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The proposed amendments to Chile’s mining royalty regime will not have a drastic impact on the country’s production landscape in the short term. However, there is a clear risk that the amendments could undermine the continued appetite for making large-scale, long-term investments in Chile’s copper sector.
A motion to reform Chile’s royalty regime for copper and lithium mining has been on the table since September 2018. Originally, Bill 12093-08 proposed a 3% royalty based on total value production for companies producing more than 12 ktpa of copper.
A controversial amendment passed by the House of Representatives, the lower chamber of Congress, in May 2021, included a sliding scale component to the royalty.
This would trigger higher payments when the LME copper price is traded above $4,400/ton on an average annual basis, up to a marginal cap of 75% of the value contained at prices above $8,800/ton.
The amendment has yet to be debated by the Senate. It is not yet clear how the proposed sliding scale royalty would be implemented within the existing tax framework.
Under the specific mining tax, a quasi-royalty implemented in 2010, operations producing more than 50 ktpa of copper are subject to a progressive tax on profits at rates between 5% and 14%.
A key element for potential investors would be confirmation that a proposed royalty would replace the Specific Mining Tax in an orderly fashion, rather than being levied on top of existing tax structures.
In addition to the higher cost implications of the proposed royalty, the uncertainty created by the pace and scope of the proposed amendments has the potential to undermine confidence in future investment in uncommitted projects.
Chile has an unparalleled endowment of copper resources, although as higher grade ore is gradually depleted, these enormous resources are increasingly low grade.
While the proposed royalty would not drastically change the near-term production landscape, there is a clear risk that it could undermine the appetite for continued large-scale, long-term investment that Chile has enjoyed over the past 30 years, in favor of projects in other jurisdictions that offer faster or more guaranteed returns.
