The
nationalization of the Chilean copper industry commonly described as the
Chilenización del cobreSpanish or Castilian is a Romance language in the Ibero-Romance group that originated in northern Spain and gradually spread in the Kingdom of Castile, evolving into the principal language of government and trade in the Iberian peninsula...
or "Chileanisation of
copperCopper is a chemical element with the symbol Cu and atomic number 29.It is a ductile metal with very high thermal and electrical conductivity. Pure copper is rather soft and malleable and a freshly-exposed surface has a pinkish or peachy color...
," was the progressive process by which the Chilean government acquired control of the major foreign-owned section of the Chilean copper mining industry. It involved the three huge mines known as 'La Gran Mineria' and three smaller operations. The Chilean owned smaller copper mines were not affected. The process started under the government of President
Carlos Ibáñez del CampoGeneral Carlos Ibáñez del Campo was a Chilean Army officer and political figure. He served as dictator between 1927 and 1931 and as constitutional President from 1952 to 1958.- The coups of 1924 and 1925 :...
, and culminated during the government of President
Salvador AllendeSalvador Isabelino Allende Gossens was a physician and the first democratically elected Marxist socialist to become president of a state in the Americas....
, who completed the
nationalizationNationalization, also spelled nationalisation, is the act of taking an industry or assets into the public ownership of a national government or state. Nationalization usually refers to private assets, but may also mean assets owned by lower levels of government, such as municipalities, being state...
. This "act of sovereignty" was the espoused basis for a later international economic
boycottA boycott is a form of consumer activism involving the act of voluntarily abstaining from using, buying, or dealing with a person, organization, or country as an expression of protest, usually for political reasons.-Etymology:...
, which further isolated Chile from the world economy, worsening the state of political polarization that led to the 1973 Chilean coup d'état.
Background
CopperCopper is a chemical element with the symbol Cu and atomic number 29.It is a ductile metal with very high thermal and electrical conductivity. Pure copper is rather soft and malleable and a freshly-exposed surface has a pinkish or peachy color...
miningMining is the extraction of valuable minerals or other geological materials from the earth, usually from an ore body, vein or seam. Materials recovered by mining include base metals, precious metals, iron, uranium, coal, diamonds, limestone, oil shale, rock salt and potash...
has long been the mainstay of
ChileChile, officially the Republic of Chile , is a country in South America occupying a long, narrow coastal strip between the Andes mountains to the east and the Pacific Ocean to the west. It borders Peru to the north, Bolivia to the northeast, Argentina to the east, and the Drake Passage in the far...
an exports and at present it still accounts for almost a third of all foreign trade, down from a peak of almost 75%. Copper has been mined since pre-colonial times in the area between central
ChileChile, officially the Republic of Chile , is a country in South America occupying a long, narrow coastal strip between the Andes mountains to the east and the Pacific Ocean to the west. It borders Peru to the north, Bolivia to the northeast, Argentina to the east, and the Drake Passage in the far...
and southern
PeruPeru , officially the Republic of Peru , is a country in western South America. It is bordered on the north by Ecuador and Colombia, on the east by Brazil, on the southeast by Bolivia, on the south by Chile, and on the west by the Pacific Ocean.Peruvian territory was home to the Norte Chico...
. Between the 1850s and 1880's Chile became the largest copper producer and exporter in the world but production more than halved by the end of the century as the nitrate industry boomed. This was due to several factors including the depletion of the higher grade veins, competition with the nitrate producers for both shipping space and coal supplies and the generally antiquated methods used by the copper industry. This changed at the beginning of the 20th Century with the entrance of mainly American capital and the development of methods to treat the massive low grade porphyry copper deposits that have become the mainstay of the industry. Due to the introduction of artificial nitrates following
World War IWorld War I , also known as the First World War, the Great War, and the War to End All Wars, was a global military conflict which involved most of the world's great powers, assembled in two opposing alliances: the Triple Entente and the Triple Alliance...
, the world market for saltpeter, then Chile's main export, collapsed. Copper then became Chile's principal export and it was during that period that copper became known as "Chile's salary".
The first substantial foreign-owned copper mine was
El TenienteEl Teniente is an underground copper mine in the commune of Machalí in Cachapoal Province, O'Higgins Region, near the town of Sewell, above mean sea level in the Andes. Mining at El Teniente is reported to have started as early as 1819...
