THE RISE OF BRINE: EXPLORATION AND DEVELOPMENT CHALLENGES IN THE LITHIUM TRIANGLE--CHILE
| Jurisdiction | United States |
THE RISE OF BRINE: EXPLORATION AND DEVELOPMENT CHALLENGES IN THE LITHIUM TRIANGLE--CHILE
Legal Subdivision Coordinator
Chilean Economic Development Agency
Corporación de Fomento de la Producción
Santiago
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PAMELA BÓRQUEZ ASTUDILLO is an attorney with Corporación de Fomento de la Producción, the Chilean Economic Development Agency (CORFO), in Santiago, Chile. She specializes in the practice of regulatory and administrative law, comprising public contracting, transparency, and lobbying regulation, and mining law, including subjects related to public law. In the last few years, she has worked extensively in matters involving CORFO's Salar de Atacama mining concession, especially in the contracts that allow their exploitation. Prior to starting at CORFO, she worked in other public entities. She earned her degree in 1998 from Adolfo Ibañez University, Viña del Mar, with highest distinction.
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The latest hike in lithium products prices, due to prospective demand from Tesla and similar manufacturers, has created a flow of investment and speculation in the "lithium triangle" that comprises Chilean, Bolivian, and Argentinean territories.
Regulatory challenges arising from issues such as sustainable development, national energy policies, and local expectations are increasingly developing there and in the U.S.
This panel will address each country's regulations, bi-national collaboration, and future challenges.
I INTRODUCTION
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Worldwide interest in electric transport, and in the storage of electricity provided by sustainable sources have generated an increase in the demand for Lithium, which shows an average increase of between 7 and 10% per annum,1 due to its being an essential raw material in the production of batteries used in industry.
In these circumstances, attention has been drawn to the so-called Lithium Triangle which stretches throughout an area that lies partly on Argentina, Bolivia and Chile, where geological and climatological conditions allowed for the formation of salt deposits that concentrate minerals such as Lithium, Potassium, Sodium Magnesium and Boron amongst other.
In this area, lies the "Salar de Atacama" (Atacama Salt Flat) Chile's largest and the only one under commercial exploitation. It is situated within the confines of the Atacama Desert, in the II Region of Antofagasata in the north of the country, and presents unique advantages for the extraction of minerals: high solar radiation levels, high evaporation rates and low-cost extraction of minerals through pumping of brine.
As a consequence of the growth of the Li market, conditions for generating sufficient quantities to supply an increasing demand for this product under sustainable conditions must be developed. These conditions include economic, technical as well as legal considerations.
Unquestionably economic and technological considerations are of prime importance, and decisive in deciding investment. Nonetheless, and beyond the important technological challenges and commercial models to be applied so that the extraction of brine can be carried out on a sustainable, efficient and financially sound basis, legal considerations become very relevant under the complex regulatory system covering the extraction of Lithium, as manifest by a tutelage of the State.
As we shall see, Lithium was reserved to the State (Lithium's only and absolute owner) since 1979, under National Security considerations). This reservation means that private individuals or entities are barred from being granted exploitation rights over Lithium once extracted from the salts.
Also, under National Security Guidelines, and from that date, all legal acts pertaining to Lithium, its concentrates, by-products and/or composites, must be carried out by, with or with previous approved of the "Comisión Chilena de Energía Nuclear" (Chilean National Nuclear Commission).
Later, and in consequence with aforementioned State Reserve of Lithium, the Constitutional Organic Law for Mining Concessions and the Mining Code, both promulgated in 1983, declared Lithium to be a substance that cannot be subject to mining concession, thus the mineral may not be subject to appropriation.
Nevertheless, the mining rights already held under mining property were upheld, and entities owning those rights were not subject to State Reserve status. Those rights continue to be observed under the new legal status, and so owners may exploit their deposits of Lithium as
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well as any other mineral subject to concession laws, but also subject to State oversight through the Comisión Chilena de Energía Nuclear.
