CHILE: ALLENDE'S MOVES TO COMPLETE THE TAKEOVER OF US COPPER HOLDINGS

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85T00875R001700010037-9
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 21
• Document Creation Date: December 22, 2016
• Document Release Date: January 28, 2010
• Sequence Number: 37
• Publication Date: May 1, 1971
• Content Type: IM

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Secret
DIRECTORATE OF
INTELLIGENCE
Intelligence Memorandum
Chile: Allende's Moves To Complete The Takeover
Of (IS Copper Holdings
Secret
ER IM 71-86
May 1971
Copy No'.- 66
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WARNING
This document contains information affecting the national
defense of the United States, within he meaning of Title
18, sections 793 and 794, of the US Code, as amended.
Its transmission or revelation of its contents to or re-
ceipt by an unauthorized person is prohibited by law.
GROUP 1
F,duded Iran, aulan,adt
dawngrodinp and
d, I,IlGfallan
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CENTRAL INTELLIGENCE AGENCY
Directorate of Intelligence
May 1971
Chile: Allende's Moves To Complete The Takeover
Of US Copper Holdings
Introduction
1. A con
stitut'onal amendment to facilitate full
copper nation
alization has passed the Chilean Congress
and should be
come law in July. The amendment circum-
vents judicia
l review of expropriation decisions and,
although Cong
ressional modifications in the bill permit
some flexibil
ity in negotiating with the companies
involvad, pay
ment of adequate and timely compensation
still appears
unlikely. This memorandum discusses the
structure of
the Chilean copper industry, the role of
foreign capit
al in its development, Chilean government
participation
in copper operations under agreements
negotiated by
the Frei administration, and Allende's
moves toward
full nationalization. It also assesses
the potential
loss to US companies and other investors,
prospects for a negotiated settlement, and Chile's
possible financial gains from the takeover.
Conclusions
2. Chile's earnings from its large US-developed
copper mines already have increased significantly
as a result of the nearly completed investment
program and the tax and equity changes effected by
the Frei administration. Completing the nationaliza-
tion process will reap substantial new gains for
the Allende government, provided that compensation
payments and production shortfalls are limited.
Potential gains from abrogating the Frei agreements
with the US copper companies would be particularly
Note: This memorandum was prepared by the Office
of Economic Research and coordinated within the
Directorate of Intelligence.
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large during 1971-73, when capital outflows on
accelerated amortization of third-party credits
to the expansion program and on the buying out of
Anaconda were expected to be high.
3. If Chile is to retain its credit rating in
international financial markets, however, the
Allende government will have to pay more for the
copper properties than it probably had earlier
intended. Because third-party capital played a
substantial role in financing recent expansion,
outstanding loans from the Export-Import Bank and
US, European, and Japanese private institutions --
which Allende has publicly stated will be honored --
now exceed $350 million. If pressed, these creditors
might agree to some debt rescheduling, particularly
in regard to easing accelerated amortization re-
quirements.
4. Chile will take a hard line on compensating
the US copper companies despite some concern about
the impact of its actions on potential foreign
investors. The companies' investment stake (in-
cluding the unredeemed Chilean government notes
issued to Anaconda) totals an estimated $550 million
at book value -- a substantial understatement of
its fair market value. The companies generally
are in a weak bargaining position because only slightly
more than one-fifth of the total investment book value
is covere(' by US government insurance. Settlements
negotiates by the individual companies probably
will vary considerably, depending upon the size of
the financial stake involved, the insurance coverage,
the company's public image in Chile, and its will-
ingness to cooperate with the Chilean government
in providing technical and marketing assistance --
perhaps at the expense of the other companies in-
volved.
5. Chile's gains from copper nationalization
clearly will depend upon the amount of compensation
paid for the properties and the impact of nation-
alization on copper output. Under the unlikely
circumstances that no compensation were paid and
no production shortfall occurred -- and assuming
that copper prices continue at the recent level.
of about 55 cents a pound -- copper nationalization
could yield Chile some $1.2 billion more in net
foreign exchange than the $4.6 billion it would
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have earned during 1971-76 under existing agreements.
