Japanese miners could be deterred from investing in new mines after lawmakers in Chile gave final approval last month for a mining tax reform, hiking taxes and royalties for big copper and lithium producers.
“Higher tax won’t lead to withdrawal from existing mines, but it may have an impact on new development.” the chairman of the Japan Mining Industry Association, Akira Nozaki, told Reuters in an interview.
Chile is the world’s top copper producer and is second in lithium production. Growing nationalism in resource-rich countries is challenging miners to hunt for energy transition minerals in the face of rising costs, tougher environmental rules, and pressure from investors to decarbonize.
“Obviously, profitability will decline due to higher tax, making new mining development increasingly difficult.” Nozaki commented.
Under the Chilean reform, the top tax rate will reach up to nearly 47% for companies that produce over 80,000t of fine copper a year, considered high by the industry.
It also imposes a flat-rate ad valorem tax of 1% on miners that produce more than 50,000tpa, as well as an additional 8% to 26% tax depending on the miner’s operating margin.
Two major Japanese miners have already reduced exposure to their key copper projects in Chile over the past few years, with Sumitomo Metal Mining divesting its stake in the Sierra Gorda mine last year and JX Nippon Mining & Metals planning to sell a majority stake in Caserones mine.
Still, Nozaki, also president of Sumitomo Metal, said Japanese miners could make major new investments drawing on their experience from past projects.
In April, the G7 summit was held in Hiroshima, Japan, where countries pledged US$13B in fiscal support to strengthen supply chains of critical minerals. Japan itself has already secured a supplementary budget of about US$1.4B for key minerals.
“We welcome (this) agreement and the Japanese government’s recent adoption of various measures to reinforce supply chains of critical minerals that are essential for realizing a green society,” Nozaki said.
Chile’s new tax scheme, effective on January 1st, 2024, will invest a significant amount per year into state coffers, according to official figures, with US$450M to be distributed to regional governments for social spending.
