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July 14, 1969
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Approved For Release 1999/09/07 : CIA-RDP71 T00730R000200040009-8 AT? DIRECTORATE OF INTELLIGENCE Intelligence Report Chile: US Copper Investments Under Fire 14 July 1969 No. 1872/69 313 Approved For Release 1999/09/07 : CIA-RDP71 T00730R000200040009-8 Approved For Release 1999/09/07 : CIA-RDP71 T0073OR000200040009-8 Background Use OnlylControlled Dissem WARNING This doc:-ument. contains information affecting the n defense of the United Statrs mg o Title 18 s o the US Code, as amended. s transmission or revelation of its contents to or re- ceipt by an unauthorized person is prohibited by law. GROUP I EXCLUDED FROM AUTOMATIC DOWNGRADING AND D Et; 1,.A N 5I F` I C A T f O N Approved For Release 1999/09/07 : C.IA-RDP71 T00730R000200040009-8 Approved For RWeajsgr' ,(0@jQ7Se 'NFx7c1 ~O?ORgOQy00040009-8 Controlled Dissem CENTRAL INTELLIGENCE AGENCY Directorate of Intelligence 14 July 1969 INTELLIGENCE REPORT Chile: US Copper Investments Under Fire Summary Although the agreement between the Chilean Gov- ernment and Anaconda providing for progressive na- tionalization of the company's Chilean properties, with compensation, may prevent an early crisis in- volving the US Government, the future status of the US copper investments remains clouded. President Frei may be able during his remaining 16 months in office to block the more drastic nationalization measures favored by some Chilean congressmen. His forthcoming negotiations with Kennecott and Cerro (the other US copper companies in Chile) could fail, however. The left could win the 1970 presidential election and subsequently demand renegotiation of the new copper agreements or institute immediate, full nationalization. Even if the agreements sur- vive, compensation payments may not be sustained when--almost inevitably--Chile runs short of foreign exchange. During four decades preceding Frei's election in 1964, Chile's intervention in and financial bene- fits from the large US-owned copper mines (known as the Gran Mineria) increased greatly. Under Frei's "Chileanizataon program, the government obtained partial ownership of some properties and the promise of company investments sufficient to almost double production and triple refining capacity. In exchange, Note: This report was produced solely by CIA. It was prepared by the Office of Current Intelligence and the Office of Economic Research and coordinated with the Office of Nationa-Z Estimates and the Clan- destine Service. Controlled Dissem No Foreign Dissem/background Use Only Approved For Release 1999/09/6-f A-'DP71 T00730R000200040009-8 Approved For Release 1999/09/075EMIRDP71 T00730R000200040009-8 No Foreign Dissem/Background Use Only Controlled Dissem it guaranteed tax stability at improved rates for 20 years. Because of high world copper prices, both Chile and the companies have had large revenues since the final decrees were signed in early 1967. Moreover, the expansion program has moved ahead rapidly. This year, however, high company profits combined with political factors to intensify the ever-present pressures for nationalization. Frei had proposed his "Chileanization" program during the 1964 presidential campaign as an alterna- tive to the Marxist candidate's nationalization scheme. Kennecott and Anaconda, the two main producers, re- acted differently to Frei's proposals because their Chilean properties differed in importance to them. Since 1938, Kennecott had invested relatively little in its Ten:iente mine, which by the early 1960s ac- counted for one third or less of the company's copper output and roughly 10 percent of its net income. Because Teniente's production had increased little for years, Kennecott's tax rates remained very high, averaging more than 80 percent between 1960 and 1966. Kennecott therefore decided to sell 51 percent of its stock to the Chilean Government at a reasonably good price in exchange for substantially reduced tax rates and a promise of tax stability. Moreover, it was not required to put "new" money of its own into Chile but merely to lend to the joint company the government's payments for its equity. Despite an increasingly difficult political environment from the 1930s on, Anaconda continued to invest in its two Chilean properties--the Chu- quicamata mine, possibly the most valuable in the world, and the Salvador mine. Their combined book value of about $500 million in 1960 composed about two thirds of the company's net fixed assets. More- over, Anaconda's Chilean holdings accounted for about 70 percent of its copper production and a similar share of its profits. Because it feared that loss of control over these properties would put it in a bad business position in the United States, Anaconda agreed to invest about $225 million in its Chilean properties in exchange for only a minor improvement in its tax rates and retention of Controlled Dissem Approved For Release ~fig / /ay0~ y $0y36R0066 00040009-8 S Approved For Re ~.A89 %IgZSe JjTgg7f