The global mining industry can breathe more easily for the time being after Chile decisively rejected a new constitution that a majority of voters had decided was too radical.
In overwhelmingly rejecting the proposed new constitution, Chilean voters also rejected President Gabriel Boric and his arguments that change would have ushered in a new area of progressive social and political thought and activity.
With 99% of the votes counted in the poll, the rejection camp had 61.9% compared with 38.1% in favour of the new document. That rejection was far stronger than opinion polls had suggested on the eve of Sunday’s referendum.
The reform process itself hasn’t been rejected, just the proposed new referendum and its 300 plus articles. A slower, less radical way of reforming and updating the existing constitution is likely to follow.
Still, for the time being, companies like copper miners such as BHP, Rio Tinto, Mitsubishi, Lundin Mining, South32, Southern Copper, SQM and others in lithium have escaped any tightening of rules over their operations in Chile.
Many of the more controversial policies were rejected at constitutional conference in May.
The new constitution would have had a greater focus on social rights, the environment, and gender equality, than the existing one which was was adopted during the rule of military dictator Augusto Pinochet.
And while many of the controversial changes to the constitution so far as mining and business were rejected in earlier votes, there were still enough parts remaining among the 338 articles, to be a concerning if the document had been approved.
The proposed changes in the draft Constitution would have reduced compensation awards for expropriated property, altered water rights, and frozen mining concessions.
It would have also granted wide discretion to the country’s courts by allowing judges to decide on the amount of compensation owed for expropriated property.
With regard to changes in the regulation of natural resources, the government would have been allowed to approve only non-commercial water use and could freeze the granting of new mining concessions.
The rejected constitution also introduced new rules for the exploration, exploitation, and use of mineral resources.
Specifically, article 145 established the cornerstone of this regulation. It provided that the government has the absolute, exclusive, inalienable, and imprescriptible property right of all mines and mineral, metallic and non-metallic substances, deposits of fossil substances, and hydrocarbons existing in the national territory, notwithstanding the fact that someone else may own the land on which they are located.
The same rule also provides that exploration, exploitation, and use of the substances mentioned above will be subject to regulation that considers: (i) its finite and non-renewable characteristics; (ii) intergenerational public interest; and (iii) the protection of the environment.
Some Chilean business analysts warn that there is still support for higher taxes on business, especially the mining sector.
But talks are due to start this week between the government, politicians and others in changes to the current constitution which can still be made through the parliament though on a piecemeal basis.
But it is felt that rejected expansion projects, royalty proposals, and a general increase in anti-mining sentiment in Chile will not vanish and are around to stay regardless of the vote.
Miners and others are watching continuing discussions on tax reform which could lead to royalties and taxes on miners reaching an effective rate of 55-60%, from 40-42% at present, according to private mining association groups in the country
The majority of market participants thought that royalties were unlikely to change on any current projects, or be reimposed retrospectively.
The vote is a major setback to President Boric, who took office in March and, at 36, is Chile’s youngest-ever president.
He had tied the vote on the new constitutions so close to himself that many voters saw the plebiscite as a referendum on his government at a time when its approval ratings were low.
Boric had previously said a new constitutional process must be initiated to comply with a 2020 referendum where 80% of Chileans voted to draft a new constitution to replace the Pinochet document.
Nevertheless, most Chileans and their politicians have agreed the constitution that dates from the dictatorship has to change.