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Mining industry

Chile's Escondida Copper Mine to Adopt New Royalty Structure

Strategic Insights

— 1 min read

Chile's Escondida copper mine, controlled by BHP Billiton Ltd., is set to switch to a new royalty structure that will increase its average income tax by two to four percentage points, depending on international copper prices. This move follows a meeting between BHP officials and President Sebastian Pinera to discuss the decision and other topics. The new structure, which is voluntary, allows copper producers to pay a tax of up to 14% based on their sales and world copper prices.

Key Takeaways:

  • Escondida, controlled by BHP Billiton Ltd., will be the first mine to adopt the new royalty structure, increasing its average income tax by two to four percentage points.
  • The new structure will be voluntary, allowing copper producers to pay a tax of up to 14% based on their sales and world copper prices.
  • The government hopes most private copper miners will adopt the new structure as a show of goodwill.
  • Companies have a January 17 deadline to move to the new structure.
  • The large-scale copper mining companies that opted for the voluntary royalty that went into effect in 2005 paid a tax of 4% on their copper sales.
  • BHP officials, including Peter Beaven and Andrew Mackenzie, met with President Sebastian Pinera to discuss the decision and other topics.
  • Escondida is controlled and operated by BHP, which has a 57.5% stake, with Anglo-Australian mining company Rio Tinto PLC holding 30% and a Japanese consortium led by Mitsubishi Corp. holding 12.5%.

Statistics:

  • 2-4 percentage point increase in average income tax for Escondida
  • Up to 14% tax rate for copper producers under the new structure
  • 4% tax rate for large-scale copper mining companies under the previous royalty structure
  • 57.5% stake in Escondida held by BHP Billiton Ltd.
  • 30% stake in Escondida held by Rio Tinto PLC
  • 12.5% stake in Escondida held by a Japanese consortium led by Mitsubishi Corp.
  • January 17 deadline for companies to move to the new structure

Sources:

  • Dow Jones Commodities News via Comtex
  • Local newspapers in Chile
  • Dow Jones Newswires article by Carolina Pica, dated January 11, 2011

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