COMMENTARY — Chile’s gain is Canada’s loss

In 1993, Chile was the world’s largest producer of copper, with 22% of total world exports, as well as the world’s leading producer of potassium nitrate and sodium nitrate.

Today, minerals account for 47% of Chile’s total export income, with copper providing 82% of this total.

Ownership of the country’s copper resources has been a contentious issue.

Former president Eduardo Frei began nationalizing the industry, and Salvador Allende completed the process, angering foreign companies such as Canada’s Noranda. Today, Chile’s rich copper deposits are primarily in the hands of the state-owned company CODELCO. The Christian Democrat party of former president Patricio Aylwin permitted CODELCO, in the late 1980s, to develop mines with foreign partners who are allowed up to 49% ownership. In 1993, Canada’s Lac Minerals became the first company to win a bid under the new rule and set about to develop the Abra mine in northern Chile.

While the Chilean economy is less dependent on copper than before, its mining sector — especially where the red metal is concerned — draws the bulk of Canada’s direct foreign investment. Most of Canada’s $4.5 billion investment in Chile is in the that sector, and several Canadian companies, including Placer Dome, Rio Algom, Falconbridge, Cominco and Barrick, have stakes in Chile.

Canada’s mining sector, meanwhile, provides 4.6% of Canada’s gross domestic product and 15% of its export income. Canada is the leading producer of uranium and zinc, and the second-largest producer of nickel, potash, gypsum and asbestos. Although the Canadian industry believes there is potential for discovering major new deposits in Canada, it is exasperated by what it sees as punitive government regulations, including the approval system necessary to open a mine, closure laws, and negative public opinion toward the industry’s environmental record.

In the past five years, Canada has fallen from first to fourth place in attracting international investment in mining, and some 6,500 jobs have been lost since 1990 as the result of mine closures. In a recent interview with a mining journal, Anthony Petrina, Placer Dome’s former president, said: “Mining is one of the riskiest and most capital-intensive industries, and therefore there must be the political will to sustain it. Canadians may decide the mining industry is no longer welcome in Canada. Then, the mining industry will redirect its efforts where the geological potential is favorable and the political climate encourages its presence.” Chile welcomes the frustrated industry with open arms. The approval process for direct investment is uncomplicated, regulations are favorable to the industry, and corporate taxes and labor costs are also lower. There is great political support for mining in Chile, especially as profits from CODELCO fund public works there. As well, under a law imposed under General Augusto Pinochet, the military receives 10% of CODELCO’s yearly sales. The country’s proposed admission to the North American Free Trade Act will not likely improve upon the present investment regime, but it may create more awareness and opportunity for Canada to sell mining equipment and expertise to Chile.

Chilean economists say declining grades of copper call for better productivity, and modern equipment is necessary for exploitation. Copper production is expected to decline while gold and silver yields are expected to increase in the future.

The Canadian mining industry has embarked on a campaign entitled “Keep Mining in Canada” in order to lobby the government and its citizens for more favorable regulations. While Canadian profits earned in Chile can be repatriated, the issue of jobs looms large. Mining jobs, both blue- and white-collar, are among the best paid in Canada; a flow of investment to Chile could mean serious job losses for many Canadian communities.

— From “The Focal Papers,” the publication of the Canadian Foundation for the Americas.