Chile Votes “No” to Mining Reforms

Chileans recently rejected a proposed new constitution which if passed, would have been one of the world’s most progressive – a clear contrast from the market-friendly policies of the Pinochet regime. There have been amendments made since the 1970s, as Chileans have displayed an interest in moving on from their authoritarian past. With almost all the ballots counted, 62% of voters rejected the proposal with only 38% voting in favour of it, according to the Chile Electoral Service.

The proposed constitution had the support of Chile’s new leftist President, Gabriel Boric. It featured a strong emphasis on indigenous self-determination and environmental protections and dismantled the water rights system. It was rejected in all of Chile’s provinces, including the capital Santiago where most voters supported Boric in the last election.

After a historic win, President Boric vowed to fundamentally change the political direction of Chile.

Chile: A Mining Nation of High Importance

Chile is the largest copper producer in the world with 28% of global production. They are the second largest producer of lithium with 22% of world production – the mining sector represents over half of the country’s total exports. Chilean copper mines are 72 % owned and operated by private mining companies, so any legislation affecting markets will have a huge impact on the industry.

The health of the mining industry is an important indicator of the health of the Chilean economy, representing about $30 billion US or 10% of the nation’s total GDP.

GDP from Mining in Chile increased to 3917.08 CLP Billion in the second quarter of 2022 from 3735.25 CLP Billion in the first quarter of 2022 (Central Bank of Chile)

If this legislation was passed there would have been sweeping changes affecting markets and mining. Namely, “nature” would have been granted constitutional rights. There would have been an Ombudsman for Nature installed and tasked with monitoring and enforcing these rights. Regulatory authority to monitor these rights would be decentralized, with local citizens granted the power to bring environmental lawsuits against companies.
Exploration and extraction of resources would come under stricter governance

“Unsellable” Water

The proposed legislation would have enshrined water rights to the public and indigenous groups, protect glaciers and wetlands – resulting a prohibition on the commercialization of water. Chile’s water is highly privatized – the legislation had implications for all economic activities including water like mining and agriculture.

The new constitution had detractors on the left and right, with conservatives denouncing the regulatory constrictions and potential economic destruction, and supporters calling for another proposal to feature adjusted reforms.

The IGPA increased 8357 points or 38.80% since the beginning of 2022, according to trading on a contract for difference (CFD) that tracks this benchmark index from Chile.

Chilean Market

The market responded with a strong rally before paring gains at the end of Monday. The Chilean stock market rose more than 6% to an all-time intraday high of 6,000 points. The Chilean peso rose more than 4% against the US dollar. This isn’t a sign of blue skies ahead for the Latin American country, as continued legislative uncertainty could slow capital inflows, weaken the peso, and ultimately add inflationary pressures.

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