If third-party creditors were paid over the maximum
term and the companies compensated at book value,
Chile could still gain about $600 million during
this period, provided that production matched the
levels expected under company management.
6. But technical difficulties attending the
starting up of new facilities already have caused
production lags, and production shortfalls are
expected to be significantly larger and more pro-
longed with Chile's takeover. A serious loss of
technicians and erosion in labor discipline already
has occurred. Should production lag as much as
20% behind planned output -- and this seems likely
at least over the next year or so -- Chile would
in fact immediately suffer financial losses from
nationalization if creditors and companies were
compensated. If such a lag persisted, earnings
could be some $600 million lower during 1971-76
than had been expected under existing agreements.
A continued output shortfall of 20% would cause
losses after 1973 even if no compensation were
paid.
7. Even if a negotiated copper settlement
is reached, there is of course no assurance that
compensation schedules will he met. High copper
earnings would make payments easier but by no
means certain. Default is most likely to occur if
the Allende government judges that such a move
would cause leP7 of a loss in new capital received
than it is paying out in compensation.
Discussion
The Industry's Importance and :structure
8. Chile vies with Zambia as the Free World's
second largest primary copper producer and the
world's largest copper exporter. Its 1969 output of
760,000 tons 1/ accounted for some 14% of the Free
1. All tonnages in this memorandum are short tons.
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World's copper mine production and about one-fourth
of its copper exports. Chile's known copper reserves
are perhaps the largest in the Free World and, be-
cause of their high average ore content, production
costs are relatively low. The industry provides
75%-85% of Chile's export earnings, about 10% of GNP,
and about 20% of government tax revenue. Although
the industry employs only about 5% of the industrial
labor force, its workers are among the best trained
and by far the highest paid in Chile.
9. Foreign investment was essential in develop-
ing Chile's copper industry because of the massive
capital and advanced technology required. The
three largest mines, producing 80%-85% of Chile's
copper, were developed by US investors. Chuquicamata,
the world's largest open pit mine, and El Teniente,
the world's largest underground mine, have been
operated by Anaconda and Kennecott, respectively,
since about 1920. The considerably smaller El
Salvador mine was developed by Anaconda in the late
1950s to replace a nearly depleted mine in the same
area. Two new copper mines -- Exotica and Andina -
Rio Blanco -- which are being developed by Anaconda
and Cerro Corporation, respectively, began producing
in late 1970 and are scheduled to reach full pro-
duction in 1971. Although these mines are currently
only small producers, they will soon have substantial
output and are included in the five large mines
scheduled for expropriation under the constitutional
amendment now in the Congress. Chile's most pro-
ductive medium-size mines also have been developed
mainly by foreign capital and include Sagasca
(Continental Copper's joint venture with the Chilean
government), the German-owned Mantos Blancos, and
the French-owned Disputada. (See the map for loca-
tions of Chile's eight largest mines.)
The State's Position in the Industry by 1970
10. Thanks to the Frei administration's adroit
handling of copper affairs, the government at the
time of Allende's accession already owned 51% of
the major segments of a newly modernized and ex-
panded industry. Moreover, its combined receipts
from dividends and taxes on the five large mining
properties had risen to some 85% of gross profits.
The government's equity participation began with
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CHILE
Location and Ownership of Large and Medium-Sized Copper Mines
eSOCRE -10.11
Iquique, agnsCn
I ntlnental Copper)
Chuquicemefa, C IUq
Exotica (Anaconda Co )y' !
Antofagasta. 'x'MUnlo/
Aeon
)nda Co.
Blancos (German)
SANTIAGO JZ` AIRES
.I Teniento
Kennecolt Copper Corp.)
SOUNOAAY a/FNIUINTATION II
NOT NICIIIANILY AUINORITATIVI
FALKLAND I
(U.KSLANDS
.)
