CHAPTER 1 MINING LAW IN LATIN AMERICA: A COMPARATIVE STUDY OF CHILE, PERU, ARGENTINA, AND BOLIVIA
| Jurisdiction | Derecho Internacional |
(2001)
MINING LAW IN LATIN AMERICA: A COMPARATIVE STUDY OF CHILE, PERU, ARGENTINA, AND BOLIVIA
Thomas Wälde, Professor and Executive Director
CEPMLP — University of Dundee
Dundee, Scotland
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CHAPTER 1. INTRODUCTION
Mining has become a worldwide industry due to the impact of globalization. This recent phenomenon has stimulated international competition between states with rich natural resources endowments, on an unprecedented scale, to attract investment and has, in the case of mining activities, caused a fundamental shift in preferences for investment. The initiative is moving away from developed countries, which were the leaders in terms of investment attraction, such as the U.S.A., Canada and Australia,1 to developing countries. This change in attitude has taken place in response to a more favourable investment climate in countries previously characterized by a nationalistic attitude, who have reformed their laws in line with the global patterns of liberalisation and opening-up of economies, to maximise their competitiveness at an international level. A good example of this modernisation trend within their mining frameworks is offered by the Latin American Countries, whose far reaching reforms have placed some of them in top positions in terms of investment attraction, and have also, stimulated their economic growth. Recent surveys have shown that the Latin American Region, during the last five years, has become worldwide, the recipient of most private exploration investment.2
Nevertheless, the decision to make mineral investment is rooted not only in considerations of the mining/investment legal framework, which should be characterized by its transparency, clarity and ease of implementation, but also in the critical analysis and careful assessment of other issues that, combined with a good legal regime, could provide the characteristics needed for an ideal investment climate.
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Taking into account that mining projects require the investment of large capital sums and commonly involve a long lead time before a cash flow can be established, investors, before deciding on funding a project, will analyze in detail many key issues that influence the decision-making process. The decision criteria vary according to the company, since each has different objectives and strategies. Several surveys have suggested a ranking for the decision criteria for investment in mining activities, in accordance with the stage in the mining process (exploration, exploitation and processing).3 The most important issues that will affect the investment decision-making process during the exploration stage are mineral endowment, political risk and then issues of regulatory character contemplated in the mining/investment laws of each country.4 The evaluation of the legal and regulatory mining framework is of the utmost importance, especially in the case of companies with domestic Common Law systems, since Latin American Countries are subject to a Civil Law system. While these two systems influence each other, to the point they may hybridize, they have nevertheless fundamental differences of which the investors must be aware to avoid future problems or disappointments.5
Due to the fact that countries are economically, politically and socially different, it would be impossible to indicate an ideal universal model, which could be applied globally. Nevertheless, there is a minimum set of issues that any policy maker of mining oriented countries, should take into account to enhance their international competitiveness and thereby generate a more attractive investment climate. These minimum requirements which are considered as the key issues for any attractive mining/investment framework are composed of those which are derived from mining systems that have proved successful, from surveys carried out by mining investment experts within international mining companies, and finally from guidelines provided by the international aid institutions. The World Bank has drafted mining policy guidelines for the Latin American region, which contain broad requirements that any successful mining and investment framework should provide. These minimum requirements comprise the factors that are considered of paramount importance when ranking a country's attractiveness for private investment.6
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This study will focus on the elucidation of the principal issues contemplated within the mining/investment regimes of the selected Latin American Countries, namely Chile, Peru, Argentina and Bolivia, which have enabled some of them to develop a strongly competitive edge in attracting local and foreign investment capital. It begins by analyzing the participation of these countries in worldwide mineral production and the richness of their mineral endowment. It then carries out a comparative analysis of key issues of their investment regimes and mineral laws.
Finally, the study, after summarizing the more important aspects that each of the mining systems of the countries investigated offers, which in some cases show similarities, will enumerate the main issues that determine their global attractiveness for mining investment.
CHAPTER 2. GEOLOGY AND MINERAL POTENTIAL OF THE SELECTED COUNTRIES
The most critical factor determining the prospectivity of a country or region is its mineral endowment. The first step in any mineral exploration campaign, particularly in any new terrain, must be to confirm that the mineral potential is sufficiently attractive to justify the investment required. Together with political stability and a good mining/investment and fiscal regime, this will decide the overall attractiveness of a country for investment and mineral exploration.
Several processes have accelerated globalisation, which has intensified the pace and competition in mineral exploration in the developing world, and has opened up markets with new possibilities.
Exploration in these regions has received a boost from the externalisation of small exploration companies whose domestic operations are hampered by increasingly complex and hostile legislation, particularly in the context of the rights of indigenous peoples.7 A further positive factor in the discovery of new ore deposits in the developing world, is the appreciably higher success ratio enjoyed by junior companies relative to middleweight and particularly multinational corporations.8
In the past decade, mineral exploration techniques have become increasingly sophisticated and effective. They have enhanced success, and costs have been contained, without significant increases in many instances. Moreover, indigenous exploration philosophy, particularly in the case of gold, has created tunnel vision, constraining targeting of new gold deposits to placer and vein situations in many developing countries. A broader vision in exploration modelling on the part of foreign companies has expanded the range of new types of target to include skarn deposits, replacement bodies and large tonnage disseminated low-grade deposits (for example Yanacocha in Peru, currently the largest gold producer in South America). These developments coincided opportunely with increasing efficiency in large-scale open cast mining methods.
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The ultimate determinant of the survival capability of the minerals industry in any given country during recessive phases in the business cycle, is the robustness of the price structure of the commodities involved. As will be seen later, the South American countries reviewed are particularly well placed in this respect. Many of the ore bodies, particularly the large ones with a capacity for producing a profit at historic lows in metal prices, have a guaranteed future.
To provide a basis for a better understanding of the endowment principle in the Central Andean region, a brief overview is provided of its geology. Physiographically it comprises two to three cordilleras which bound intervening high plains — altiplanos that attain a maximum width of about 250Km in Bolivia. To the east of the Andes, is a vast expanse of low lying rain forest forming the western fringe of the Amazon Basin in the north, and the plains of the pampas in the south. This largely under-developed, and thinly populated region forms the largest part of the surface area of Peru and Bolivia.
The terms metallogeny and metallogenic epoch refer to the distribution, type, extent, and intensity of metalliferous mineralisation in space and time. A distinctive metallogenic belt close to the Pacific coast can be distinguished, within which lie the major copper-gold, and base metal deposits. These include copper-gold porphyries, epithermal gold vein systems and some base-metal ore bodies. Inmediately to the east, further inland lies a second parallel belt of precious metal vein deposits that coincides largely with youthful volcanic complexes along the backbone of the Andes. Clearly the metalliferous deposits are not randomly distributed. They show a strongly developed linearity. Conforming to the strong NS to NW trend of the Andes as a whole, they reflect an inherent structural control. A correlation is also evident in terms of lithology,9 in that the precious metal vein systems are mainly associated with volcanic terrains while the major copper bearing porphyries correlate strongly with intrusive bodies of granitic to quartz dioritic composition in the coastal belt.
In terms of the temporal vector, the intensity of metallogeny peaked during the Mesosoic era, and particularly more recently in the Neogene (Upper Tertiary). This resulted in the formation of World class copper porphyry deposits with by- product gold, and hydrothermal precious metal vein systems respectively. Also important are the volcanic massive sulphide (VMS) deposits, metasomatic and polymetallic replacement deposits in...
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