Copper Slump Seen Opening Door to Debate on Pinochet-Era Law

  • Chile Mining Minister Aurora Williams speaks in interview
  • A bill to modify law has been in Congress since May 2011

The end of the commodities super-cycle is creating the conditions for Chile to discuss changes to a four-decades-old law that gives the armed forces 10 percent of copper giant Codelco’s sales, said Mining Minister Aurora Williams.

A bill to scrap the law, which was created in its current form by late dictator Augusto Pinochet, has been languishing in Congress since 2011, when copper traded above $4 a pound amid surging Chinese demand. Now the metal is about $2 with miners including Codelco grappling with cost cutting measures to remain profitable.

While President Michelle Bachelet has focused on education and tax reforms since taking office in March 2014, copper’s collapse could open the door to revising the so-called copper reserve law as government revenue from Codelco shrinks, Williams said in an interview Monday in Santiago. Scrapping the military payments would allow Codelco, the world’s largest copper producer, to finance more of its planned investments internally.

“It’s an area we think discussions can be held, we have seen it with the finance and defense ministers,” Williams said. “Today, Chile is a different country with different needs, copper prices and aspects that could be monitored and make a much more efficient law. One could suppose there are better conditions today to start conversations.”

Codelco plans to spend more than $20 billion in the coming years to overhaul its aging deposits and take output to 2 million tons by 2027 at the latest, from about 1.7 million. Still, it is not clear the company will be allowed to keep all sales revenue. The government has yet to decide whether to modify the existing reform bill or create a new project, Williams said.

The mining minister said she remains hopeful that copper output in the Latin American nation will expand, even after the slump in prices. Chile’s mining industry currently has a pipeline of 38 projects, which would take output above 6 million tons by 2026, if they all come into effect, Williams said. The country produced 5.76 million tons last year.

The government estimates copper prices will average $2.2 in 2017 and start to rebound in 2018, “but it will be a reasonable rebound and in no case will we go back to a commodities super cycle,” Williams said.

With copper falling as low as $1.94 per pound in January, Finance Minister Rodrigo Valdes said two weeks ago that government income from copper will be almost zero this year. Codelco’s contribution in tax will also be very low, he said.

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