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Chile´s copper dependace might bring economy into a dark alley, figures show

Chile´s copper dependace might bring economy into a dark alley, figures show

Posted by José Peralta on September 24, 2014

According to Álvaro Merino, research director at Chile’s National Mining Society (Sonami), the tax revenues from Chilean mining companies could fall to US$4.5 billion in 2014 — equating to a 45 percent reduction compared to the US$8.2 billion returns in 2012.

Chile is the world’s largest copper producer. As a result, the element is the lifeblood of the nation’s mining-reliant economy. Copper accounts for more than half of the country’s export earnings.

Merino explained that the average value of copper decreased by 8.27 percent during the first half of 2014, compared to the same period last year. Along with higher costs and lower profit margins, this generated a sharp decline in the mining industry’s contribution to the Chilean Treasury.

The copper industry accounted for approximately 20 percent of Chile’s income from taxes between 2005 and 2013. However, during the first half of 2013 the mining sector was responsible for only 8.8 percent of the revenues with US$5.2 billion — a 29 percent decrease from 2012.

Fresh numbers from the first half of 2013 reveal that the mining industry represents about 7.9 percent of Chile’s total US$26.9 billion tax income, with US$ 2.1 billion of that from mining companies.

“The mining industry decreased its input to US$530 million, which is 20 percent less than in the first half of 2013,” Merino said.

Copper prices remained fairly steady hovering around US$3.80 a pound between 2006 and 2010, but saw a drastic change in 2013 with a pound of copper worth only US$3.32.

A 2013 report published by the Organization for Economic Co-Operation and Development (OECD), of which Chile has been a member since 2010, warned the country about the potential pitfalls of its mining-reliant economy, which is more vulnerable to fluctuating commodity prices.

By 2017, corporations will be expected to increase their contribution to the Chilean Treasury, following the government’s new tax reform. This implies a raise of taxes to 27 percent of companies’ revenues — including those of the mining industry — which is in stark contrast to today’s 20 percent rate.

This year’s poor outlook on tax revenues arrives the same day 2,800 workers at the Escondida copper mine initiated a 24-hour strike to protest inadequate working conditions. Miners’ union Sindicato No. 1 claims BHP Billiton, owner of Escondida, continues violating the nation’s work, security and health laws.

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