The nationalization of the large-scale copper mines in Chile: successful investment or financial failure?

Abstract

AbstractBetween 1967 and 1971, the Chilean government nationalized its large-scale copper mining industry. While this process is widely considered successful given the demonstrated long-term state capacity to profitably operate the assets, the discussion on its net financial convenience has usually been disregarded. Aiming to improve the understanding of this case of resource nationalism, this paper follows two complementary approaches. First, we provide a systematic review of the historical background, development, and short-term impact of the Chilean nationalization, consolidating at the same time the available financial data on fiscal inflows and outflows as part of this process. Secondly, we perform an ex-post NPV assessment using a 10% discount rate over the annual cash flows that the government has perceived from the nationalized mining operations from 1967 to 2022 and compare it with a hypothetical counterfactual scenario in which these mines would have remained privately owned. This yields a higher NPV of the Nationalization compared to the counterfactual. Considering that discount rates above 11.1% or operational cost reductions by 4.5% indicate a net financial loss, the results suggest that, purely from a financial perspective, the nationalization process was marginally positive for the government. We expect that this analysis provides support for a thoughtful mineral policy that contributes to sustainable human and economic development in resource-rich countries.