, which was bought by the
Braden Copper CompanyBraden Copper Company was an American company that controlled the El Teniente copper mine in Chile until 1967 when its copper holdings were nationalized.-History:...
but soon taken over by
GuggenheimThe Guggenheim family refers to a number of descendants of Meyer Guggenheim who were known for their successes in mining and smelting The Guggenheim family refers to a number of descendants of Meyer Guggenheim who were known for their successes in mining and smelting The Guggenheim family refers to...
interests because of Braden's lack of capital. The first really big copper mine started with the purchase of a large section of the old Chuquicamata copper mines in 1912 by the Guggenheims which became the Chile Exploration Company. Construction started in 1913 and the first copper was produced in March 1915.
Production was about 19,000 tonnes in 1810, the year the country became independent and climbed to 51,803 tonnes in 1869 whilst it was the world's largest producer then fell away to only 20,253 tonnes in 1892. Therefter there was a gradual improvement to 51,000 tons in 1918, 100,000 in 1923, and 200,000 by 1937. Today, Chuquicamata is the mine that has produced the largest amount of copper in the world (approximately 29 million tonnes), and one of the largest man-made holes in the planet. In 1923, Guggenheim Bros. sold a majority interest in the property to the Anaconda Copper Mining Company, who bought the bulk of the remainder in 1929.
The mines involved in the nationalisation
By the late 1950s, the three principal copper mines in Chile were:
ChuquicamataChuquicamata, or "Chuqui" as it is more familiarly known, is a large open pit copper mine in the north of Chile, 215 km northeast of Antofagasta and 1,240 km north of the capital, Santiago.- Overview :...
,
El SalvadorEl Salvador mine is a combined open pit and underground copper mine in Chile, it is owned by the state owned copper mining company Codelco...
, and
El TenienteEl Teniente is an underground copper mine in the commune of Machalí in Cachapoal Province, O'Higgins Region, near the town of Sewell, above mean sea level in the Andes. Mining at El Teniente is reported to have started as early as 1819...
. Chuquicamata and El Salvador were owned by the Anaconda Copper Company and El Teniente was owned by the Kennecott Copper Corporation. The La Exotica mine, an adjunct of
ChuquicamataChuquicamata, or "Chuqui" as it is more familiarly known, is a large open pit copper mine in the north of Chile, 215 km northeast of Antofagasta and 1,240 km north of the capital, Santiago.- Overview :...
, was added to these big mines in 1966.These large mines were mainly self-contained and self-sustaining settlements with their own cities to house their workers, their own water and electrical plants, their own schools, stores, railways, and even in certain cases their own police forces.
Three other mines were eventually nationalised,
Cerro de PascoCerro de Pasco is a city in central Peru. It is the capital of the Pasco region, and an important mining center. It is connected by road to the city of Lima.- Overview :...
's Andina operation, which went to Codelco, and the two mines, Los Bronces and El Soldado, owned by Peñarroya's Disputada de las Condes, which were bought by ENAMI. Evidently these mines did not fit in with ENAMI's plans and Disputada de las Condes was subsequently sold (at a substantial profit) to Exxon Minerals.
First stage of nationalization
The first indication of the growing frustration over the copper revenues was indicated by the enactment of law 11.828 on May 5, 1955 (also known as the law for
a new deal), under President
Carlos Ibáñez del CampoGeneral Carlos Ibáñez del Campo was a Chilean Army officer and political figure. He served as dictator between 1927 and 1931 and as constitutional President from 1952 to 1958.- The coups of 1924 and 1925 :...
. That law created the
Copper Office , which had the primary objective of dealing with these multinational corporations that were fast becoming states-within-the-state.
During the administration of President
Eduardo Frei MontalvaEduardo Frei Montalva was a Chilean political figure and president of Chile from 1964 to 1970. His eldest son, Eduardo Frei Ruiz-Tagle, also became president of Chile .-Early life:...
, Congress sanctioned law 16.425 on January 25, 1966 and transformed the
Copper Office into the
Copper Corporation of Chile (
CodelcoCODELCO is the Chilean State owned copper mining company formed in 1976 from the foreign owned copper companies that were nationalised in 1971. The headquarters are in Santiago and the seven man board of directors is appointed by the President of the Republic...
). The principal objective was to increase state control over the copper industry. It also authorized the government to participate directly and invest in new and existing operations.
Based on this law, the government invested in the newly discovered La Exotica mine on February 10, 1967. The La Exotica mine was jointly owned and developed by the Anaconda Copper Company (75%) and the Chilean government (25%). More importantly, in that same year, the Chilean government acquired the majority of shares (51%) of the
El TenienteEl Teniente is an underground copper mine in the commune of Machalí in Cachapoal Province, O'Higgins Region, near the town of Sewell, above mean sea level in the Andes. Mining at El Teniente is reported to have started as early as 1819...
mine, with the remaining 49% left in the hands of the Kennecott Copper Corporation.