fgZ?0040009-8 Controlled Dissem full control in its existing operations. It also agreed to sell to the Chilean Government for a nomi- nal price a 25-percent interest in a new mine it is developing. Since the signing of the copper agreements, Chile's gains from the industry have been greater than anticipated. The government had expected the tax concessions to reduce its revenues from copper for a few years, but unexpectedly high world prices made production so profitable that tax receipts in- creased in 1967. A further increase in 1968 was secured through a forced loan from the copper com- panies. The Gran Mineria investment program has moved ahead qu ckkly. Despite a late start, as much as $400 million--or nearly two thirds of the sched- uled total--may have been invested by mid-1969. These investments have about offset the increased after-tax earnings of the copper companies, so that there has been little net repatriation of funds. .Higher prices and (to a far lesser extent) tax concessions brought net company profits to record levels averaging about $115 million in 1967-68, com- pared with $93 million in 1966 and about $45 million in 1964 and 1965. Although the government's share of gross profits fell from an average of 68 percent in 1960-66 to 63 percent in the first year under the agreements, the share returned to 67 percent in 1968 because of the forced loan (which has been reimposed in 1969). The proportion of total Gran Mineria revenues spent in Chile for taxes, labor costs, and domestic purchases of goods and services for operat- ing purposes and for the investment program probably is at an all-time high. Despite rapid progress under the investment program and high Chilean earnings, pressures for nationalization--never far below the surface--were strengthened. Several factors were responsible: the government's perennial financial difficulties, the results of the congressional elections last March, maneuvering for advantage in the Presidential election to be held in September 1970, and Peru's expropriation of the IPC. Moreover, the large Controlled Dissem No Foreign Dis.sem/Background Use Only Approved For Release 1999/09/Of~E-IAkibP71 T00730R000200040009-8 Approved For Release 1999/09/0 I bP71 T00730R000200040009-8 No l oreign T)issem/Background use only Controlled Dissem company profits resulting from high copper prices were widely viewed in Chile as windfalls that were not anticipated when the agreements were signed and to which the government had a moral right. The na- tionalization of US copper holdings thus had wide popular appeal, and few politicians wanted to be left behind in the race to achieve this end, what- ever the cost. Political pressures on the Frei government to nationalize the copper companies (particularly Ana- conda) became intense. Two bills calling for ex- propriation were introduced in Congress, and a third bill was drafted by elements of Frei's Christian Democratic Party--all providing little or no compen- sation. Consequently Frei sought a revision of the earlier agreements with Anaconda, hoping to head off radical Congressional moves without suffering political losses. During the negotiations with Anaconda, the Chilean Government insisted on obtaining majority control of the company's Chilean properties. In the hope of retaining control, Anaconda offered a new tax arrangement that would give Chile higher revenues, under current conditions, than the gov- ernment's tax proposal. On 26 June, President Frei and Anaconda announced agreement along the following lines: -?-Chile :'gill acquire majority ownership (51 percent) of the Anacon(la, properties on 1 January 1970 and will begin buying the remaining equity no later than 1981. --Compensation for the 51-percent interest will be based on the book value of the properties and will be paid in bonds redeemable in dollars over 12 years with interest at six percent. A more flexible formula will be used to compensate Anaconda for the remaining 49 percent. --Although Chile will have the controlling in- terest in the two now companies that will take over ownership of the )urines,s\naconc,.a will operate the mines for at least three years under a service contract. Controlled Dissem Approved Folqi4 elease 94'/~~I19T3b0200040009-8 Approved For el gpfflg99?f09 -fi Q. n1dT~se 3~ ,900200040009-8 Controlled Dissem --Anaconda's profits on its reduced equity will be subject to higher, progressive tax rates whenever copper prices exceed 40 cents a pound. The agreement is unfavorable to Anaconda, in- volving a decline of more than 60 percent in its net profits from the Chuquicamata and Salvador mines at 1968 prices and rates of production. The company had little choice, however, because the most prob- able alternative was immediate expropriation. Also, the company had failed to put its coverage under the US investment guaranty program. If the new in- vestments increase the mines' production as expected, and if the Chilean Government pays compensation as scheduled, however, the company can still expect substantial earnings and even larger