A revision by the Chilean government this week on copper mining royalties turns the proposal more in favour of the industry, including a number of Canadians miners, according to analysts at Canaccord Genuity (TSX:CF, LSE:CF).
In a note to clients, the analysts wrote the revised proposal by the Boric government amends the ad valorem royalty at a flat-line 1% for copper miners that produce more than 50 kilo-tonnes (kt) per year, and isn’t payable if operating margins are negative. In addition, the payable rates would be adjusted to 8% to 26%, lessening the scope from the previously announced 2% to 32%.
The mining industry had criticized the previous proposal from July 4 because it didn’t fully address downside pressure on margins, and because the special mining royalty was adjusted to index to copper prices without factoring in operating costs. The new proposal addresses these “hot button” issues, according to the analysts.
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Canadian mining companies Capstone Mining Corp (TSX:CS), Lundin Mining Corporation (TSX:LUN), Marimaca Copper Corp (TSX:MARI), and Teck Resources Ltd (TSX:TCK.B) are among the companies that would be exposed to the royalties, the analysts wrote, including:
- Capstone Mining would see full exposure at its Mantoverde and Mantos Blancos sites, while Santo Domingo is protected under a DL600 for the first 15 years of operation.
- Lundin Mining’s Candelaria site is protected under a stability agreement through the end of 2023, and would have full exposure thereafter. Canaccord reiterated its ‘Buy” rating and a share target price of C$7.73.
- Marimaca’s current project design is under the 50 kt per year threshold, and would not feel any impact unless the new design is above that threshold.
- Teck’s QB2 site is protected under a DL600 over the first 15 years of operation, but its Carmen de Andacollo site may have full exposure.
Other Canadian companies either mining copper or exploring in Chile include Mandalay Resources Corp. (TSX:MND, OTCQB:MNDJF), Aftermath Silver (TSX-V:AAG), Los Andes Copper Ltd (TSX-V:LA), World Copper Ltd (TSX-V:WCU, OTCQX:WCUFF), Montero Mining and Exploration Ltd (TSX-V:MON), and Golden Arrow Resources Corp (TSX-V:GRG, OTCQB:GARWF).
“For context, the current mining royalty regime is predicated on the mine's operating margin (thus factoring in both the copper price and operating costs), with blended rates from 5% at the low end to 14% at operating margins 85% or higher. In addition, miners pay a 27% corporate tax rate,” the analysts wrote.
Canaccord looked at a “typical” Chilean mine producing 100 kt of copper a year at a cost of C$1.50 per pound, with depreciation of $0.15 per pound, and selling it for $3.50 per pound over the long term.
Under new proposal, the Chilean government would take 40.8% in royalties, up from the current regime of 32.1% but less than the previously proposed 41.5%, the analysts said, adding the Chilean Senate and House still have to approve the new proposal.
Contact the author at susie@proactiveinvestors.com