By Fabian Cambero and Divya Rajagopal
SANTIAGO, April 14 (Reuters) – Lundin Mining Corp’s bid for control of Chile’s Caserón copper mine comes despite continued uncertainty over possible policy changes on royalties and taxes, a sign that investors may be regaining confidence in the world’s No. 1 copper producer. .
Lundin last month agreed to pay $950 million for 51% control of the mine, “an endorsement that we believe moves mining royalty and tax discussions in the right direction.”
The deal brought some surprises. Over the past 18 months, mining giants have been raising concerns about Chile. BHP Group Ltd said it may reassess its investments based on the government’s new tax plans, while Freeport-McMoRan Inc said it would halt expansion plans in Chile, citing political uncertainty.
But experts and officials say reluctance has eased as investment and global demand for the key green energy metal continues to grow.
Chile’s mining minister, Marcela Hernando, told Reuters on Thursday that she felt “confident” that industry concerns were taken into account in the royalty proposals and that she saw signs that investment was starting to improve.
“What you see are the signs, you see how some investments have been realized, how a very important deal was completed a few weeks ago,” she said, referring to the Caserones purchase.
“We’re not worried that investments are going away.”
A proposed new constitution that would have given the state more control over mining, among other changes, was rejected by voters last September, while an ambitious tax overhaul plan was scrapped by Congress in March.
Meanwhile, another government plan for new royalties on mining, currently moving through Congress, has also been tempered amid industry complaints that the tax burden would harm the country’s competitiveness at a time when deposits are facing declining production.
“Since the reform of the proposed bill, some companies have reached a level of risk consistent with their investment decisions, as was the case with Lundin,” said Juan Carlos Guajardo, head of Plusmining consulting agency in Santiago.
“Some companies have a more optimistic view of the eventual development of the royalty bill, which is sparking investment decisions, but there are others that are still in ‘wait and see’ mode.”
Canada-based Tech Resources has also recently stepped up investment in Chile, this year submitting a $3 billion project to increase capacity at its Quebrada Blanca 2 mine for environmental approval.
But BHP said its stance on investing in Chile had not changed. Freeport did not respond to a request for comment.
Lundin is considering increasing its stake to 70% of the mine for an additional $350 million, but will “continue to evaluate any potential royalty and tax changes” as a factor in that decision.
Environmental concerns
Lundin’s purchase from JX Nippon Mining & Metals comes at a time when the companies are seeing long delays for permits amid growing opposition from local communities. Some projects have been rejected by states or courts due to environmental impact concerns.
Kaseron, at 4,300 meters above sea level, has itself faced issues with workers’ strikes and farmers complaining of excessive water withdrawal.
Chilean courts have approved plans from JX Nippon to repair environmental damage, and Lundin told Reuters the company’s “primary objective is to minimize potential environmental impacts through the implementation of environmental management controls.”
The company added that its nearby Candelaria operation uses desalinated water and is guaranteed a minimum of 80% of electricity from renewable sources.
Lundin is confident in the future of the Caserones project, which began operations in 2014 and has an annual production of 100,000 tonnes of copper. Lundin Mining CEO Peter Rockandel said on a conference call after the deal was announced that he had “no concerns” about moving forward.
The purchase is emblematic of the emerging copper industry trend of buying versus building, said Christopher LaFemina, equity analyst at Jefferies, adding that declining share prices and ballooning development costs support buying rather than building new mines, even at “premium prices.”
“The optimal time to pursue large acquisitions is now,” LaFemina said in a report, adding that the window may be closing if investors wait “for the macro environment to improve.” (Reporting by Fabian Cambero and Divya Rajagopal; Editing by Alexander Villegas, Ernest Scheder and Rosalba O’Brien)