repatriation of funds--possibly on the order of $100 million annually in the early 1970s if the price of copper were about 50 cents a pound. The agreement and the compensation payments could fall victim to political or economic developments, such as Congressional action for imme- diate nationalization (unless successfully vetoed by Frei), the coming to power of a leftist administra- tion in late 1970, or one of Chile's endemic foreign exchange crises. Even if the agreement is not changed, it seems unlikely that Chile will allow large-scale repatriation of funds over a long term. The government is committed to negotiate similar agreements with Kennecott and Cerro. Kennecott's profits would be cut by only about 30 percent, since 51 percent of the properties was sold to the govern- ment in 1967. Its bargaining position is stronger than Anaconda's because most of its assets are out- side Chile and because it is covered under the US investment guaranty program. Negotiations with Cerro promise to be complicated because the Export-Import Bank and Japanese interests also are involved in the financing of its new mine. Under the new agreement with Anaconda, Chile will not only receive larger earning from copper but can also probably count on completion of the current copper investment program. Moreover, Chile has gained time to prepare for eventual operation of the mines itself, although even a sudden expropriation need not create severe economic difficulties. -5- Controlled Dissem No Foreign Dissem/Background Use Only Approved For Release I 999/09ICR RDP71 T00730R000200040009-8 Approved For Release 1999/09lG.91~4WRDP71 T00730R000200040009-8 No Foreign Dissem/Background Use Only Controlled Dissem The Setting 1. In recent months the Frei administration has pressed for fundamental changes in its two-year-old agreements with the US copper companies that might enable it to sidestep the prompt, outright expropriation that probably is favored by most Chileans and a majority in the Congress. Agreement on the long-term nationalization of Anaconda's two established mines was announced on 26 June, and basic changes are likely in the status of the other two US copper companies in Chile. Although a new era clearly has arrived for the US copper in- vestments, which are the mainstay of the economy and one of the largest US investments in Latin America, many problems remain to be resolved. 2. The copper industry accounts for about three fourths of Chile's export: earnings, one sixth of the government's rev- enues, nine percent of gross domestic product, and five per- cent of the industrial labor force. More than 80 percent of copper production comes from the following three large mines, known as the Gran Mineria: --the Chuquicamata mine, wholly owned by the Anaconda Company through its subsidiary, the Chile Exploration Company --the Salvador mine, wholly owned by Anaconda through another subsidiary, the Andes Copper Mining Company --the Teniente mine, which until 1967 was wholly owned by the Ken- necott Copper Corporation through its subsidiary, the Braden Copper Com- pany, but is now a joint venture with the Chilean Government under the name El Teniente Mining Com- pany. Controlled Dissem No Foreign Dissem/Background Use Only Approved For Release 1999/09/WRbP71 T00730R000200040009-8 Approved For {?glgq, 1e99&.~m/ BIATOO?3O8AP2OOO4OOO9-8 Controlled Dissem 3. Chile's annual copper output of 660,000 metric tons constitutes 12 percent of world pro- duction and makes Chile the world's third largest producer. About 60 percent of Chile's copper is refined domestically. The Gran Mineria complex has all of Chile's refining capacity except for two government-owned smelters and an electrolytic re- finery completed by the government with West German assistance in 1966. Under the current expansion program, which involves investment of $620 million by the Gran Mineria and $130 million by small- and medium-s zed mi-'nes, the Chilean Government hopes to raise output to 1.2 million metric tons annually and almost to triple refining capacity by 1972. Comple- tion of the program would make Chile the largest copper exporting nation in the world by the early 1970s, even though other major exporters also are expanding operations. 4. Chile gets a large cut of the Gran Mineria's profits and benefits in other important ways. The government's share of the profits has ranged from 63 to 74 percent in recent years. In addition, the Gran Mineria at present spends some $200 million annually- fordomestic goods and services required in operations. Moreover, more than half of the materials and equip- ment and most of the construction and technical ser- vices required for the investment program are to be bought in Chile. By the end of 1968, these purchases already had reached $150 million and were providing a badly needed impetus to some other industries. 