Increasing Investor Optimism: Lundin’s Bid for Chilean Copper Mine
The recent acquisition of a 51% stake in Chile’s Caserones copper mine by Lundin Mining Corp for a whopping $950m has surprised experts, as mining giants in the past 18 months have expressed concerns over new tax plans by the government and political instability. Despite ongoing uncertainty over possible policy changes to royalties and taxes, Lundin’s faith in the country’s evolving mining royalty and taxation discussions indicates a growing confidence in Chile, the world’s top copper-producing country.
Rosier Outlook and Surging Demand
Investor confidence in Chile’s mining industry may be due to the rosier outlook and rising global demand for green energy metal. Furthermore, the rejection of a proposed new constitution by voters in September 2020, which could have given the state greater control over mining, and the voting down of an ambitious tax overhaul plan in March 2021 have also contributed to the resurgence in investment confidence. Chile’s mining minister, Marcela Hernando, believes that the industry’s concerns have been considered in royalty proposals and sees indications that investment is improving.
Investment Moderation and Optimism
Although a new mining royalties plan is moving through Congress, modifications have been made to appease industry complaints as an increased tax burden could negatively impact Chile’s competitiveness. Some companies, such as Canada-based Teck Resources, are increasing their investment in Chile, while others, such as BHP, have not changed their stance on investment in the country. Lundin has expressed its interest in raising its stake to 70% of the mine for an additional $350m, but it will continue to assess any potential royalty and taxation changes that may influence its decision.
Environmental Concerns
Mining companies in Chile are facing increased opposition from local communities over environmental concerns, resulting in delays for permits. The Caserones mine, situated at an altitude of 4,300 meters, has experienced worker strikes and lawsuits from farmers regarding water over-extraction. However, Chilean courts have approved plans from JX Nippon Mining & Metals, from which Lundin purchased the stake, to rectify the environmental damage. Lundin aims to minimize the mine’s potential environmental impacts through environmental management controls, and its nearby Candelaria operation uses desalinated water and has a guaranteed minimum of 80% of renewable energy.
Trend of Buy Versus Build
The purchase of the Caserones mine by Lundin is indicative of the emerging copper industry trend of purchasing, rather than constructing, new mines. Falling share prices and rising development costs, even at “premium prices,” have made it the optimal time to pursue acquisitions, according to Christopher LaFemina, an equity analyst at Jefferies. Waiting for the macro environment to improve may close the window of opportunity for investors.
