Codelco Languishes Under New Taxes and Falling Output, Complicating South American Copper Growth

On top of company production levels falling to levels unseen in this millennium, new taxes on mining activity, and delays to critical expansion projects, Chile’s state-owned copper giant, Codelco, will now have to deal with the sudden departure of its CEO. That is the latest sign that South America’s copper situation is becoming more unpredictable, following political unrest that shut down of Peruvian mines earlier this year.

Chile and Peru are the two largest copper producing nations, representing more than a third of global output. Concerns regarding the growth of copper supply in these nations comes at a pivotal moment in the green energy transition, which will rely heavily on the red metal. These circumstances could present a bullish mix for copper prices going forward.

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In a move that will accentuate several months of turbulence in the country’s vast mining sector, the head of Chile’s state-owned copper outfit, Codelco, has announced he is stepping down. CEO Andre Sougarret will depart his post at the end of June after a tenure that lasted just a year, citing “complexities” in running the world’s leading copper supplier, responsible for most of the copper that flows out of the top-producing nation. Per Mining Weekly, four company sources and one industry source cited potential risks of missing production targets this year, issues from weather to accidents hitting some projects and internal politics. Sougarret’s resignation is just the latest sign that the outlook for Chilean copper output doesn’t appear to be improving.

Per Reuters, copper production from Codelco fell to a 25-year low in Q1, compounding a double-digit-percentage decline for all of 2022. Bloomberg notes Codelco expects its annual copper haul to fall by as much as -7% this year, to 1.35 million metric tons. Overall copper output in Chile, which accounts for a quarter of the world’s mined copper, tumbled to a six-year low in March. Per Fitch Ratings, Chilean companies are expected to temper their growth plans this year as the likelihood of higher taxes and labor costs dim returns on new projects.

Under the new reforms, Reuters writes that the top tax rate will rise to 47% (up from a specific tax rate of 37%) for companies that produce over 80,000 tonnes of fine copper per year. It also establishes a…