Original title: Chile’s production expansion and tax increase, the global copper industry worried
Within a day, Chile broke out many big news one after another. First, the Chilean Central Bank announced the largest interest rate hike in the past 20 years. After that, the Chilean government’s mining policy blueprint for the next 30 years and the legislative proposal for passing the mining enterprise tax are closely related to Chile’s copper mining industry. As the world‘s largest copper producer, every move here not only affects the hearts of global commodity investors, but also affects the price of copper that has soared since last year.
The blueprint sets the tone for 30 years
On Tuesday, local time, the Chilean government announced a blueprint for its mining policy for the next 30 years, setting out plans to require domestic mining companies to improve traceability, reduce water consumption under prolonged drought conditions, and strengthen leadership diversity.
One of the most concerned is naturally copper production. Specifically, Chile’s goal is to maintain its current market share of 28% by 2050 and increase its annual output to 9 million tons.
This is not a small number. According to data from the United States Geological Survey (USGS), Chile’s copper and lithium supply accounts for about 1/4 of the global supply. In 2020, the global copper mine output is about 20 million tons, of which Chile’s output is about 5.7 million tons, ranking No. one. According to Chile’s plan, the country needs to increase production by 57%.
In order to accomplish this goal, many mining companies have already taken action. Chile’s state-owned mining company Codelco is the world‘s largest copper producer. It has officially launched the expansion project of the Salvador copper mine (Salvador) with a total investment of up to 1.4 billion US dollars. This will extend the mine’s production life by 47 years and increase production by nearly 50%. .
The current productivity of the Salvador branch is the lowest among all deposits of Chilean miners. Last year’s output was only 50,600 tons, slightly less than 3% of Codelco’s total output. Through open-pit mining, the mine can produce 90,000 tons per year. After the expansion, full-scale production is planned to start in the first half of 2023.
In addition to the topic of output, the Chilean government also stated in the report that it hopes to reduce the waiting time for mining companies to apply for environmental and operating permits by half by 2050, and increase the production of rare earth minerals and lithium. The production of commodities is crucial.
Mining mining is also closely related to water use. This report proposes that mining companies hope to reduce water consumption from glaciers, rivers and lakes to 10% of total water consumption by 2030 and further reduce to 5% by 2050. The proportion is about 18%, and it is hoped that mining companies can achieve carbon neutrality by 2040.
For mining companies to improve traceability, the report hopes that mining companies will ensure that the production of large-scale mines will achieve 100% traceability by 2030, and the production of small and medium-sized mines will achieve 100% traceability by 2050.
Chile’s Minister of Energy and Mining Juan Carlos Jobet stated that according to the National Mining Policy (PNM), public and private players in the industry have a responsibility to unite and maintain Chile’s leading position in the modern mining world. He stated in a speech in Calama, a mining city in northern Chile, that “this policy framework is not only attractive to companies, but also to public authorities.”
The highest tax in the country for copper mines
At the same time as the blueprint is released, Chile’s mining industry is currently at a critical juncture, as the country’s government is trying to get a greater share of the strong mining revenue. On the same day, the Mining Committee of the Senate of Chile’s Congress approved a draft legislation on copper royalties by 3 votes to 2, which may make the country the world‘s heaviest copper mining country.
The tax increase is because Chile, like other copper mining countries in the world, is seeking a larger share of mining profits to solve the inequality that has been exacerbated by the epidemic, so as to help the Chilean economy recover from the impact of the new crown epidemic as soon as possible.
However, this bill has not been finalized, and will be submitted to the entire Senate of the country to vote, and may propose amendments. But supporters of the bill say it will replace the current profits tax. Prior to this, the Chilean House of Representatives passed a bill earlier than 2018 in May, requiring royalties to be levied on mining giants and linked to international copper prices.
It is understood that most large mining companies in Chile have signed tax stabilization agreements until 2023. Therefore, some government officials have suggested that the two systems can operate at the same time.
According to Bloomberg data, the current tax standard for copper royalties in the world‘s largest copper mining countries is around 41%, 40.7% in Peru, 44.6% in South Australia, 40.1% in British Columbia, 41.6% in Mexico, and Chile. The current rate is 41.6%. While Chile’s proposed copper mine license fee increased to 82.3%, another proposed tax standard to replace the current profit tax is 56%, which is a substantial increase compared to the current standard.
The high tax rate naturally caused dissatisfaction in the industry. The Chilean mining industry has previously warned that if the sales tax level is raised in line with the rise in copper prices according to the current situation, it is expected to hinder investment and weaken the competitiveness of Chile’s mining sector.
Some economists commented that the bill will make Chile’s copper mining companies far more taxable than other copper-producing countries, thereby weakening their competitiveness and causing a heavy tax burden in Chile.
And this is just the beginning. Chile is currently drafting a new constitution, which may enact stricter regulations on water resources, minerals, and community rights before the November presidential election.
How to get the price of copper
As the world‘s largest copper producer, Chile’s series of operations have affected the development of the world‘s copper industry. For example, in early August, three copper mines, Escondida, the world‘s largest copper mine located in northern Chile, Andina of Chile’s national copper company Codelco, and Caserones of Japan Mining & Metals Corporation, suspended operations due to dissatisfaction with their employees.
At that time, many people in the industry worried that as the global economy continues to recover from the impact of the new crown epidemic, this move may cause the supply of copper, a key metal, to be interrupted. Once there is a problem with copper supply, the global copper market will set off an “outrage.”
Since last year, riding on the trend of bulk commodities, global copper prices have also soared, becoming a “crazy stone.” On August 6 this year, the Shanghai copper main company was 69,790 yuan/ton, again approaching the 70,000 mark. The last time copper prices entered the 70,000 yuan/ton range was in December 2010.
Earlier in August, after BHP Billiton and the union reached a compensation agreement, Escondida Copper Mine avoided the fate of a strike at the last minute. However, negotiations between the Caserones Copper Mining Company and the workers have not yet made progress.
Capitalight Research predicts that global copper demand will increase by 3.8% in 2022, reaching approximately 25 million tons. Demand continues to rise, but supply is facing a crisis, which may make copper prices rise again.
Major General Ding, an observer of Sankei, pointed out that from the basic logic, the increase in production will generally ease the supply side, but the increase in taxes levied by the Chilean government on copper mining companies will greatly reduce the willingness to produce and will trigger the market’s prospects for copper supply. Worries.
Regarding the trend of copper prices, Major General Ding believes that copper prices are still unstable in a short period of time and may rise further. He further analyzed that there are three main factors driving the rise of copper prices: one is the stable recovery of the global economy, the global economic growth rate is expected to reach about 5.5% in 2021, and the demand for raw materials including copper will steadily increase; Under the background of carbon neutrality, the new energy industry is developing rapidly, and the demand for copper products is rapidly increasing; third, the economic stimulus policies of various countries have led to the rise of commodity prices, which will undoubtedly promote the continued rise of copper prices.
Beijing Commercial Daily reporter Tao Feng Zhao Tianshu
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