Biggest Copper Supplier Is Giving Bulls Another Reason to Cheer

(Bloomberg) -- A bill to dramatically increase taxes in the top copper-producing nation threatens to curtail future output and supercharge the metal’s record-breaking rally.

Chile’s lower house on Thursday approved a measure that would introduce progressive taxes on copper sales, potentially creating a total burden of more than 80% -- or almost double that of other major copper-producing nations. That’s a big deal given Chile accounts for more than a quarter of global supply and there was already growing concern that supply will struggle to meet demand in an electrifying world hungry for wire.

The measure, which would go into effect in 2024, still needs to be approved by the senate and could be blocked by the government in court. But if it succeeds, it could stall investments in a country where mature low-grade deposits need plenty of expenditure just to maintain output levels of about 5.7 million tons a year.

“This would at the very least delay any new capacity, extending the lengthy time-line to bring on a new mine,” said Grant Sporre, an analyst at Bloomberg Intelligence. “Chile’s output could start to fade to 5 million tons.”

The tax measure seeks to leverage high copper prices to shore up government coffers amid the nation’s efforts to recover from the pandemic and boost social spending. Prices, which moved higher after the congressional vote in Chile, have surpassed $10,000 a ton to all-time highs and. According to Bank of America Corp., they may get to $13,000 as inventories dwindle.

But the move runs the risk of turning off industry in one of the most investor-friendly mining nations.

“Given high payments to the state, some assets would be un-investable and thus it limits the pool of mines that can make adequate returns, limiting supply,” said BTG Pactual analyst Cesar Perez-Novoa. “No mining company is going to take risks without being rewarded.”

For details of the bill, click here.

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