Second stage of nationalization
On June 26, 1969, President
Eduardo Frei MontalvaEduardo Frei Montalva was a Chilean political figure and president of Chile from 1964 to 1970. His eldest son, Eduardo Frei Ruiz-Tagle, also became president of Chile .-Early life:...
signed an agreement with the Anaconda Copper Company (which was afterwards ratified by Congress). In this agreement, the government acquired the 51% of the remaining two major mines (
ChuquicamataChuquicamata, or "Chuqui" as it is more familiarly known, is a large open pit copper mine in the north of Chile, 215 km northeast of Antofagasta and 1,240 km north of the capital, Santiago.- Overview :...
and
El SalvadorEl Salvador is a mining town in the commune of Diego de Almagro, Chañaral Province, Atacama Region, Chile. Located at an elevation of more than 2,300 meters in the foothills of the Andes and in the middle of the Atacama Desert, it has a population of approximately 7,000 inhabitants...
) and also the right for
CodelcoCODELCO is the Chilean State owned copper mining company formed in 1976 from the foreign owned copper companies that were nationalised in 1971. The headquarters are in Santiago and the seven man board of directors is appointed by the President of the Republic...
to consolidate the international sales of Chilean copper.
This process was known as
negotiated nationalization, and was designed to avoid a conflict with international investors (and ultimately with the
United StatesThe United States of America is a federal constitutional republic comprising fifty states and a federal district...
), and to allow for the acquisition of the technical, financial and marketing knowledge of the multinationals. A similar process was used to acquire a dominant ownership over the rest of the copper industry.
In the agreement, it was established that the Chilean government could buy within the next 13 years (counting from 1970) the remaining 49% of the foreign ownership from the multinational corporations, but only after having paid at least 60% of the current debt due from the purchase of the original 51%. It also fixed a clear formula for the valuation of the assets to be bought, for the liquidation of profits, for the increase of direct investment in new works, and related issues.
Third stage of nationalization
The process of
"negotiated nationalization" met with vociferous critics from the leftist political parties, and from a section of the President's own Christian Democratic Party. The idea was accused of bowing to American Imperialism, being too slow and too expensive.
In the 1970 presidential election, the outright nationalization without compensation (known as the Chilenization of copper) became one of the basic campaign issues. Two out of the three presidential candidates incorporated the idea into their political platforms, while the third opted for a faster version of the
"negotiated nationalization".
After socialist candidate
Salvador AllendeSalvador Isabelino Allende Gossens was a physician and the first democratically elected Marxist socialist to become president of a state in the Americas....
won the election, he promised to deal with the issue head-on. In fact, at the beginning of 1971, he sent Congress a project for a constitutional amendment that would allow him to nationalize outright all mines, and to transfer all present and future copper fields to the state. Congress passed this amendment on July 11, 1971, by a unanimous vote, and based on it, on July 16, 1971 law 17.450 was promulgated, and became effective immediately. The event was celebrated as the
Day of National Dignity .
In principle, there was complete agreement about the process of nationalization of the mines among all political parties represented in the Chilean Congress, as indicated by the unanimous vote that approved law 17.450. When it came down to the particulars, however, there was much concern about the political use that the Allende administration would make of it. Even so, the bigger concern was for the expected reaction of the
U.S. governmentThe federal government of the United States is the central government entity established by the United States Constitution, which shares sovereignty over the United States with the governments of the individual U.S. states. The federal government has three branches: the legislative, executive, and...
.
Compensation
Originally, the expropriation was based on the book value of the properties. Nevertheless, the Allende administration introduced the idea of "excessive profits" into the calculation of indemnization for the mines. This idea was based on the concept that the multinational corporations had reaped profits far in excess of what was considered "normal business practice". The way this was done was by comparing copper profits in Chile with the companies' profits elsewhere in the world. It was calculated that twelve percent was the worldwide profit rate for these companies, and that they had made $774 million above this in Chile from 1955 to 1970: "This deduction exceeded the book value of the companies' properties".
In October 1971, the General Controller's office handed down the calculations of the indemnizations due, in line with the parameters established by the Constitutional Amendment. According to this document, the American companies were not to receive any compensation for the
ChuquicamataChuquicamata, or "Chuqui" as it is more familiarly known, is a large open pit copper mine in the north of Chile, 215 km northeast of Antofagasta and 1,240 km north of the capital, Santiago.- Overview :...
