya industries and with the petroleum sector in Venezuela. The formula for success is simple – if the Chilean government invests in copper, companies can grow, will pay more taxes, and the government will have more revenue to invest in other sectors.”
Eduardo Valente, Lead Consulting Partner, EY Chile
