It seems like perfect timing. Chile, the world’s top copper producer, elected a pro-business president in a 58% to 42% landslide.
As world copper prices surge to record highs on expected demand from electric vehicles and artificial intelligence data centers. Just don’t hold your breath for a supply surge.
Jose Antonio Kast rode to his Dec. 14 triumph largely on promises to fight crime and curb migration from crisis-racked Venezuela. Rightist candidates rode his coattails to within two seats of a majority in the Chamber of Deputies.
His platform also included investor crowd-pleasers: lower corporate taxes and accelerated permitting of mining projects. “Everyone in the mining sector is very excited, very positive about Kast,” says Lucas Rodriguez, an associate director at FTI Consulting.
Chile’s copper output has slumped by 5% from a 2018 peak of 5.8 million metric tons. Part of that was driven by Kast’s predecessor Gabriel Boric, a one-time student activist who swept to power in 2021 pledging income redistribution and environmental protection.
He hiked copper royalties and set a high bar for mine expansion in the ore-rich but water- starved Atacama Desert. “Environmental permitting has been the biggest issue for mining companies,” Rodriguez says.
Up to $100 billion is waiting on the sidelines for a more relaxed government attitude, estimates Juan Carlos Guajardo, executive director of Santiago-based consultant Plusmining.
Most of this capital is focused on copper, though Chile also boasts the world’s largest reserves of lithium. Prices for the battery metal have crashed 90% since 2022, and Australia’s mines proved more economical than Chile’s brine extraction methods. “I see no boom of interest in lithium,” Guajardo says.
Chilean copper output has also been dwindling from natural causes. Mines that started producing in the late 20th century are becoming exhausted, costing more to deliver lower- quality ore. There are no mother lodes left to find. The huge majority of pending investment is in the “brown field” category, Guajardo says: expansion of existing sites that can only hold output steady for the next five years. “The bad news is that net growth isn’t expected until next decade,” he says.
Rodriguez worries that Kast’s law-and-order hard line could upset the fragile peace that miners have established with indigenous peoples around their mines. Neighboring Peru shows what can go wrong. Copper extraction there is plagued by blockades, wildcat mining, and occasional armed conflict.
The good news for Chile is that the world has no better option for digging out the copper it needs. The second-ranking producer, Democratic Republic of Congo, presents challenges of its own, to put it very mildly. Peru is No. 3 and China No. 4.
Argentina has abundant, all-but-virgin reserves. But it will take more than two years of market- friendly President Javier Milei to lure mining investment scaled for decades, says Nicolas Jaquier, a portfolio manager for emerging markets debt at asset manager Ninety One.
“Argentina is very far from posing serious competition to Chile,” he says. Boric’s progressive tilt paradoxically illustrated the firmness of Chile’s mining commitment. He had to compromise on royalties, failed to pass a constitution that would have enshrined “nature’s rights,” and in the end turned to streamlining permitting himself. “Boric’s reforms were really OK,” Jaquier says.
Even Jeannette Jara, Kast’s defeated Communist opponent, supported increasing copper production by 10%. “That’s testimony to the stability of the sector,” FTI’s Rodriguez comments. “I’m very bullish on copper in Chile.”
Source: Barron’s