In today’s Fat Tail Daily, James Cooper covers the ongoing risk of nationalisation in the mining industry. According to James, this is a clear sign we’re in the upward leg of a commodity cycle. As supply chains tighten and long-term demand drivers strengthen, resource-rich nations push for a greater share of the mineral wealth on offer. But the big elephant in the room is Chile, this country is a major copper supplier. What happens here matters for the global energy transition. Read on to find out more…
Nationalisation remains a hot topic in mining circles.
As supply chains tighten and long-term demand drivers strengthen, resource-rich nations are looking to capture a greater share of their mineral wealth.
All across South America, Africa and Asia, countries are pushing back against the long-established norms that allow multinational miners to grow rich on the local bounty.
On Monday, producer First Quantum Minerals [TSX: FM] fell almost 30% as its Cobre Panamá copper mine fell under the weight of public scrutiny in Panama.
After weeks of violent protests, the government backed-out of its contract commitments to FM.
The company’s future now hinges on a public referendum…given the poor sentiment, the prognosis doesn’t look good for this company or its shareholders.
Cobre Panamá is a major contributor to the nation’s GDP, but this single operation also supplies around 1.5% of global copper supply.
The political situation here has important implications. Emerging nations are pushing back against multinationals vying for their large, high grade deposits.
But the biggest concerns are coming from Chile…
Late last year, I wrote to The Insider readers (a publication available to all paid Fat Tail subscribers) about the growing threat of nationalisation in the world’s largest copper producing nation:
‘In July 2022, Chile’s finance minister, Mario Marcel, introduced a tax reform bill that raised copper mining royalties on companies that produce more than 50,000 tonnes a year.
‘It also increased revenue taxes on the largest mining producers.
‘But this is just the beginning.
‘As Reuters reports, Chile has set the constitutional groundwork that allows for the re-emergence of nationalisation of the country’s copper industry.
‘Unsurprisingly, its sparked an angry response from major mining firms, including Australia’s BHP.
‘You see, BHP has a lot at stake here…. In partnership with Rio Tinto and Japanese based JECO Corp, it operates the world’s largest copper mine, Escondida.
‘The mine, an enormous porphyry deposit located in Northern Chile sitting in the Atacama desert, provides around 6% of the worlds entire supply of copper!
‘It’s a HUGE cash cow for the company…. But it’s also juicy low hanging fruit for a government looking to reap more from its copper riches.
‘It forces BHP and other multinationals to re-think their long-term strategy in the country.
‘It means a severe pull-back on investment, including exploration, in the world’s most important copper province….
‘Ultimately, the political landscape in Chile places even greater threats to the future supply of this important metal.’
Since then, the world’s largest miner has dangled around $10 billion in investments to entice the government to step back from its nationalistic push.
BHP understands the significance…the global energy transition won’t happen without a supportive mining environment in Chile.
The country feeds an astounding 20% of the global supply chain…given the metal’s key role in electrification, Chile can literally dismantle Net Zero.
According to the US Geological Survey, it ALSO holds the world’s LARGEST untapped reserves.
That’s important for future supply.
But unlocking those reserves needs a supportive government.
Without that, the country misses out on international investment…
The capital that drives exploration and unlocks a new generation of copper deposits.
And this investment is sorely needed…
The world’s largest copper miner on the brink of collapse
According to a recent Reuters report, the world’s largest copper producer sits on the edge of insolvency thanks to rising debt and missed output across its major operations in Chile.
If you’re not familiar, Codelco is a legacy of previous nationalisation efforts in Chile — an amalgamation of government-controlled copper assets.
For decades, the company has reigned as the world’s largest and most important supplier of global copper.
As a major contributor to the country’s GDP, the company’s demise is bad news for Chile’s copper fuelled economy.
It’s also exposing the deep problems resulting from government interference.
Codelco’s demise is attributed to poor management and a lack of new investment in new mines and exploration.
Over the last few months, Codelco has become the poster child for everything that’s wrong with nationalisation.
It’s another dent in the government’s agenda, especially as it tries to restore the country’s balance sheet in the face of declining earnings from its most important revenue source.
It’s these problems that signal an opportunity for me…
What happens if Chile’s government backs down on its nationalistic push?
As the most important region for copper mining, development and exploration…this would be enormously bullish.
Especially in an age that requires vast investment in copper supply as the global economy moves towards electrification.
But right now, investors remain cautious.
It’s why certain stocks already exploring in Chile offer a prime contrarian trade.
In fact, that was the key strategy behind this month’s Diggers and Drillers recommendation.
A Canadian-listed explorer looking to develop one of the world’s largest copper deposits.
It also holds enormous exploration upside, operating on exceptionally fertile grounds in Chile.
It’s exploring in a region that’s played host to numerous giant copper-gold porphyry discoveries.
And the ground has barely been scratched.
Given the company has just announced the start of its biggest ever drill program, right now could be the ideal time to get onboard.
I’m hugely excited about this opportunity and I think you will be too.
If you’d like to find out more, you can do so here.
Until next time,
Editor, Fat Tail Daily