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the 1967 "Chileanization" agreements under which
it acquired a 51% interest in Kennecott's El Teniente
mine, a 25% interest in Anaconda's Exotica, and a
30% interest in Cerro's Andina - Rio Blanco. The
agreements also guaranteed reduced and non-discrim-
inatory tax rates for 20 years in exchange for the
companies' participation in a $600 million invest-
ment program designed to increase output substantially
by 1972.
11. Less than two years later the Chilean govern-
ment forced the companies to accede to basic changes
in the copper agreements. 2/ Threatened with immediate
expropriation, Anaconda agreed to transfer a 51%
equity in Chuquicamata and El Salvador on 1 January
1970 and to sell the remaining 49% sometime during
1973-81, at Chile's option. At the same time the
Frei government subjected Anaconda's newly national-
ized mines to higher tax rates and applied a
variable excess profits tax to them as well as to
Kennecott's El Teniente mine. This so-called "over-
price" tax becomes progressively steeper as copper
prices rise above 40 cents per pound and was de-
signed to limit windfall profits from prevailing
high prices. The following tabulation shows the
government's share of gross profits (after deprecia-
tion allowances) resulting from the various tax
and equity changes effected by the Frei adminis-
tration:
1966 1967 1968 1969 1970
El Salvador (Anaconda) 50.0 49.9 50.0 68.1 87.6
Chuquicamata (Anaconda) 61.1 58.6 57.8 74.6 86.5
El Teniente (Kennecott) 78,5 70.0 72.6 80.0 83.5
Exotica (Anaconda) -- Not yet producing -- 55.7
Andina - Rio Blanco (Cerro) -- Not yet producing -- 58.4
Weighted Average
67.2 61.9 61.0 75. 8 84. 6
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12. Despite these radical changes, the companies
were forced to continue the investments called for
under the 1967 copper agreements. By November 1970,
when the Allende government took office, the ex-
pansion programs were about 90%-95% completed. As
a result of these investments, annual production
capacity of the large copper mines will change as
follows:
Thousand Tons
1966
1972
E2. Salvador
(Anaconda)
86
110
Chuquicamata
(Anaconda)
334
390
El Teniente
(Kennecott)
170
280
Exotica (Anaconda)
0
112
Andina - Rio Blanco (Cerro)
0
78
TdtaZ
590
970
The investment program also called for substantially
increased refining capacity, which will increase the
share of higher priced, electrolytic copper, as
follows:
Percent of Total
Processed Copper
Electrolytic
45.6
65.0
Fire-refined
13.8
12.5
Blister
40.6
22.5
Allende's Moves So Far
13. Allende and his Popular Unity Front left no
doubt, either before or after the election, that
full nationalization of the large copper mines was
a priority target. The only question concerned com-
peisation. Because the Chilean constitution
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guarantees that agreements such as those signed by
the government and US copper companies can be revised
only by mutual consent, the Allende government opted
to amend the constitution. Simple congressional
expropriation, while faster, would be subject to
review and possible over-ruling by Chile's inde-
pGndent and conservative Supreme Court. The proposed
amendment has some precedent in Frei's agrarian re-
form program, which required similar action to exempt
land expropriation cases from judical review.
14. The constitutional amendment sent to Congress
by Allende on 22 December 1970 was extremely punitive,
virtually assuring that little or no compensation
would be paid for expropriated properties. The amend-
ment as modified by the Congress still permits
nationalization with little or no compensation but
provides some scope for possible negotiation. The
Congress also rejected an administration article
requiring that compensation arrangements made for
large mining companies apply to all basic resources
nationalized. While the revised amendment gives the
state complete authority over all mines and mineral
deposits, it details provisions for expropriation
of only the large-scale copper mining industry.
15. The amendment's major provisions as presently
written are as follows:
Upon its enactment, the assets of the five
large copper mines become state property,
as do the assets of any associated or
affiliated companies deemed necessary by
the President.
