28th January 2022
Chile’s President-elect, Gabriel Boric, was chosen by the populace in November last year on the back of massive and long-running social upheaval. Dramatic protests across the country, which began in 2019, led to the ongoing drafting of a new constitution and a cleansing of the political ranks. The protests technically started in response to fare increases by the Santiago Metro, but they rapidly evolved into a paroxysm of outrage over corruption, the rising cost of living, the privatisation of public assets and many more dissatisfactions with the direction of Chilean society. So it’s really no surprise that a fresh-faced, left-wing candidate swept to power in 2021; Gabriel Boric is only 35 years old and was sniffily described by The Economist as “woke”. It’s safe to say big changes are afoot in the world’s largest copper producer, but the question now on many lips is whether the new government will be able to balance rampant anti-corporate and pro-environment sentiment with the nation’s reliance on mining cash to fund regular budget items as well as a swathe of new social programmes. So far the new strategy is to extract more money per unit of copper (and lithium) that comes out of the ground, but what effect will that have on Chile’s mining industry, including state-owned Codelco, which is the world’s largest copper producer?
Firstly, let’s have a look at what’s on the table. It’s not just royalty reform: a committee involved in drafting Chile’s new constitution gave the industry yet another fright this week when it proposed that mining concessions on indigenous land should be suspended. But for now, let’s focus on the main event and the subject of all the most scintillating dinner party conversations: tax.
The Mining Royalties Law (Ley de Regalías Mineras) was first introduced in 2018, and it has been bouncing around various committees and parliamentary bodies since then. Most recently, the Chilean Senate’s Mining Commission passed an amended version on Thursday this week. Originally, this bill called for a minimum royalty of 3% on gross copper sales from companies producing over 12,000 tonnes of copper per year – but that was only if the average annual price of copper on the London Metals Exchange was under $2/lb. With increasing prices, the royalties on additional profits would increase stepwise up to 75% when the price surpassed $4/lb. As you might imagine, this was met with extreme opposition from the sector: Diego Hernández, for example, the President of the National Mining Society, said in a presentation to Senators that it would make private mining impossible.
This proposal stood in contrast to the old tax regime, which imposed up to 14% royalties on operations producing over 50,000 tonnes/year, with those producing under 12,000 tonnes exempt. Market watchers compared the potential new tax burden of up to 75-80% with other major copper mining jurisdictions, and found that it could be 40% higher. Chile might have world-beating copper reserves, but even the pinkest observers would have to admit that that would be a huge disincentive for new investment. That’s not to mention that older, lower-grade or otherwise less competitive operations might struggle to survive at all.
There was always one reassuring fact for the industry: many foreign-owned companies in Chile have agreements that will lock them in to the old system until 2023, so at least they have some breathing room to ponder their next move. And to be honest, miners never really needed to plan for the disaster scenario of the original bill; despite Boric’s raging popularity and landslide victory last year, the Chilean Congress is far from united behind a dramatic tax bump for miners. A two-thirds or other supermajority is required for many votes to pass, and with diminished but determined pro-business opposition parties in both houses, the extreme royalty hikes of the original bill were probably never going to see the light of day. As it happens, the version that made it past the Mining Commission yesterday was heavily watered down. It proposed an ad valorem tax of 1% of annual sales for companies producing under 200,000 tonnes of copper per year, with those producing under 50,000 tonnes exempt.
This change comes in response to heavy lobbying over the past year or two by the industry, and it represents good progress for mining interests. Investment in smaller projects is now less likely to be stifled, since the production thresholds for the royalties have been raised, and that’s certainly good news for junior miners in particular. The absolute numbers also look less daunting in the new version of the bill.
