Chile: The pushback against the royalty hike begins (from IKN70)

 Got a gold tie, have you? Think you're clever, do you?

In Chile dumbass xenophobia is not confined to the proletariat masses, as what it tries to pass off as its executive also promote soft racism for its own political ends. Today's example of shameless purveyor of hatred is Miguel Angel Durán (Anglo American should be ashamed of themselves) and the situation was included in yesterday's IKN70 thusly (as we've been following the Chilean royalty law issue over there):

Chile: The pushback against the royalty hike begins

We mentioned above the revised royalty plan now heading to Chile’s congress for passage to law, so it’s worth mentioning here the tactic unveiled this week by the industry to stop this royalty proposal from becoming reality. And the tactic is, “remind Chile just how much they hate Peru”. This crass strategy comes from the mouth of Miguel Angel Durán, head of the Chamber of Mining and also (significantly) Executive President of Anglo American Chile. The thinly veiled attempt to appeal to historical friction and ill-feeling between the Andean neighbours took the guise of competitivity in the copper sector. In his op-ed published in Chilean biz magazine ‘Estrategia’ he wrote (8) that he was ‘worried’ about the growth rates shown by mining in Peru because its costs of production were lower than in Chile. He continued (translated):

 

“If one looks at the growth rate that copper mining (in Peru) has had in the last few years it has been greater than that of Chile; if one looks at the costs, they are lower.

 

“Projection made by international organizations reveal that producing a pound of copper is cheaper in Peru than in Chile, that exploration investment is lower in Chile than in other mining countries and that energy costs (for mining in Chile) are higher.”

 

So after waving the flag and appealing to base nationalistic traits, Durán comes to the point:

 

“The problem in modifying the royalty impacts the profits of companies operating today in Chile, but will undoubtedly affect future investments. Therefore for the investor who has to decide between countries that have higher taxes than others, or lower exploration costs or higher costs of production, the alternatives are clear.”

 

This is, of course, total balderdash. The same arguments are trotted out every time a government decides to raise burdens on mining and it makes little or no difference in the longer run, as anyone who can remember the debate in 2004 when Peru’s mining industry was up in arms about its own royalty hike can remember. As for Chile itself, Señor Durán in his discourse neatly avoids the low overall state burden placed on mining by the State, along with the early stage tax breaks offered by the country. Playing the reduced profits card is also a real stretch at a time when Chilean miners produce at U$1.30/lb to $1.70/lb and sell their product at $3.50/lb. Finally, when it comes to the building of new mines, we know that the miner goes to the project rather than vice-versa.

Bottom line: If this is all the top executives can manage by way of an argument against the new, time-limited and watered down royalty proposal to raise money towards the post-quake rebuild, then the project will make passage and become law. Durán does a dissservice to his fellow miners with this shameless jingoism.

Brazil: Mining royalties will be a hot topic soon

Here's an excerpt from IKN55, out last weekend, that talks about the subject. If your invested via a brokerage in Brazil-exposed mining stocks and haven't heard anything about it yet, why now phone up your friendly a/c manager and ask her or him just why you have to read these things on a blog first?

Brazil, elections, miners and royalties

Thank you for the feedback last week concerning the possible rise of extra royalty payments on mining operations in LatAm, the theme following on from the recent Australian 40% windfall tax proposals. Further to this I was kindly sent an article (5) that neatly sums up the state of affairs in Brazil as that country moves towards its Presidential elections at the end of this year. The article states that all three of the current Presidential frontrunners, Dilma Rousseff (PT), José Serra (PSDB) and Marina Silva (Green Party) are in favour of changing extra royalties to mining companies.

The issue is likely to start making louder headlines amongst the mining community in the next two or three weeks, as the ruling PT candidate Rousseff is due to define her policy towards mining royalties (and thus remove herself from the current backroom lobbying being conducted by mining companies) via a PT party committee that will sit in Brasilia, come to a agreement and then send the agreed text to Rousseff as the official party line (to which she is very likely to stick). The text is not likely to vary much from a proposal sent to congress by the PT party last year that failed in passage. That text envisaged changes in the current system and would charge a royalty perhaps as high as 5%. As for the other candidates, it seems that main opponent Serra is waiting for the PT policy so that he can take a different position, which is likely to be a differing rate of new royalty rather than none at all.

The bottom line is that the junior mining investor is advised to take into account a higher rate of royalties in future calculations on Brazil-exposed miners. They also might want to take into account a possible rude awakening to the issue if and when it begins to make English language headlines.

Peru's latest bout of social unrest: what you need to know

By popular demand (bit of shadenfraude perhaps?) here's a quick rundown on the protests in Peru's southern Tacna region being reported by all the press this morning and why it has protests going on and stuff...like:

1) Southern Copper's two big Peru mines, Toquepala and Cuajone, are situated in the two regions of Tacna and Moquegua respectively.

2) Toquepala has been producing at full speed this year, but Cuajone has been undergoing strip work and stuff and revenues from that pit have consequentially dropped.

3) Therefore the Tacna region has been getting more money from the government royalty program than Moquegua.

4) Moquegua hasn't liked this for a long time, and last week put together its second big strike/protest/roadblock in the last couple of months. The reason was to pressure Peru's Congres into passing the new royalty law that spreads the cash around more evenly amongst regions.

5) The law got passed. Therefore Moquegua received a dose of happiness and Tacna got all pissed.

6) Result: one unblocked bridge in Moquegua and one burned gov't building in Tacna.

Bottom line: for the first time in ages I feel sympathy towards the Twobreakfasts administration and also say that the regions (esp Tacna) are acting like spoiled brats here. The alterations to the royalty law mean that mining money will get spread around more evenly, but the people in Tacna are doing a foot-stomping act. This isn't some sort of new Bolivia uprising, it's greedy people squabbling over money. That's all.