On the other hand Lithium reserved for the State may only be mined by the State, its state-owned companies or through special contracts for its exploitation.
This paper will try to explain the rules and regulations affecting Lithium in Chile, and the foundation for its Tutelage by the State; it intends to expose, from a strictly legal point of view, the challenges posed within the context of growing demand from the industry.
II LEGAL BACKDROP FOR THE EXPLOITATION OF MINERALS
1. State ownership and Mining Concessions
Clarification of who owns mineral deposits or mines as well as the substances these may contain, as well as their mutual relationship, has been subject of studies and explanations since ancient times.
Chile utilises a type of royalty system that regulates the legal relation between State, individuals and minerals. As developed in our doctrine and though not a subject of the present paper,2 it would seem sufficient to briefly remember that one of the variant used by this system gives ownership of mines to the State and allows individuals ownership of minerals extracted from the same.
Legal status characterized in Chile's Political Constitution of 1980 - CPR, la Ley N° 18.097, Orgánica Constitucional de Concesiones Mineras, de 1983 - LOCCMI, and the Código de Minería de 1983 - CMI-rests on two basic pillars: (i) State ownership of mines and (ii) the rights of individuals be they natural, legal public or private entities, to constitute mining concessions on all such mineral elements as the law may have declared subject of concession.
Thus, in effect, according to article 19 of the Constitution of 1980 and Article 1 of the CMI, the state owns all mines, concept that includes all guano deposits, metalliferous sands, salt flats, carbon and hydrocarbon deposits and any other fossil substances excluding superficial clay. This ownership is total and absolute, exclusive, inalienable and non-prescriptive over time; it is also independent of the right of ownership that natural or legal persons may have acquired over material existing or under the deposits themselves.
Notwithstanding questions that may arise over this notion of State Dominion over mining deposits,3 this attribute forbids individuals from straight out ownership. They may obtain from the State through the Courts a legal Title that allows them exploration or exploitation of a deposit, in the latter case, become owners of extracted materials. This Title is the Mining Concession.
The Mining Concession, thus allows individuals the exploration and exploitation of mines or deposits for the materials these may contain, which entails that these materials be identified and determined to be subject to concession, in accordance with article 19 N° 24 of the CPR.
We will return to this further.
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According to art. 2 of CMI and article 2 of LOCCMI, the concession is a real right, distinct and independent from ownership of the land even if they have the same owner that may be defended against the State or person, also transferrable and transmissible subject of mortgage or other real rights, as well as of other contractual rights or obligations and also subject to the same property laws, unless these are opposed by dispositions of the organic constitutional law or the present Code itself.
We must remember at this point, that the Chilean Civil Code defines "REAL" rights as those applicable to a thing without respect to a particular person. This implies that this "real" right born of a mining concession may be asserted against any person. It is also considered an immovable asset since the subject of said right is also an immovable asset (the mine).
This right may be the object of any legal action, as duly indicated in the CMI and LOCCMI rules. As a result, it may be transferred by a legal act between individuals or companies (sale/purchase, provision in a company, donation), transmissible (by inheritance, legacy) subject of mortgage/right of use/usufruct, and, generally subject of any legal act (rent, comodatum etc.).
Concessions may include exploration or exploitation, the latter also known as "pertenencia" (denoting ownership). The mining "pertenencia" does not grant ownership over the mine, since it shall always be considered property of the State. The person granted the concession may only become the owner of the extracted minerals of his concession.
Mining Concessions may be constituted by a Judicial Resolution, and thus, the Judiciary (Courts of Justice) and not the Executive Power (State Administration) is solely granted the power to establish a mining concession. The legal procedure is established in the CMI and the LOCCMI and is strictly voluntary (non contentious) and eminently technical and is finalised by a sentence inscribed in the "Registro de Propiedad del Conservador de Minas" (Ownership Registration in a special registration office for mines), whereby historical references are available and updated regularly.
Thus the State, through its Courts of Justice, grants a private individual de right to ownership of the produce of the exploitation of a mine, by granting the individual a Mining Concession that may be...
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