Compensation is to be determined within 90
days by the government's national account-
ing office, but this period can be extended
an additional 90 days if necessary. Compen-
sation will be based on the book value of
assets on 31 December 1970 less revalua-
tions of assets after 1964. This amount
will be reduced to reflect unpaid back
taxes and penalties, mine depletion,
obsolescence, and inadequate servicing.
Furthermore, the President is authorized
to deduct from compensation "excess profits"
obtained by the companies since 1955;
Allende could apply this provision in such
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a way that compensation to the two major
companies would be nil.
The companies and the state have 15 days
to appeal the compensation decision to a
special tribunal composed mainly of politi-
cal appointees.
-- The President will fix conditions of pay-
ment over a period not exceeding 30 years,
at not less than 3% annual interest. (The
original text called for equal payments
over 30 years at 3% interest.)
-- Past government agreements with the mining
companies are no longer considered valid.
Amounts already paid on the purchase of
Kennecott shares in 1967 and on the $175
million in notes given Anaconda in 1969
will be deducted from initial payments of
the newly determined compensation.
-- Compensation payments will be terminated
if the companies refuse to turn over studies,
plans, reports, titles, data, or other items
necessary to current and future operations
of if they engage in "obstructionist conduct".
16. The status of third-party creditors -- such
as the Exro7t-Import Bank, US and foreign commercial
banks, and Japanese companies -- is not clearly stated
in the amendment. In fact, the Allende government
probably did not fully recognize the importance of
third-party capital in Chilean mining operations when
it submitted the amendment to the Congress. Only
since late February have government spokesmen ex-
pressed "surprise" that the joint copper ventures
owed large foreign debts and that the US copper
companies "had not invested a single fresh dollar"
in the expansion program.
17. While these government statements are ex-
aggerated, third-party f.;.nancing unquestionably
has played a major role in the ongoing investment
program. The increasingly apparent conflict be-
tween its twin goals of acquiring the copper
properties for a minimal payment and maintaining its
international credit rating at least partly explains
Allende's relatively deliberate pace on mining
nationalization in recent months.
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Im lications
Foreign Investor Stake Involved
18. A conservative estimate of the financial
stake of foreign investors in the five copper mining
properties scheduled for expropriation would be
nearly $1 billion. Of this sum, t1,P book value of
direct company investment (equity interests plus
direct parent company loans to Chilean subsidiaries)
is estimated at only some $390 million. The long-
term foreign loans to the joint copper companies
are almost as large. These and other elements in
the companies' capital structure, as estimated for
30 September 1970, are detailed below:
Million US $
Capital and
Liabilities
(Equal to Assets)
Of Which:
Foreign Investors'
Stake
US companies' direct invest-
ments
390
390
Equity
Parent company loans
285
1285
Chilean government's paid-up
equity
155
Chilean government's equity financed
with notes not yet redeemed a/
160
160
Long-term foreign loans
355
355
Export-Import Bank
,
185
US commercial banks
86
European commercial banks
53
Japanese firms
31
Short-term credit and accrued taxes
100
75
Total
1,160
980
a. Unredeemed portion of the 175 million in Chi lean government
notes given to Anaconda in 1969 as payment for a 52% interest in
the Chuquicamata and EZ Salvador mines.
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19. Repayments on the long-term foreign loans
are scheduled to begin in 19'l. The Export-Import
Bank and Japanese loans carl.i a maximum repayment
period of 15 years at 6% interest, but accelerated
amortization features tied to profits could shorten
this period considerably. At current copper prices,
as much as 90% of these loans would be paid off by
the end of 1973. The commercial bank loans carry
somewhat higher interest rates and are scheduled to
bn repaid in six to eight years. With accelerated
amortization, debt servicing on all. third-party
credits would average an estimated $100 million
annually during 1971-73 and then fall to $25-$30
million. At a fixed rate over the maximum term,
payments would total about $50 million annually
through 1978 and then decline to less than $20 million.
