The dilemmas posed by the high price of copper – Opinion Article

The pandemic changed many things, including the context for the price of copper, whose higher value will foreseeably continue for a prolonged period. This good news, however, raises questions that cannot be ignored.

The first is whether higher incomes will continue to feed the virtuous savings cycle that was institutionalized in Chile through the fiscal rule or if the moment of political changes that the country experiences will open the doors to changes in the responsibility of resource management on the part of the State, which make the higher levels of spending unsustainable over time.

From the perspective of the mining companies, it is worth asking whether the experiences of the so-called “super cycle” were truly learned. Although it may seem paradoxical, the years of fat cows did not always have a good result for mining. Excess from wanting to go too far or too fast resulted in problems that were revealed with the end of high prices. The poor results of the projects that were built in Chile in recent years are an example of this. This new period of high prices will be the time for mining companies to show that discipline and long-term vision can be maintained.

The good financial results that mining companies will achieve, after several years of difficult conditions, can trigger appetites that result in a complex framework for mining. The next few years will be a test of magnitude, since it will be necessary to explain that the mining business is cyclical and that, therefore, good years cannot be taken as normal. In the context of accelerated changes in the country, this will be especially relevant.

Labor demands will also play a role in this period, since many negotiations are expected in the mining sector in the next 2021, which will be an occasion to temper the legitimate expectations of workers with the possibilities of long-term payment of mining .

All of the above is more relevant if one takes into account that the great moment in the value of assets such as copper is largely explained by an exorbitant injection of money into the world economy, which incubates, at the same time, significant risks that could reverse the good prices in a few years. If due account is not taken of this risk and, more generally, of the cyclical nature of mining, the decisions taken in the coming months may be wrong. The hope is that these additional resources will better address the country’s significant challenges.

Source: La Tercera

Translated with Google Translator