Column: Trump 2.0 won’t reverse Biden’s critical minerals push
Donald Trump has described the Inflation Reduction Act (IRA) as a "green scam" and vowed to repeal it after he returns to the White House in January.
With copper prices soaring and Chile’s economy reeling from the covid-19 pandemic, lawmakers want to fund recovery efforts by hiking royalties on the booming mining sector but the drive could flounder because of deals that previous governments signed decades ago to freeze tariffs on the biggest miners.
Major foreign miners operating in the world’s largest copper producer obtained tax stability agreements that maintain payment regimes, and a Reuters review shows these do not expire for two to 15 years.
The deals, meant to buffer investors from political or economic upheaval, helped attract investments in some of Chile’s largest mines.
Experts interviewed by Reuters said that even after likely passage of a law outlining a royalty as high as 75% on copper sales, the agreements could diminish Chile’s windfall.
Some lawmakers want to push to renegotiate the stability clauses, taking a cue from nearby Peru, the world’s second-largest copper miner. There, Pedro Castillo, who pledged to boost social spending to help the poor, is on the verge of being confirmed as president after a disputed election.
Castillo’s team has suggested he will seek to circumvent any delays to a plan to raise taxes on miners by renegotiating tax stability agreements covering 25 operators including major Chinese mines.
Among those in Chile who want to take a similar tack is Catalina Perez of the radical-left Democratic Revolution party. She and other opposition lawmakers, many representing mining areas, co-authored the mining royalties bill.
Perez noted that President Sebastian Pinera persuaded miners to accept a temporary tax hike after Chile was devastated in 2010 by an earthquake and tsunami in exchange for an extension of tax stability agreements afterwards.
“The government has all the powers in tax matters and can negotiate for companies that have tax invariance contracts in force to sign up to, if approved, a new royalty regime just as they did in 2010,” she said.
“That hasn’t been done yet because the government has neither the will nor the intention to move this bill forward. … Citizen pressure will be key.”
Chile’s lower chamber of Congress blessed the royalties bill in May with scant discussion of the stability agreements first introduced in the 1970s.
The conservative government was criticized even before the pandemic, during widespread protests in 2019 over inequality and social problems. Now that the pandemic has wrought havoc on the economy, officials whose aid package is being criticized as patchy in some quarters acknowledged that mining taxes need to be raised.
Industry analysts also told Reuters a more robust tax on miners was almost inevitable with copper prices touching an all-time high of $10,747.50 a tonne in mid-May.
Nonetheless, miners and Pinera’s administration will seek to modify the bill as it moves through the senate, with more than a month of evidence-gathering sessions starting this week.
But industry analysts warned that trying to override tax stability agreements could damage Chile’s business-friendly reputation and bring legal action.
Mineral-rich Chile churns out 28% of the world’s copper. The legislation proposes a base rate royalty of 3% on copper and lithium sales to fund development and infrastructure in mining regions and underwrite social programs. If copper prices rise, the tax would increase progressively to as much as 75% of additional income over $4.00/lb.
On Wednesday, three-month copper on the London Metal Exchange (LME) was $9,489 a tonne and COMEX copper was $4.33 a lb.
Past attempts to raise taxes on Chile’s miners have failed, but the political landscape shifted with the protests in 2019. In addition to the mining tax bill, Congress has passed progressive legislation including allowing people to tap their pension funds earlier which was opposed by the administration and the financial services industry.
Opposition to the mining tax hike is just as fierce. Chile’s National Mining Society (Sonami), which represents copper miners, has blasted proposed taxation levels as “akin to expropriation.”
Many of the tax stability deals – including agreements inked with BHP’s Escondida mine, the world’s largest – expire at the end of 2023, as do deals for global miners Anglo American and Antofagasta.
Francisco Acuña, senior analyst in Santiago from the CRU consulting firm, said it was highly unlikely the new law would be implemented before most agreements expire in 2023.
Trying to do so, he said, “would not only lead to international litigation but the country’s image would also see an important impact.”
Chile has struck tax stability deals with some miners for more than a decade to come. BHP’s Spence mine holds an agreement that expires in 2032, while Teck’s sprawling Quebrada Blanca II mine, still under construction, is buffered from tax hikes for 15 years after opening.
Teck’s Chief Executive Don Lindsay said last month its stability agreement was “theoretically non-negotiable” and that he trusted Chile’s institutions.
Other mining firms have been reluctant to discuss the issue, with the Consejo Minero, an umbrella group for Chile’s top private miners, BHP, Anglo American, Antofagasta and Collahuasi declining to answer questions on the royalty bill.
Juan Carlos Guajardo, of Santiago-based consultancy Plusmining, said changing the agreements now would result in years of legal wrangling.
“Here we are talking about a right that the companies acquired when the country offered this framework for foreign investment. It’s a right the companies can press.”
(By Fabian Cambero, Dave Sherwood and Aislinn Laing; Editing by David Gregorio)
Comments