In late August, the Minister of Mining, José Piñera, set out a series of strikingly original ideas in an address to the Academic Symposium on Mining Engineering at the University of Santiago. For the first time, a genuine and transparent debate on the future of Chilean mining – one conducted

on the terrain of ideas and concrete proposals – now seems possible.

 

His central point was blunt: a mineral deposit is worthless unless it can actually be worked. It is therefore urgent, he argued, to establish a mining framework that maximises exploration and development of Chile’s abundant resources. Chileans need only recall the nitrate boom – and its subsequent collapse – to understand how a once-precious asset can lose all value.

 

The minister confirmed that Codelco, the state copper giant, will remain in public hands, while exploration and development of new deposits will be carried out chiefly by private companies risking their own capital.

 

As so often in the past, Mr Piñera’s formula is both innovative and pragmatic. Until now the sector has been governed by the spirit of the dog in the manger. On one side, those who have loudly demanded Codelco’s privatisation have paradoxically prevented profitable investment in the company. On the other, die-hard statists and socialists have stubbornly opposed any expansion of private mining.

 

Mr Piñera also addressed the crucial question of compensation in the event of expropriation. It is self-evident, he observed, that “if the state can expropriate mining concessions while paying less than their true value, it creates a direct incentive to seize them for profit – and, as a result, private investment in the sector will dry up altogether”.

 

The only solution, he concluded, is to require compensation at full economic value. In the absence of a competitive market price, that value can be calculated as the present discounted value of the concession’s future net cash flows.

 

Mr Piñera’s mechanism strikes us as highly promising, as does the direction the new mining regime now appears to be taking.