The following items should help clear up some of the confusion surrounding the issue of state participation in mining. If Ecuador intends to follow the Chilean model, which has been suggested by various parties, then an understanding of what that means is in order.

extracted from:

http://countrystudies.us/chile/71.htm

Two developments in the copper sector were noteworthy. First, in the 1987-91 period there was a substantial increase in the output of refined copper, as well as a relative decline in the production of blister copper. Second, the state-owned Copper Corporation (Corporaci�n del Cobre--Codelco), the world's largest copper producer, still had an overwhelmingly dominant role (accounting for 60 percent of Chile's copper output in 1991). The so-called Codelco Law of April 1992 authorized Codelco for the first time to form joint ventures with the private sector to work unexploited deposits. Thus, in a major step for Codelco, in 1992 it invited domestic and foreign mining firms to participate in four joint explorations in northern Chile. Poreignowned private firms were to become increasingly important as new investment projects got underway. The heightened importance of these foreign private firms in large-scale copper mining also resulted from the international business community's improved perception of Chile and from a mining law enacted during the Pinochet regime that clearly established compensation rules in the case of nationalization and otherwise encouraged investment in this sector. Given this more favorable context, Phelps Dodge, a United States mining company, and the Sumitomo Metal Mining Company, a Japanese firm, signed a US$1.5 billion contract in 1992 with the Chilean government to develop La Candelaria, a copper and gold mine south of Copiap�. The mine's potential production of refined copper was equivalent to about 10 percent of Codelco's entire production.

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Here are some examples from Codelco's website of how this works in practice:

http://tinyurl.com/4rqu9c

The Law Nº 19,137, of may 12th 1992, authorized Codelco to associate with third parties in order to expand its activities in mining projects through the contribution of assets, technology, expertise and others.

According to the law, Codelco has established associations with others that have included agreements for exploration and subsequent exploitation activities.


La sociedad contractual minera El Abra

This society was created in 1994 with a participation of 49% of Codelco and 51% of Cyprus El Abra Corporation and Cyprus Amax Mineral Company, both related to the mining consortium Phelps Dodge, to develop and exploit the El Abra deposit.

Codelco´s investment was to contribute with several mining properties. The project financing agreements were established on july 15th 1995 and they include:

• A long term commercialization contract of a part of the production of El Abra with Codelco Services Limited.
• The commitment of the partners to maintain a majority percent in the property of the Sociedad Contractual Minera El Abra.
• The granting of a lien on the Sociedad Contractual Minera El Abra in favour of the entities granting the credits.
  
  

Setting in operation the mine required an investment of US$ 1,050 million. It delivers an annual production of approximately 200,000 tons of high purity cathodes.

Agua de la Falda S.A.

In 1996, Codelco participated in the formation of a society called Agua de la Falda S.A., in which it participates with 49% and the company Homestake with 51%. The aim of this society is to survey for an exploit deposits of gold and other minerals in the II Region of Chile.

Codelco contributed with with the mining properties El Hueso, Agua de la Falda Norte and Saldo del Area, as well as with rights of use of mining roads and the mineral processing plant.

In october 1999, the capital of Agua de la Falda S.A. was increased. Codelco contributed to its share with the dominion of the mining properties covered by the Prospecto Franja Aurifera and the Prospecto Copiapina Polvorín.

Currently, and after an analysis of the gold market and grade of the deposit, it was decided to temporarily close the exploitation and review this association.

Compañía Contractual Minera Los Andes e Inversiones Minera Los Andes S.A.

These companies were created in 1996 between Codelco, AMP Chile Holding Ltda and Australian Mutual Provident Society, for the exploration and development of the prospects Exploradora, Sierra Jardín, María Delia and Sierra Morena, located in the I, II and III Regions.

Codelco´s participation was through the contribution of mining properties equivalent to 49% of the capital, being possible to increase this to 65% if it chose to use its right to convert bons into shares.

In 2001 the partnewrs decided to put an end to the association. The Compañía Contractual Minera Los Andes S.A. remained under exclusive control of Codelco, and Inversiones Minera Los Andes S.A. under that of the Australian partners.

Minera Yabricoya SCM

On march 11th 1998, Codelco and Minera Cominco Chile Ltda. formed the Sociedad Minera Yabricoya SCM. Codelco suscribed 45% of the Capital and Minera Cominco Chile Ltda. the remaining 55%.

Both Codelco and Minera Cominco Chile Ltda, paid the underwritten shares by contributing with the rights and mining concessions of deposits located in Pozo Al Monte, I Region.

The aim of this society is to survey, explore, develop and exploit such mining properties and to commercialize its products.

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