The borders of Chile and Bolivia were a matter of great contention throughout the nineteenth century. The province of Atacama, or more properly the desert of Atacama, had remained for many years without a definite owner, at one time claimed by Bolivia, at another by Chile, but never considered of sufficient importance to warrant the establishment of a boundary line until the discovery of the guano nitrates and other mineral wealth such as the saltpetre deposits discovered in the same region. In addition, world demand for mineral deposits increased as a result of industrial development. Peru and Chile also had vague frontiers in the richest guano area of the T

Chile occupied the port city of Antofagasta in an attempt to prevent the Bolivian government from auctioning off the nitrate fields, then in the hands of the Compañía Chilena de Salitre de Antofagasta (Chilean Nitrate Company of Antofagasta). On February 1st, Bolivia, in protest for the presence of the warship in its territorial waters, announced that the Chilean companies would be confiscated and auctioned in two weeks.

By 1875, the Peruvian government was convinced that Peru wasn’t benefiting from the exploitation of nitrates as it should. It therefore nationalized the mining companies in Tarapacá and they compensated the company owners with two year (Peruvian) government bonds, carrying an international rate of eight percent. The Peruvian government promised to purchase or redeem the bonds after the two years had elapsed. It hoped to raise £4 million on the British market to facilitate this process. As a result, the investors resented this nationalization of their nitrate plants. The Peruvians had failed in raising the capital, therefore the bonds remained unredeemed by 1879.

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