20. The book value of the companies' investment --
while probably the best the companies can hope to
recover -- clearly is much lower than their share of
the properties' fair market value, based on either
replacement cost or sales value under normal circum-
stances. Another internationally accepted method
of computing market value is to discount future
income by applying a multiple earnings factor -- the
method accepted by the Frei government in 1969 for
the planned purchase of Anaconda's remaining 49%
equity. Application of the same formula (a multiple
of between six and eight) to projected average net
earnings of the companies during 1972-76 would,
under present tax and equity arrangements and with
a copper price of 55 cents per pound, yield a fair
market value of between $750 million and $1 billion.
21. Of the three US companies, Kennecott probably
would be damaged the least by confiscatory Chilean
action. Although El Teniente is a profitable
property, it has been treated as a marginal invest-
ment for many years. Kennecott in fact did not put
any "fresh dollars" into the $250 million expansion
program but simply reloaned to the joint venture
the $80 million plus interest received from the
Chilean government for its purchase cf a 51% equity
in the operation. This loan is fully insured under
the US government investment guaranty program. The
remainder of the investment program was financed by
loans from the Export-Import Bank ($81 million),
Japanese and European sources ($53 million), and the
Chilean government ($24 million). When the joint
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venture was formed in 1967, El Teniente's assets
were revalued substantially upward to reflect their
fair market value. If the constitutional amendment
provision nullifying all post-1964 revaluations is
strictly applied, the Allende government could place
a negative value on Kennecott's remaining equity
because the price the company rc.:aived for a 51%
share was more than the investment's total book
value before revaluation.
22. Cerro Corporation is facing expropriation
of its investment just as it begins to earn a
return. The $150 million investment program at the
Andina - Rio Blanco mine is being financed by $42
million in parent company capital and loans, $19
million from the Chilean government, and $88 million
in loans from the Export-Import Bank and Sumitomo.
About 85% of these funds were scheduled to be ex-
pended by the end of 1970. Only $14.2 million of
Cerro's investment is covered by US government
investment guaranties.
23. Acaconda stands to lose the frost, primarily
because its Chilean properties bulk large in its
operations despite recent attempts to diversify.
Its investment program in Chile (including housing
construction) totaled almost $300 million, with
about half being financed from company funds and
only $4 million coming from the Chilean government
in payment for an equity share in Exotica. Anaconda
raised the remaining funds through loans fror. the
Export-Import Bank ($59 million), European banks
($24 million), and US commercial banks ($62 million).
Almost all of this financing was arranged while the
company had majority control in the enterprises
being developed. Although the Chilean government
assumed major responsibility for debt servicing when
it bought out 51% of the two larger mines, the con-
stitutional amendment now in process could nullify
the agreement.
24. The book value of the three properties now
owned jointly by Anaconda and the Chilean govern-
ment probably exceeds $400 million. The $175 mil-
lion price agreed upon in mid-1969 for Chile's
purchase of a 51% interest reflected fairly closely
the properties' book value (with no upward revalua-
tion) at that time. Anaconda's acceptance of less
favorable terms than Kennecott had received in 1967
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was predicated on the promise of a better return on
the remaining 49% equity under the multiple earnings
formula. In the interim, of coursr:, the properties'
book value has continued to rise as expenditures
under the expansion program were made. In case of
expropriation, Anaconda is assured of only $22.5
million in coverage under the investment guaranty
program. The US government is contesting the validity
of an additional $247 million in coverage that the
company claims.
Chances of a Negotiated Copper Settlement
25. The constitutional amendment as it finally
emerges from the Congress will leave the Allende
administration a considerable degree of flexibility
in making decisions on expropriation terms. Mc..-.-e-
over, it may decide to negotiate with the companies
during the two-month waiting period before the
Congressional legislation becomes effective. Chilean
officials are hard at work weighing the costs and
benefits of alternative expropriation terms. Factors
that will influence the Allende administration's
decisions include the following:
A desire to keep its options open regarding
investments, loans, and economic assistance
from Free World sources.
A preference, at least for the time being,
to avoid an open break with the United States.
Its calculation of domestic political
benefits and costs deriving from a hard stand
against the copper companies and the United
States.
