January 12, 2011 / 3:01 PM / 7 years ago

UPDATE 2-Most miners agree to tax hike in copper giant Chile

4 Min Read

* Top copper miners to adopt new royalty

* Strong investment seen despite higher taxes

* Top miner Codelco sees copper at $4/lb in 2011 (Adds details on royalty, Codelco comments on prices)

By Fabian Cambero and Alonso Soto

SANTIAGO, Jan 12 (Reuters) - Most miners in Chile have agreed to pay higher taxes to fund post-earthquake reconstruction, but investment is seen safe in the top world copper producer as prices for the red metal soar and new projects remain scarce.

Mining Minister Laurence Golborne said on Wednesday nearly all of Chile's mining industry, which initially criticized the plan, will adopt a new royalty scheme that will link tax payments to margins and cash in on a copper bonanza.

"With this confirmation we have more than 80 percent of miners in terms of volume adopting the new tax system," Golborne said. "I expect that by Monday we will have more than 90 percent of miners accepting the tax."

The deadline to adopt the new royalty expires on Monday, and follows similar attempts in Australia and Mongolia to reap the benefits of a comeback in commodity prices.

The private mines that have adopted the royalty extract most of the copper out of Chile, which produces a third of the world's mined copper. Continued investment will ensure steady supplies for consumers from China to the United States and Brazil.

The tax increase is seen as moderate and unlikely to hit the investment plan of multinationals such as Xstrata XTA.L, Anglo American (AAL.L) and BHP Billiton (BHP.AX) (BLT.L), industry experts said.

"The impact of the royalty in mining investment will be marginal," said Juan Carlos Guajardo, head of Santiago-based mining think tank CESCO. "The chances of developing projects in other parts of the world are limited, which means most investment will go to traditional districts."

Simmering political risks elsewhere and a shortage of mega deposits will likely continue luring exploration companies to Chile, which holds the world's biggest copper reserves.

Copper Boom

By far the world's No. 1 copper miner, Chile is enjoying economic and political stability after two decades of democracy following a bloody, 17-year military dictatorship ended.

Copper, instrumental in Chile's economic success, has climbed to record highs amid views of an acute supply shortage in 2011. Benchmark copper CMCU3 in London rose 2 percent on Wednesday on expectations of strong demand. [ID:nLDE70B0YZ]

The world's top copper miner, Chile's state-run Codelco, said on Wednesday that prices for the red metal may average around $4/lb this year.

Mining companies in Chile currently pay a royalty of between 4 and 5 percent on operating profits. The new scheme initially sets the royalty at 4 percent to 9 percent on a sliding scale, and raises this to 5 to 14 percent starting in 2018. The percentage will depend on margins.

None of the miners will end up paying the maximum percentage in the scale, even with copper at record high prices, legal and accounting experts say, meaning the increase will be relatively moderate.

The royalty hike was a major political victory for center-right President Sebastian Pinera in his quest to rebuild the South American country after a massive Feb. 27 quake.

The billionaire surprised investors by targeting miners, in a move that resonated strongly with many Chileans who believe foreign companies should pay more from the copper spoils.

The Harvard-trained economist has favored higher taxes on miners since his college years, former classmates said, which helps explain why he insisted on the new royalty scheme even after Congress initially struck it down last year. (Writing by Alonso Soto; Editing by David Gregorio)

0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below