It’s fair to say that Chile is going through a radical and difficult transformation; the country is asking itself what really matters, and what it really wants from its government. That’s entirely reasonable, and many of the incoming administration’s goals are laudable; who could argue against reducing inequality or supporting society’s most vulnerable? And it’s fair enough to ask the companies that get rich from Chile’s bountiful national resources to contribute to that project. But a balance must be struck; demand too much of any industry and it will simply depart for greener pastures. It seems that, slowly and messily, the Chilean Congress might be feeling its way towards that balance for mining in its country. Let’s hope it finds its way.
Around the Traps
Good insights as always from The Critical Investor, with a new dissection of Platinex (CSE:PTX, FRA:9PX) and their recent acquisition of the W2 copper-nickel-PGE project in Ontario. This piece provides a great overview of the company from the management team to the geology of their two major projects, so take a look and see what you think!
Goldplay Mining (TSXv:AUC, OTCQB:AUCCF, FRA:9FY) has shown once again that it has a nose for a good project. Its new acquisition, Goldstorm South in British Columbia, has returned some stunning results. The biggest splash has been made by a brand new discovery, the Travler Gold vein system, which assayed 21.8 g/t Au and 20.6 g/t Ag from a grab sample. This and other known showings on the property form part of a desperately under-explored 2.6 km+ open-ended trend. In addition, the Fly Porphyry prospect on the property returned very encouraging Cu and Mo data.
Enduro Metals (TSXv:ENDR, OTCQB:ENDMF, FRAU:SOG) has great news this week. The company has reported that they have started the final steps to exercise their option to acquire 100% of the Newmont Lake project in the world-famous Golden Triangle of British Columbia. Enduro has been energetically exploring their flagship, with four large mineralised systems identified hosting a combination of gold, copper and polymetallic systems. The conclusion of the deal makes Enduro one of the largest landholders in the area.
It's all action at Sun Summit Minerals (TSXv:SMN, OTCQB:SMREF), who announced this week that drilling will recommence at its flagship Buck property, aiming to expand the Buck Main epithermal gold discovery which remains open at depth and in all directions. In addition, the company plans to start a VTEM survey over the whole property with the aim of defining additional targets, especially those co-incident with geochemical anomalies that they recently discovered. For more information on the Buck Property’s fascinating geology, check out the video below!
More fantastic news has come from Firefox Gold, (TSXv:FFOX, OTCQB:FFOXF), who have exciting drill results from the booming gold region in the north of Finland. Their Mustajärvi project has had four new drill holes, all returning assays over 3.0 g/t Au, including three at the Northeast Target which has previously returned bonanza grades. In addition, the East Target prospect was stepped out over 100m. You love to see it!
Avrupa Minerals (TSXv:AVU, OTC:AVPMF, FRA:8AM) have reported some lovely results from their polymetallic Alvalade project in Portugal. They’ve uncovered 113.8 m of massive to semi-massive and stockwork massive sulphide mineralisation at the Sesmarias copper-zinc prospect, with grade highlights including a very substantial 60.4 m of 0.40% Cu, 0.68 g/t Au, 37.08 g/t Ag, 0.96% Pb and 2.33% Zn.
Moneta Gold (TSX:ME, OTCQX:MEAUF, XETRA:MOP) is right to be excited about the partial assay results from drilling at its flagship Tower Gold project in Ontario. The company carried out a 130-hole campaign in 2020/2021 to extend the 4 million oz. indicated + 4.4 million oz. inferred gold resource on the property. This drilling was carried out at the Windjammer South open pit resource and significantly extended it, so the numbers are worth a look!
Yet another military coup in West Africa, unfortunately, with the new military leader of Burkina Faso, Lieutenant Colonel Paul-Henri Damiba addressing the country for the first time after the ousting of President Roch Kaboré on the pretext of insufficient action against Islamist militants. This is the third country in the region to suffer a military takeover in the last year. It’s a resource-rich and under-explored region, so strategically-minded investors are looking to the reliable jurisdictions for the next big thing. Origin Exploration in Liberia is one junior hoping to make a splash.
That’s the news for this week, I hope you slide into the weekend enjoyably!
- Jane Lockwood