Governments want to cash in on minors’ profits in hot air balloons

One of the most profitable years on record for miners is encouraging lawmakers to seek a greater share of their profits, a move that companies and analysts say could deter future investment and prolong some expected shortages. of raw materials.

The prices of materials such as copper and iron ore have reached record highs this year, as countries that produce them grapple with mounting debts resulting from their economic responses to the Covid-19 pandemic. These trends have encouraged some lawmakers to reopen talks about what governments deserve from natural resource extraction, mirroring efforts a decade ago when commodity prices rose due to a boom in demand. Chinese.

The companies warn that increasing mining taxes or royalties – payments typically tied to production, sales or profits – will discourage new investment, which could hurt future supply of key metals and keep prices higher. students. Lawmakers point to the significant profits made by mining giants and the billions of dollars they share with their shareholders.

In copper-rich Peru, Pedro Castillo has pledged to increase taxes on miners he accuses of plundering the country’s natural resources if his victory in last month’s presidential election is confirmed.

Supporters of Pedro Castillo in Lima, Peru last month. Mr. Castillo is awaiting confirmation of his victory in the recent presidential election.


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EPA / Shutterstock

In neighboring Chile, lawmakers are already debating significantly higher mining royalties. A bill before the Chilean Senate proposes a revenue-based sliding-scale royalty of up to 75% on copper production to help pay for social programs during the pandemic. Today, miners pay a royalty of up to 14% of profits. A local mining lobby called the proposed tariffs expropriation.

Chile accounts for almost a third of world copper exports and Peru about 12%. They are the two biggest exporters of copper, which means that significant new taxes could increase the cost of products, many of which are essential to the energy transition like electric vehicles or wind turbines.

CRU Group, a raw materials consultancy, estimates that output from existing copper mines will peak in 2023, with a deficit appearing in the middle of the decade and worsening, unless new projects progress.

Miners argue that higher taxes can make operations too expensive and expansions less likely to occur. Nevertheless, these companies might have limited investment options given the scarcity of deposits of certain commodities, such as copper, which can be produced profitably.

A recent PricewaterhouseCoopers survey found that 39% of CEOs in the metals and mining sectors were extremely concerned about uncertainty in tax policy, double the 18% resulting from a poll last year.

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Mining companies thrived during the pandemic and achieved essential service status during times of severe restrictions in many parts of the world, while governments now face rising levels of debt due to stimulus packages and weakening tax revenues from some other industries, said Paul Bendall, global mining leader at PwC in Australia.

The world’s 40 largest miners are expected to report a combined net profit of around $ 118 billion in 2021, up from $ 70 billion in 2020 and $ 61 billion in 2019, which would make it one of the highest results never recorded, according to PwC.

In Nevada, a new gold and silver mining tax was enacted last month and came into effect on July 1. The Nevada Mining Association predicts it will roughly double what miners contribute to state coffers, based on commodity prices. Proceeds are directed to public schools as Nevada – where the pandemic last year closed casinos and hampered tourism – pushes its way out of the pandemic.

“We see this as an investment to be a part of New Nevada, but our operations are going to change, there’s no question,” said Tire Gray, president of the mining association.

“These dollars just don’t come out of nowhere,” Gray said. “A dollar allowance for taxes is a dollar allowance for something else. “

In Russia, temporary export duties that will be imposed on steel and base metals, including nickel and aluminum, are aimed at controlling high inflation, linked to the global rise in commodity prices. Levies will be in place from August 1 to the end of the year.


“A dollar allowance for taxes is a dollar allowance for something else. ”


– Tire Gray, Nevada Mining Association

“The introduction of tariffs is not a punishment for metalworkers,” said Russian First Deputy Prime Minister Andrei Belousov. “We need to protect our internal consumer from what is currently happening in global markets. “

The rights will cost Norilsk Nickel, one of the world’s largest nickel miners, around $ 500 million, company chairman Vladimir Potanin told reporters in late June.

The public debt of advanced economies has reached levels not seen since World War II. In the developing world, the pandemic is reversing decades of progress in reducing global poverty as governments are unable to afford sustained stimulus measures.

Peru’s Castillo has previously said he wants to tax mining profits at 70%, although his economic adviser, Pedro Francke, has sought to allay investor concerns over his far-left policies and said the reform tax would be negotiated with minors.

Liquid gold is poured in to form bars. In Nevada, a new tax on gold and silver mines went into effect this month.


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rick wilking / Reuters

What will result “will probably be a gradual tax according to [metal] price, ”said Francke, a former World Bank economist.

Some Peruvian mining executives say any tax increase could hamper new projects, which could reduce future government tax revenues.

“We have to be very careful if we are to be competitive in attracting investment,” said Roque Benavides, president of Peruvian mining company Compañia de Minas Buenaventura. HER

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The miners also warned of the potential fallout from proposed reform in Chile.

“We are concerned about the serious consequences that this type of policy may have,” said a spokesperson for BHP Group Ltd., which operates the world’s largest copper mine, Escondida, in Chile’s Atacama Desert. . “Chilean mining has a huge opportunity to take advantage of the expected increase in global demand for copper, but the country must remain competitive in the international market,” he said.


“We want to have the most [tax] without affecting investments.


– Rodrigo Cerda, Minister of Finance of Chile

Chilean Finance Minister Rodrigo Cerda has said he expects the currently proposed tax rates to be reduced as the bill passes through the Senate. However, any weakening of legislation is unlikely to be unchallenged, given demands for increased public spending to tackle inequality.

“We want to have the most [tax] without affecting investments, ”Cerda said.

—Georgi Kantchev in Moscow contributed to this article.

Write to Rhiannon Hoyle at [email protected] and Ryan Dube at [email protected]

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