Investment in Chile’s mining sector could face gridlock if political uncertainty over a new constitution is not resolved, ratings agency Moody’s said on Wednesday, a reflection of industry concerns in the world’s top copper producing nation.
Chile is redrafting its market-orientated constitution which dates back to the military dictatorship of Augusto Pinochet. It will hold a nationwide referendum vote on the new text in September, a process which has been hit by flagging support.
Some of the more contentious proposals around mining have already been rejected by the constitutional assembly, but the text would still likely strengthen environmental regulation, which could impact mining of copper and lithium.
Moody’s analyst Barbara Mattos said that without assurances for mining firms, investment may dry up. Global miners like BHP, Anglo American and Glencore operate in Chile alongside state mining giant Codelco.
“Unless the rules are clear we won’t see an increase in investment in Chile even though the country has some of the best mining deposits in the world, particularly copper,” Mattos said.
“A very important factor will be the legislation to regulate all the norms established by the constitution, which will possibly bring about changes in the conditions for making long-term investments.”
For example, Mattos explained that a ban on activities around glaciers could potentially impact 20-25% of current copper production and some expansion projects, although the ultimate impact remains unclear.
This and other regulations, such as prioritizing water use for human consumption over mining, will lead to higher costs. Added to planned higher levies on mining, this would reduce cash flows for companies, Mattos added.
(By Fabián Andrés Cambero and Carolina Pulice; Editing by Richard Chang)