Chile’s mining royalty bill heads for final vote

Chile’s senate has approved an amended mining royalty bill, in the works for almost two years, passing it back to the lower chamber for a final vote expected to come as early as next week.

The proposed law, first introduced in 2018, originally called for a flat-rate ad valorem tax of 3% on large-scale copper miners that extract more than 50,000 tonnes per year. 

Following the collapse in support for the right-wing President Sebastian Piñera and the social unrest in late 2019, the bill was modified.

The amended proposal imposes a flat-rate ad valorem tax of 1% on copper companies that produce more than 50,000 tonnes per year.

Additional royalties would be assessed at rates fluctuating from 8% to 26% based on miners’ operating margins, rather than being adjusted according to the price of copper as was originally proposed.

Depreciation, as well as supply and work costs, would be taken into consideration in calculating operating margins.

“This has been a tremendously important step” for raising funds on a regional level, Minister of Finance Mario Marcel told reporters after the vote late Wednesday. Pending approval in the lower house, it will also provide the industry with “a clear panorama to make decisions.”

Miners in Chile, the world’s top copper producer, currently have a tax burden of 41% to 44%. The tax ceiling for units of giant mining companies, including BHP (ASX: BHP), Anglo American (LON: AAL) and Teck Resources (TSX: TECK.A | TECK.B) (NYSE: TECK), has been the focus of debate for months as President Gabriel Boric’s administration attempts to increase its take of copper earnings, without undermining Chile’s competitiveness.

Earlier this week, the government said it had reached an agreement with senators to cut the top tax rate to 46.5% from 47% for companies that produce over 80,000 tonnes of fine copper a year, and 45.5% for production in the 50,000-80,000 range.

According to official figures, the new mining royalty would inject about $1.5 billion a year into the state’s coffers, from which $450 million will be distributed to regional governments for social spending.

Minister of Mining Marcela Hernando told MINING.COM on Thursday she was satisfied with what the bill looks like.

“As a ‘regionalist’ at heart, I am very happy to see the bill will direct an important injection of resources not only to those areas where mining happens, but also to the poorest communities,” Hernando said.

Chile’s main competitors in the copper sector, such as Peru, have a tax of 41% to 44% over large producers’ operating profit.