The possible usefulness of the companies'
continued cooperation in technical and
marketing matters.
A desire to minimize the economic costs of
compensation.
26. Allende apparently considers it highly
desirable -- if not essential -- to retain the
confidence of international agencies and foreign
banks and firms, particularly in Western Europe and
Japan. He has stated publicly that the interests
of third-party creditors of the copper enterprises
will be protected, while blaming the US companies
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for saddling the country with these debts. Chilo
probably will forcefully press its case for a re-
scheduling of these debt service payments, however,
and in particular will seek relief from the acceler-
ated amortization procedures incorporated in the most
important credit agreements. Because these acceler-
ated payments are based on profit statements that
will be drawn up P,y the Chilean government after
expropriation, the creditors involved may deem it
poin':less to be inflexible on the matter.
27. The Allende government can be expected to
take a much harder lin'a with the copper companies.
Although it has shown greater flexibility than ex-
pected in negotiating takeover terms with various
US manufacturing firms and with Bethlehem Steel,
this does not necessarily presage a similar settle-
ment with the copper companies. The Bethlehem
Steel and copper company cases differ in several
essential respects. Adequate compensation for the
copper holdings would involve much lager outlays.
Moreover copper nationalization is a highly sensi-
tive political issue in Chile, and the Allende
government will not want to appear guilty of being
too lenient with the companies. Perhaps most im-
portant, Bethlehem Steel was in an excellent bargaili-
ing position by virtue ?,.f its investment guaranty
coverage. The desire to avoid an early ccafront.-
tion with the US government undoubtedly affected
the Allende government's posture. At the other
extreme, US government denial of the validity of
most of Anaconda's coverage is publicly known : nr1
may lead the Allende government to believe that.
confrontation is unlikely even if compensation is
inadequate. Current investment guaranty coverage
for all three copper companies totals only $121
million, compared with the $550 million book vaiua
of company investment plus the unredeemed portion
of the notes issued to Anaconda.
28. The expected negotiations will be difficult --
assuming that Chilean political circumstances do
not trigger unilateral action. Our best guess at
this point is that the Allende administration will
generally hold to a compensation price below book
value and insist upon stretching payments over a
period of 20 years as well as other terms considerably
less favorable to the copper companies than those
offered other foreign firms. Because Cerro has just
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begun to earn a return on its property and its in-
vestment is relatively small, it probably will be
given special consideration on both price and terms.
Also, the 15-year repayment period on Kennecott's
loan to El Teniente probably will be honored, largely
because cf its US government insurance coverage.
The 1969 contract with Anaconda, however, almost
certainly will be abrogated in at least two im-
portant respects: (a) the requirement that three-
fifths of the $175 million sales price for the first
51% share be paid before purchase of the remainder
and (b) the agreement to base the price for the 49%
share on a multiple earnings formula. Moreover,
it is unlikely that the company's new investments
will be treated as favorably as that of Cerro Corp-
oration.
29. Other considerations may also contribute to
disparities among the settlements received by the
three copper companies involved. If willing to
cooperate 'pith poss-' :ble Chilean efforts to play one
investor off against the other, an individual
company could substantially improve its bargaining
position. F.Dr example, the Allende government
almost certainly realizes that its future mining
operations would benefit from continued access to
US technical and marketing assistance and may be
willing to negotiate more favorable compensation
ter.,-,.a to obtain such company services. tt is least
lixely to choose Anaconda for this role because
the company's financial stakes ar.~ the largest, and
justifiably or not, its ,Nublic image in Chile is the
worst. Cerro would appear to bo the most acceptable
on both counts, *+ut Kennecutt's extensive experience
with Chilean miAing operations and good relations
in the past with the government may give it an in-
side track.
Chile's Potential Gains from the Takeover
30. Because the expansion program is nearly
complete and debt repayment just beginning, Chile
will be taking over the large mines at an ideal
time from the point of view of capital flows.
