Chile’s Mining Industry Seeks Incentives Amidst Increased Mining Royalties

Chile’s Mining Industry Seeks Incentives Amidst Increased Mining Royalties

Following Chile’s decision to increase mining royalties beginning in 2024, copper miners are calling for incentives to maintain investments in copper production, crucial for the renewable energy revolution. The elevated royalties have led to tensions between the mining industry and the leftist government of Gabriel Boric, who seeks to use mining revenues to fund expanded social programs.

The Chilean Mining Council, representing large private firms, estimates that the average tax rate of 44.7% would exceed the range of 38-to-44% in competing countries like Peru and Australia, putting Chile at a competitive disadvantage. The mining industry is requesting measures such as streamlined permit approvals, reduced energy costs, and other incentives to counterbalance the impact of higher royalties.

Chile’s No. 2 copper producer, BHP Group, initially expressed concerns about the royalties but is now committed to continuing investments. However, other big miners remain cautious, and some mining executives doubt that the estimated $70 billion in planned investments will materialize without additional incentives.

The government has pledged to provide investment incentives and is currently in talks with mining companies and other stakeholders. Specific incentives requested by the industry have not been disclosed yet, but experts emphasize the importance of simplifying the permitting process, addressing environmental and indigenous regulation concerns, and reducing energy costs for miners.

Despite the efforts to raise revenue, the royalty increase may not lead to substantial production growth as most new projects aim to compensate for declining production rather than increasing supply. Chile’s copper supply has faced challenges due to the depletion of mineral grades in older deposits, project delays, accidents, and other issues, leading to a decline in copper production from a record 5.83 million metric tons in 2018 to 5.33 million metric tons in 2022.

The government is exploring a second attempt at tax reform, and miners hope this could pave the way for additional incentives to boost future investments. Mining companies are expected to negotiate further with the government to secure guarantees for carrying out essential projects.

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