5. Both Chile and the copper companies have benefited greatly from rising copper prices in re- cent years. Until 1966 the average price Chile re- ceived for its copper moved in line with US prices, ranging from 29 to 32 cents per pound during 1959- 64 and then rising to 35 cents in 1965. Because of booming demand, world copper prices rose sharply in 1966 and have since remained high. US prices, however, were controlled, and rose only slowly. Consequently, Chile began to sell its copper on the basis of prices on the free London Metal Exchange, and the f.o.b. export prices of the Gran Mineria rose from about 35 cents in January 1966 to 59 cents in April and 67 cents in May. Controlled Dissem No Forei n Dissem/Back round Use Onl Approved For Release I 9g99/O9/%-C( i qDP71 TOO73OR000200040009-8 Approved For Release 1999/09/07 : CIA-RDP71 T0073OR000200040009-8 CHILE: Trends in Copper Output Thousand Metric Tons 1901 -10 Chile's Percentage Share of World Output 400 1901-10 1911-20 1921-30 1931-40 1941-50 1951-60 1961-65 1966 1961 1968 -ANNUAL AVERAGE. Approved For Release 1999/09/07 : CIA-RDP71 T0073OR000200040009-8 Approved For J~e ase I 99 /.00/bm P7II Tnn~ 738fl~90200040009-8 ju1ah IVoo:reign ~isse/a Controlled Dissem Chilean Returns From the Gran Mineria Before Frei's Election 6. During the four decades preceding Frei's election in 1.964, the returned value* to Chile from the copper companies' operations increased enormously as a result of growing.taxation, foreign exchange controls, and marketing regulations, as well as social legislation that boosted labor costs throughout in- dustry. At the beginning of this period copper ex- ports amounted to some $45 million, but the returned value for Chile was relatively small. Taxes were low, employment was limited by the capital-intensive nature of the industry, and it was economically ad- vantageous for the copper companies to import most of their needed materials and equipment. Returned value rose from 38 percent of the value of production in 1925 to 45 percent in 1931, suffered a setback during the world depression, and then soared from 36 percent in 1938 to 94 percent in 1953**. Chile's copper pro- duction continued to climb during the period up through World War II, and its share in total world copper out- put rose from 14 percent in the 1920s to a peak of 21 percent in 1948. High taxes and production costs and excessive government intervention in the industry made it increasingly difficult to compete in the world market, however, and during the Korean War boom Chile's share of world production declined sharply. By 1953, Chilean copper made up only 13 percent of world output, a share that haa in general merely been maintained during the past 15 years (see the chart, "Trends in Copper Output"). 't Returned value is a concept employed by the Chilean authorities to measure the economy's benefits from the Gran Mineria. It consists of direct taxes, other taxes and duties, and the companies' purchases of domestic goods and services on current account. Gross returned value also includes purchases of domestic goods and services for investment purposes. Value not returned to Chile consists of net company profits, capital depreciation (that is, repatriated investment), and imports of goods and services. ;t'FFor further details on this period, see the Appendix. -8- Controlled Dissem No Foreign Dissem/Background Use Only Approved For Release I 999/091 C&tDP71 T00730R000200040009-8 Approved For I..g1o19,09a~%&WBZAT09?a0&Q1PP200040009-8 Controlled Dissem 7. By the early 1950s, it was apparent that the copper industry was almost bankrupt. The "New Deal" copper law of May 1955 replaced the cumbersome and counterproductive array of taxes, surtaxes, and extraordinary taxes with a unified system that re- stored production incentives. The law provided for a basic tax of 50 percent on profits and...a surtax that would start at 25 percent and decline progres- sively as the company increased production above the 1949-53 level. Moreover, special deductions were permitted for new investments in electrolytic re- fineries and other preferred projects, and profits from new mines producing over 25,000 tons annually were exempt from the surtax. Anaconda.-responded by investing about $110 million in the new Salvador mine and $50 million in expansion of the Chuquicamata mine during 1956-60. Kennecott's investment expenditures at Teniente continued to be small, however, totaling about $15 million for the five-year period. 8. The favorable atmosphere evaporated in the early 1960s as political attacks on the companies resumed. In late 1961, as a means of financing government wage increases, Congress imposed two sur- taxes, totaling 13 percent, on profits. Thereafter, Congressmen introduced various bills detrimental to the copper companies which, although not passed, shook' investor confidence. The companies made it clear that their proposed $325-million expansion program was contingent on a government guarantee of no further increases in taxes or controls. As political ten- sions rose, it became apparent that major new legis- lation and investment decisions would have to await the outcome of the 1964 election. Frei's Program of "Chileanization" and Investment Expansion 9. Frei proposed his "Chileanization" program during the 1964 presidential campaign as an alterna- tive to the :Marxist candidate's nationalization scheme. Shortly after assuming office in November 1964, Frei announced that the appropriate agreements had been signed with Kennecott, Anaconda, and Cerro. The agreements called for large new company investments Controlled Dissem No Foreign Dissem/Background Use Only Approved For Release 1999/OsERDP71 T00730R000200040009-8 Approved For Release 1999/09/07 : CIA-RDP71 T0073OR000200040009-8 Million US Dollars 1000 900 CHILE: Trends in Copper Exports *~, = ~ =to 500 Value of Total Exports Thousand Metric Tons -1000 Value of Copper Exports 400 Volume of Copper E ports -600 - 500 - 400 CONFIDENTIAL 95458 7-69 CIA 0 1960 1961 1962 1963 1964 1965 1966 1967 1968 N Approved For Release 1999/09/07 : CIA-RDP71 T0073OR000200040009-8 Approved For FWeffigge 9/@9 ~ ~ P ,'6TpQ77 F&QQg200040009-8 in copper production and refining, government acqui- sition of a controlling interest and greater policy influence in Kennecott's Teniente property, and gov- ernment ownership of 25 percent of two new mines to be opened by Anaconda and Cerro. In return the com- panies were to benefit from reduced and nondiscrimina- tory tax rates that would be maintained for 20 years. 10. Legislation to implement the agreements was not completed until April 1966, after a long and tortuous journey through Congress, where it was attacked by the left, received lukewarm support from the right, and created splits within Frei's Christian Democratic Party. The government's Copper Corporation then began negotiating the details of five separate, complicated agreements. The first investment decree (the legal document culminating the negotiations) was signed on 9 December 1966 with the Campania Minera Andina, a firm jointly owned by Cerro Corporation and EE-3-Chilean Government. Decrees authorizing expansion of Anaconda's existing operations and its joint venture with the government in developing a new mine--Exotica-- were signed on 23 December 1966 and 10 February 1967, respectively. Signature of the decree concerning the Teniente joint venture was delayed until 13 April 1967, reportedly because of disagreements concerning Braden's management contract. 11. The agreements with Anaconda and Kennecott differ widely, although the Chilean Government had made essentially the same offer to both. Kennecott's agreement seemed to be the most generous and concilia- tory, giving the government a controlling interest in the Teniente mine for $83 million. -Actually, this concession was not particularly burdensome for Kennecott, because Teniente accounted for only one third or less of the company's copper output and little more than 10 percent of its net income. The book value of the Teniente operation in early 1967, when the government acquired its interest, was only $102 million. 12. At the same time, Kennecott won a sharp tax cut on the Teniente operation. Because produc- tion had increased little after the 1955 "New Deal," taxes had remained very heavy--amounting to 82 percent Controlled Dissem No Foreign Dissem/Background Use Only Approved For Release I 999/09/ 4I JA-TDP71 T00730R000200040009-8 Approved For Release I 999/09/ C RAIZDP71 T00730R000200040009-8 No Foreign Dissem/Background Use Only Controlled Dissem of gross profits during 1964-66. Under the 1967 agreement, the effective tax rate on the company's share of the profits dropped to 44 percent, and the government began to receive 72.5 percent of Teniente's total profits in taxes and dividends. 13. Although $234 million is to be spent to expand Tenie:nte's production capacity from 180,000 to 280,000 metric tons annually, Kennecott is in- vesting no "'new" money of its own in the venture. It is merely obligated to lend to the joint company the payments that Chile is making for its equity over a four-year period. The funds are to be repaid to Kennecott at. 5.75-percent interest between 1972 and 1986. In addition, the Export-Import Bank has loaned $110 million to the operation, and Chile's Copper Cor- poration is to provide $40 million from government copper dividends. 14. Anaconda's response to Frei's proposals, which differed sharply from Kennecott's, was con- ditioned by the fact that its Chilean holdings ac- count for about 70 percent of its copper production and a similar share of its profits. Despite the increasingly difficult political environment from the 1930s on, Anaconda had continued to invest in its Chilean holdings. The combined book value of Chile Exploration and Andes Mining reached al- most $500 million in 1960, at which time it amounted to about two thirds of Anaconda's net fixed as- sets. Although Anaconda has been expanding output in the US and elsewhere and had been diversifying into Other products, it feared that loss of con- trol over its Chilean properties would place it in a poor business position. Controlled Dissem No Foreign Dissem/Background Use Only Approved For Release I 999/09/x. PJP71 T00730R000200040009-8 Approved For telease I 999/.Oilb~ / RDP71 