On July 1, Chile’s Minister of Finance introduced a new tax reform bill that increases royalties on copper miners producing more than 50,000 metric tons per year (mt/y). The plan has two components. One is an ad valorem tax between 1% and 2% for companies that produce between 50,000 and 200,000 mt/y of fi ne copper and a rate between 1% and 4% for those that produce more than 200,000 mt/y. The other component is a rate between 2% and 32% on profi ts for copper prices between $2/lb and $5/lb. Both components vary based on copper prices.
The proposed tax reform bill as a whole will be submitted to the Chilean congress within the next few months for approval. The measures related to the mining royalty bill currently being processed in the Senate will be submitted to the Congress during July. This is separate from the new constitution.
Chile is rewriting its constitution, a charter that dates back to the Pinochet era. The new constitution was presented on June 27 and on September 4, Chile will hold a national referendum. It too could have a significant can’t impact on mining. As previously reported, the constitutional convention removed the articles related to nationalizing mining companies. The new charter bans mining in areas with glaciers and other protected areas. The laws concerning water rights have been revised. The new constitution grants the government powers to close mines or temporarily halt operations. It also has new considerations for environmental and social protection.
Mining represents 10% of Chile’s gross domestic product. Roughly 30% of Chile’s copper production is already nationalized under Corporación Nacional del Cobre de Chile (Codelco), which accounts for about 10% of the world’s copper output. In addition to copper, Chile also has precious metals and vast reserves of lithium. These new reforms will impact Codelco as well as the multinational mining companies with operations in Chile, like BHP, Anglo American, Teck Resources, Antofagasta Minerals, Albermarle, etc. The changes will likely have a more profound impact on future investments in Chile.
Miners want to be good stewards of the environment and they want to support the surrounding communities. They don’t want to be gouged with royalties when metal prices are high or whenever the government has a financial shortfall. More importantly, building and operating a large mine is a 20- to 30-year proposition. When multinational miners consider future investments, they prefer jurisdictions with consistent policies toward mining. Chile had that until recently.