Gross investment inflows under the program ar-
scheduled to decline from an average of $150 mil-
lion annually during 1968-70 to less than $20 million
in 1971. At the same time, remittances of dividends
and depreciation allowances and debt servicing
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SFF,(:J I?'L'
payments are scheduled to increase from an average
of $135 million in 1968-70 to $255 million in 1971.
Assuming that the Chilean government would have
opted to buy out Anaconda's remaining equity at the
earliest date permitted under the 1969 agreement,
total, capital ou!flows would have jumped to $320
million in 1972 And than declined to about $215 mil-
lion in 1973 and an average of $155 million annually
in 1974-75.
31. If the 1969 agreements were adhered to, Chile
not foreign exchange earnings from largo copper mine
operations would rise steadily from an estimated
$623 million in 1971 to about $840 million in 1976
and total almost $4.6 billion for the :'hole period
(see the chart). In the unlikely case that Chile
nationalizes all large copper mines with no compon-
nation to the companies and no payments to third-
party creditors, its not foreign exchange earnings
could total as much an $1.2 billion more for the
same period. Its gains from such a move would be
largest during the early part of the period, when
payments arising from accelerated amortization of
loans from third-party creditors and from buying
out Anaconda were expected to be high. If third-
party debts are honored over the maximum repayment
period (no accelerated amortization), Chile's gains
still could total about $900 million over the next
six years. Its gains could exceed $600 million oven
if the companies generally are compensated at book
value over 20 years at an average interest rate of
4.5%, with Cerro receiving prt#orred treatment
through payment over 12 years at 5.75% interest and
.'tennocott's loan to Ll Tonionte being honored on
its original terms of 15 years at 5.75i interest.
32. Production nhor((al1s, however, almost
certainly will hold Chilu's not gains from nation-
alization below those levels. The mine takoovvc-
will come just as now facilities are starting up
and tochnical difficulties are at their greatest.
3. AN ec ot.r7,ztao of cal"',": ~'1o:.-n ,.hd aarningo
under vxiotin~; agreemento ara~bitnvd on l aorrrar
pr::ac of 56 canto a pod and can output o f 840,000
=one ::n 1971 and 970,000 :ono fro^- 197: on.
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Sig;CR E 1'
CHILE
Projected Not Foreign Exchange Earnings f.nm L?rgo Copper Mines
NO COMPENSATION
r< u/ f AA911M VtKtN8
,ooo
000
000
oo
000
too
tiff
25X1 E:
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THIRD -PAR" CRIDITO*S PAID
TO.. n..40.4 % $'M
COKPANIAS COMPtN$AT1O'
AND TINRO ? PARTY C tDITORS PAID
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SII.Cit1 'J.'
Even under company management, technical problems
have caused production shortfalls, and planned
targets would not have been met before 1972. Under
the beat of circumstances, 1971 output would be
about 10% below the 930,000 tonn originally planned.
Because of the imminent Chilean takeover and the lose
of technicians and poor labor discipline since
Allende's election, the companies now expect 1971
output to be 30% lower than planned. Loss of US
material, technical, and managerial assistance
should significantly delay reaching the full output
level of 970,000 tons scheduled for 1972.
33. If nationalization induced a 10% shortfall
in output, Chile would still enjoy a gain in not
foreign exchange earnings throughout the 1971-76
period, provided it paid no compensation of any
kind. Under this circumstance, even a 20% short-
fall would not, until 1974, reduce earnings from
i totally nationalized industry below those pro-
vided under the 1969 agreements. If third-party
debts are honored, Chile still would not suffer a
financial Ions from nationalization until 1973, if
a 20% shortfall occurred, or until 1974 with a
10% shortfall. If Chile also paid the copper
companies on the above-doncribed terms (paragraph
31), however, it would immediately suffer financial
losses if production fell 201 below planned levels.
If output lagged by thin amount through the period,
Chile's cumulative lonseg from nationalization
durini1 1971-76 would exceed $600 million. Under
these compensation terms, even a 10% output short-
fahi would permit Chile to gain from nationalization
only during the first two years.
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