TO073QRO00200040009-8 NO o:reign issem/Bac group use n y Controlled Dissem 15. Under the decision finally reached in 1966, Anaconda retained full control Of its Chuquicamata and Salvador operations but agreed to invest $126 million to expand their annual capacity from 350,000 to about 515,000 metric tons. Anaconda also agreed to invest $60 million in housing for miners at Chu- quicamata and at a new mine to be developed jointly with the government., It sold a 25-percent interest in the new Exotica property for the nominal price of about $4 million and agreed to invest $43.7 million in it to develop an annual production capacity of 110,000 metric tons. The government also obtained a 49-percent equity in a joint company formed to seek and evaluate new ore bodies. Either Anaconda or the Chilean Government would have a two-thirds equity in any new development, depending upon whether the ore was located on Anaconda or state property. 16. Tax arrangements for Anaconda were changed in only two important respects: the government re- moved the surtaxes passed in 1961 and guaranteed that there would be no discriminatory taxes and no increase in taxes or other charges. Otherwise, the government merely raised the basic tax rate for the Chile Explora- tion Company from 50 to 52:.5 percent and replaced the old surcharge of 25 percent with a variable surcharge of 33 percent: based on 1955 production. Under the new arrangements, the tax rate for the Chuquicamata mine was 58 percent at the 1967 level of production, compared with a 62-percent average during 1960-66. The tax rate for Anaconda's other subsidiary, Andes Mining, remained at 50 percent--the preferential rate allowed for the new mines under the 1955 "New Deal." 17. The Chilean Government probably would not have profited more had Anaconda decided on an arrange- ment like Kennecott's. It would have had to pay $300- 350 million over four years for a 51-percent interest in Anaconda's mines, and Anaconda could have loaned these payments to the joint company in lieu of bring- ing in about $225 million in new funds. Moreover, a different profit-sharing plan would have been required because a 72.5/27.5-percent split such as was arranged with Kennecott as an incentive to Chileanize would have reduced net profits for Anaconda. Controlled Dissem No Foreign Dissem/Background Use Only Approved For Release 1999/09 X A] DP71 T00730R000200040009-8 Approved For Release 1-99 v W97 . 9IAA-RDP71 T00730R000200040009.-8 ppr6ved-,f'6r Rele4se6199910MT -` CIA-RDP71 T0073OR000200040009-8 A Approved For Release I 999/0910Jr PDP71 T00730R000200040009-8 No Foreign Dissem/Background Use Only Controlled Dissem 19. Since the signing of the copper agreements, both Chile's and the companies' gains from the industry have been greater than expected, mainly because of the continued rise in the copper export price. The balance of payments has improved as a result of the increased export earnings and a higher level of foreign invest- ment under the copper expansion program. Government revenues from copper did not decline even temporarily because high prices offset reduced tax rates. Net com- pany profits have increased markedly. 20. After a late start, the investment program has moved ahead quickly. By the end of 1968, $275 mil- lion already had been invested under the $620 million Gran Mineria program. Of this amount the Anaconda sub- sidiaries had invested $121 million (52 percent of their planned program), Kennecott and the Chilean Government $91 million (39 percent of the program), and Cerro $64 Effects of the Copper Agreements 18. The investment agreement in 1966 with Cerro Corporation was the culmination of more than a decade of negotiations, the company having acquired its option on the Rio Blanco copper deposit in 1955. The original agreement gave the Chilean Government a 25-percent interest in the company and authorized an investment of $89 million to develop an annual pro- duction capacity of 59,000 metric tons of copper con- centrate. Cerro agreed to invest $22.5 million, the Chilean Government $7..5 million, and Export-Import Bank $35 million. The remaining $24 million was pro- vided by a group of Japanese smelters, which are to receive a large share of the mine's production when it comes into operation in 1971. Unforeseen engineer- ing problems and sharply rising labor and material costs forced refinancing of the project in September 1968. Total costs now are estimated at $157 million, with Cerro providing an additional $21 million, the Chilean Government $7 million, Export-Import Bank $21 million, and the group of Japanese smelters and other sources $19 million'. The Chilean Government exacted an additional. 5-percent interest and other concessions from Cerro in, return for authorization to refinance the project. (Details of the government's investment agree- ments with all members of the Gran Mineria are presented in Table 1.) Controlled Dissem No Foreign Disseem'RBBaaFckground Use Only Approved For Release 1999/09 0*.&TRDP71 T00730R000200040009-8 F t t l A 1 fe s 9 /f 9/ A F R Q07 30 1,