Chile faces industry backlash on proposed copper mining royalty bill

Chile faces industry backlash on proposed copper mining royalty bill

Chile’s government is facing a backlash from industry players regarding a long-running copper mining royalty bill which, if passed, could threaten the sector’s competitiveness.

The controversial bill is part of the nation’s sweeping tax reforms and is expected to lower the maximum tax burden for copper producers to 48% of their operating profit, from the 50% previously proposed.

This would bring the average tax rate to 42.1% based on prices over the past 10 years.

Chile is the world’s largest copper producer and is home to global copper giants such as Codelco, BHP (ASX: BHP), Anglo American, Glencore and Antofagasta.

Royalty to hit hard

The mining industry claims the tax burden brought on by the new royalty would hit hard when companies are already struggling to offset a decline in ore grades around the country.

BHP is among those calling for greater government dialogue to prevent the mining royalty from affecting competitiveness.

The group believes the proposed level of royalty would leave Chile in an uncompetitive position compared to other jurisdictions in which it operates.

Chile’s major competitors have a tax burden somewhere between 41% and 44%, and

BHP said it “would desperately like to make investments in Chile,” with an “obliged” expansion at the giant Escondida copper porphyry mine in the Atacama Desert.

Chile’s Mining Minister Marcela Hernando said the government is confident it can “smooth out differences” with the mining industry before a vote on the royalty bill in congress this week.

Parliamentary motion

The mining royalty bill started through a parliamentary motion presented by deputies to the House of Representatives in September 2018.

The Chilean Government has since presented three packages of amendments to the bill, converting it into a project which complies with constitutional legality given the exclusivity that the president has in tax matters.

Initial amendments to the bill were presented in July 2022 and specified that a new tax would be established and called a “mining royalty”.

It was approved in January by a Chilean congressional meeting.

From there, it passed to a treasury commission, where it was subject to a new review and approval process before being put to final vote this week.

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