By Official Communication No. 16,588, on May 6 of this year 2021, the Chamber of Deputies sent the approved bill by this Chamber that establishes in favor of the State a compensation, called mining royalty, for the exploitation of copper and lithium mining, corresponding to bulletin N ° 12093-08, in order to continue its processing in the Senate, which must know and discuss it within its members to approve, reject or modify it, without prejudice to the fact that the Executive Power must also concur with its approval or rejection after the sanction of the Senate, exercising its constitutional rights. Its aspects including all its details are the following:
a) It establishes a compensation in favor of the State for the exploitation of the mining of copper, lithium and all other concessional substances, equivalent to 3 percent of the ad valorem value of the extracted minerals. It must be allocated 25 percent to a Regional Convergence Fund, which will be made up only of the counties that belong to the regions in which mining is carried out in accordance with the provisions of the law, which will finance regional development projects in the form determined by the regulation. The remaining 75 percent will be used directly to finance projects that contemplate measures for the repair, mitigation or compensation of the environmental impacts caused by mining activity in the counties where the respective deposits from which the mineral is extracted are located, to works of development of critical and digital infrastructure in the regions where mining is carried out or investment in infrastructure or research programs in state universities whose headquarters and rectory are located in the mining regions.
b) In the event that the annual average price of copper only, recorded according to the quotations of the London Metal Exchange, exceeds two dollars per pound, the compensation for that additional part of the price, between two dollars, and two dollars and fifty cents per pound of copper will be equivalent to an extra 15% of the ad valorem amount of annual sales; for that additional part of the price greater than two dollars and fifty cents, and up to three dollars per pound, it will be equivalent to an extra 35%; for that additional part of the price greater than three dollars and up to three dollars and fifty cents, it will be equivalent to an extra 50% of the ad valorem amount of annual sales; for that additional part of the price greater than three dollars and fifty cents, and up to four dollars per pound, it will be equivalent to an extra 60% of the ad valorem amount of annual sales, and for that additional part of the price greater than four dollars, the pound will be equivalent to an extra 75% of the ad valorem amount of annual sales.
c) The amount of compensation that exceeds 3 percent, referred to in literal b) above, will be used to finance a basic and universal emergency income in the context of the constitutional state of exception of catastrophe by Covid-19 decreed by the President of the Republic by Supreme Decree No. 104, of 2020 of the Ministry of the Interior and Public Security, and its successive extensions. Once the state of constitutional exception of catastrophe has ended, the amount of compensation indicated in the second paragraph will be used for general revenues of the Nation.
d) However, the additional compensation referred to in literal b) above may have a reduction to the marginal rates in each price bracket of the pound of copper that are above two dollars, for those mining operators who accredit a level of processing of the extracted minerals, according to the following criteria:
i) A 5 percent reduction at the respective marginal rate, if the mining operator produces blister copper. Blister copper is understood to be the metallic material that can have at least 96 percent purity, once the concentrate has been melted;
ii) A 7 percent reduction to the respective marginal rate, if the mining operator produces copper anodes. Copper anodes shall be understood to be blister copper that, in a new refining stage, reaches a purity of between 99.4 and 99.6 percent, and whose refining allows obtaining copper cathodes;
iii) That part of the copper sales in the form of refined mineral will pay a lower value of the compensation equivalent to the cost of refining. Refined mineral refers to cathodes of at least 99.99 percent purity. The reduction of the compensation indicated will only be authorized to mining operators whose production is accredited by the Chilean Copper Commission, at the respective processing levels.
e) Notwithstanding the foregoing, of the total amount collected for royalty, up to 3 percent will be used to contribute to the financing of projects that the Ministry of Sciences, Technology, Knowledge and Innovation executes in relation to the scientific development of research applied and advanced human resource training, found in the regions where mining is located.
f) Compensation must be paid annually by the respective mining operator, in the case of concessionary mineral substances, while the concession is in force, and, in the case of non-concessional substances (lithium) , from the start of extraction until its complete exploitation. Mining operator shall be understood to be any natural or legal person that extracts copper or lithium mineral substances and sells them in whatever productive state they are in.
g) However, this compensation will not be required from those mining operators whose annual sales do not exceed the value equivalent to 12,000 metric tons of fine copper.
h) A special regulation will determine the way in which the specific amount of compensation to be paid by each mining operator will be calculated, the opportunity and form of its payment, and any other circumstance that is required for the execution of this law.
i) Likewise, a regulation will regulate the administration, operation, conditions, destination and distribution of the resources of the Regional Convergence Fund. Said regulation must establish the criteria and mechanisms through which the projects to be financed with the resources of the Fund will be prioritized and awarded. In any case, those projects that finance development works in the mining regions of the country will be prioritized. The regulation must also regulate the criteria and mechanisms with which the projects that contemplate repair, mitigation or compensation measures for the environmental impacts that will be financed in the communes referred to in the first paragraph will be prioritized and awarded.
j) Transitory Article. – The compensation established in the law will only be applied in the sale of lithium and non-concessionable minerals if said compensation is greater than that established in the respective leasing and exploitation contracts in force, established between the State of Chile through CORFO and private mining operators”.
*This Alert was prepared by Montt Group SpA., only for educational and informational purposes and does not constitute legal advice..