,
El SalvadorEl Salvador is a mining town in the commune of Diego de Almagro, Chañaral Province, Atacama Region, Chile. Located at an elevation of more than 2,300 meters in the foothills of the Andes and in the middle of the Atacama Desert, it has a population of approximately 7,000 inhabitants...
and
El TenienteEl Teniente is an underground copper mine in the commune of Machalí in Cachapoal Province, O'Higgins Region, near the town of Sewell, above mean sea level in the Andes. Mining at El Teniente is reported to have started as early as 1819...
mines, and only a very small one for the rest of their properties. The U.S. government reaction was immediate. The
United States Department of StateThe United States Department of State, often referred to as the State Department, is the Cabinet-level foreign affairs agency of the United States government, similar to foreign ministries, foreign offices, ministries of external relations, etc. in other countries...
declared:
"This serious infraction to international practice can cause damage not only to Chile, but to all other developing countries".
Aftermath
The nationalised Chilean mines were kept under state control after the Pinochet's 1973 Chilean coup d'état, despite the junta's pro-U.S. leanings and this is still the case, largely because of public sentiment and because Codelco is a major contributor to the Chilean Exchequer. Codelco pays income tax, all dividends go to the government and it also pays a 10% tax on the export value of copper products and associated byproducts according to Law 13,136.
Article 1 of the Chilean Mining Code states that "The State has absolute, exclusive, inalienable and imprescriptible ownership of all mines" but goes on to say that anyone may prospect for and establish concessions or mining rights for the search or mining of substances. It appears that anyone may apply, including boys down to the age of 15 and girls down to the age of 13. As well as the Mining Code, foreign investors have to observe Decree Law No. 600 which deals with foreign investment and investment contracts. This allows tax invaribility for 10 years from start of production, access to the foreign exchange market and the right to return capital actually brought into the country without being taxed. The tax invariability can be extended to 20 years for companies bringing in US$50 million or more. In return for these concessions foreign investors have to pay a combined tax rate of 42% compared with the current 35%. They may change, but once only, to the current mining tax regime but most have opted for the higher tax rate because gives more certainty to financial planning.
On June 16, 2005, Law 20.026 was published in Chile's Official Gazette ("Diario Oficial"). The Law establishes a specific tax on mining activities, which came in force on January 1, 2006 consisting of a sliding scale according to copper production from nothing below 12,000 tonnes p.a. to 5% above 50,000 tonnes p.a. on production in excess of 12,000 tonnes p.a. Foreign companies that signed a DL 600 contract before Dec 1 2004 and are still liable to 42% tax are not affected by this. Companies bringing in US$50 million or more now can be granted invariability of mining taxation but must pay normal income tax. They must also submit their annual financial statements to external audit and to the Securities and Insurance Supervisor as well as their quarterly statements and an annual report on the property.
A fact not widely appreciated is that mining companies are generally granted generous concessions to allow them to recoup their initial capital expenditures because of the very risky nature of mining. This gives rise to a long initial tax free period and the suspicion that they are avoiding tax. The most important of these in Chilean law are organisation and startup expenses,interest expense,technical assistance,tax losses and asset depreciation, which may be accelerated. This explains why it was some years before Escondida started to pay tax.
See also
- Nationalization
Nationalization, also spelled nationalisation, is the act of taking an industry or assets into the public ownership of a national government or state. Nationalization usually refers to private assets, but may also mean assets owned by lower levels of government, such as municipalities, being state...
- Economic history of Chile
-Colonial era to 1690:In colonial times, the segmentation of Chile into latifundios left only small parcels for native American and mestizo villagers to cultivate. Cattle raised on the latifundios were a source of tallow and hides, which were sent, via Peru, to Spain. Wheat was Chile's principal...
- Chile under Allende
Salvador Allende was the president of Chile from 1970 until 1973, and head of the Popular Unity government; he was the first Marxist ever to be elected to the national presidency of a democracy. His presidency was ended before he could complete a full term in office....
- Chile under Pinochet
General Augusto Pinochet one of the most controversial figures in the history of Chile, was head of the military junta that ruled Chile from 1973 to 1990....
- Miracle of Chile
The "Miracle of Chile" was a term used by free market economist Milton Friedman to describe liberal and free market reorientation of the economy of Chile in the 1980s, 1990s, and 2000s, and the purported benefits of his style of economic liberalism...
- Codelco
CODELCO is the Chilean State owned copper mining company formed in 1976 from the foreign owned copper companies that were nationalised in 1971. The headquarters are in Santiago and the seven man board of directors is appointed by the President of the Republic...