Progress on Chile’s recent anti-mining legislation continued this week as the infamous copper royalty bill was approved by the Chilean Senate mining committee.
The bill was passed by a winning margin of 3:2 in the committee and will now be debated by the nation’s senate. The bill is likely to undergo some edits and changes since the initial version given to the lower house a few months ago was met with pushback.
The bill was first presented in 2018 and plans to legislate a 3% annual royalty on sales of over 12,000 tonnes of copper and 50,000 tons of lithium.
This royalty bill comes at an inopportune moment for mining companies based in Chile. Like other major mining hubs, Chile is hoping to raise government funds from the mining industry to reduce income inequality, which is at an all-time high post-pandemic. The federal government is also simultaneously looking to strengthen regulations on water and mineral use in rural communities, which would likely impact many proposed extraction sites.
This bold turn towards heavy mining regulation is one of the most pressing the national mining industry has ever faced. The COVID-19 pandemic has spurred on massive unrest in the country, leading to massive gains for left-wing members of parliament in the last election. As such, the center-right ruling party lacks the electoral power to veto the royalty bill.
The local mining industry is concerned that the bill would have a heavily detrimental effect on Chile’s copper mining industry. At the moment, Chile produces over 25% of the world’s copper supply and the bill’s stipulations are likely to derail that production. It is believed that it would reduce incentives for investors and make Chile’s copper much more expensive and thus, less competitive in the global market. However, there is still a chance that the bill will fail in parliament. Chile’s center-right party has said that they have plans to kill the bill in parliament, aiming to safeguard the national copper mining industry.
According to the bill’s supporters, the bill is merely going to replace the pre-existing tax structure on copper mining. However, this is not technically stipulated in the bill itself, suggesting both tax structures may apply, raising production costs still further.
The concerns over this bill are not limited to Chile but have long-standing effects on the global copper industry. According to Goldman Sachs, the proposed legislation could affect more than 1 million tonnes of copper production, which represents roughly 4% of the world’s copper production. The saving grace for those invested in the mining industry is that most foreign mining companies with extraction sites in Chile have pre-existing tax stability agreements that will not expire till 2023, which protects them from the bill for some time.
However, the bill is likely to affect any future investment or extraction nationwide in the future, with the scale of potential effects on the global copper supply still unknown.