Mining Royalties, Elections and the Constitution in Chile

Chile is now considering new taxes for its mining industry, which could dramatically impact the supply of minerals that are critical for the world’s industrialization and energy transition. In particular, we estimate that, if the new taxes are approved, Chilean copper mining companies could see their tax rates increase to as much as 80% and profit margins drop by more than 50% at current copper prices. With this change, Chile would become the nation with the highest tax burden on copper mining, forcing companies to revisit the viability of their current and future investments.

The Chilean Senate is currently reviewing a proposed Mining Royalties Law which would impose new taxes on copper and lithium sales. Chile is the world’s largest copper producer, so its decisions have an outsized impact on copper supply and prices worldwide. It is also the world’s second largest producer of lithium.

Chile has been trending left politically over the past several years. Elections in May 2021 helped non-traditional parties take several seats in the Constituent Assembly in charge of overseeing the drafting of a new and likely more socially conscious constitution, which would favor increased taxation on mining. The views of the newly elected members of the Assembly differ markedly from those of current President Sebastián Piñera and it appears that in the upcoming presidential elections in November, Chile could well choose a president who also favors higher levels of taxation.

Thus, the passage of the proposed Mining Royalties Law, the rewriting of the Chilean constitution, and the results of the presidential elections, will all be critical in determining the future of foreign investment in Chile, as well as having an inordinate impact on the global mining sector.