A bill by Chile’s government for increasing royalties on mining companies is likely to threaten 1mn mt copper supply, accounting for 4pc of total copper production in the world, according to a Goldman Sachs report. The fate of the royalty bill will be discussed in June.
The members of the Chilean senate are divided on whether to increase royalty on copper mines. The bill, if passed, would impose as high as 75pc royalty on the sales of copper. The government intends to use the money thus collected for social welfare activities related to the COVID-19 pandemic.
The report said that more than 50pc of the foreign-owned copper mines in Chile have tax stability agreements expiring in 2023. The same would likely protect them from the passage of the bill. But this step may create uncertainty about the future mine development in Chile. This may fuel the longer-term copper supply gap.
Chile supplies 28pc of the world’s copper but its market share is dwindling over the years due to declining ore grades and projects nearing term.
Goldman Sachs added that companies like Anglo-American, BHP, BHPB.L, Antofagasta ANTO.L and Lundin would be likely to get affected in 2024, soon after the tax agreements expire in 2023.
The global investment bank expects copper price to reach $4.50/lb in 2024. A lot depends on the outcome of the Senate debate, and the potential modification of other laws that govern the taxation of miners in Chile.