Boric Promises Change for Chile
Gabriel Boric, a 35-year-old congressman, won a runoff election by a landslide to become the youngest president in Chile’s history. He will take office in March. On the campaign trail, Boric promised to improve the country’s pension system and raise the minimum wage. He also said he would create a state-run lithium mining company, similar to the state-run copper miner, Corporacion Nacional del Cobre de Chile (Codelco). Boric supports increased taxes and royalties for mining and has signaled that environmental regulation may be where he looks to make a difference. The day after his victory celebration, Boric was widely quoted as saying, “To destroy the world is to destroy ourselves.”
Chile produces 25% of the world’s copper and one-third of the world’s lithium. With the race for battery minerals in full tilt, lithium has become a strategic metal. Mining represents 10% of Chile’s gross domestic product and profits from copper sales primarily to China are invested in a sovereign wealth fund that supports the country.
The reaction from mining companies so far has been muted. Codelco will continue to invest to maintain copper production as its mission is to provide for the people of Chile. For other publicly-held mining companies, such as Anglo American, Abermarle, Antofagasta plc, BHP, Freeport-McMoRan, Teck Resources, etc., they will likely consider closely any future investments based on a change in mining policy. Tighter environmental regulations would affect both the public and private sectors. Multinational miners are familiar with the ebb and flow of politics and many are likely adopting a wait-and-see approach to the new regime.
Boric’s mining affairs advisor, Willy Kracht, said in an interview that their proposal is based on two pillars: a royalty on sales and a variable income tax, along with other measures. The mining royalty would start in 2024. What makes the discussion tolerable is that copper prices are high and predicted to go higher. If that trend continues, it may be possible to raise taxes (or change the royalty structure), but the Chilean government will have to incent foreign miners to invest. As far as environmental, social and governance (ESG), there is wide consensus in Chile that water conservation and renewable energy programs must move forward. That may be an area where Boric can establish common ground between the people of Chile and the miners who support the country.
The Chilean riots of 2019 gave way to COVID-19 lockdowns. Boric was propelled to power by a populist wave of Chileans wanting change. On the heels of his win, Boric saw the Chilean peso lose 20% of its value and the stock market decline 10%. A special assembly of politicians is rewriting Chile’s constitution, which will likely come to a vote later this year. The Chilean congress, for better or worse, is divided, meaning nothing will move forward quickly without compromise. For now, it seems a profitable mining sector with high employment levels would be the least of Boric’s worries.
Steve Fiscor, Publisher & Editor-in-Chief, E&MJ