Record copper prices are at the forefront of a global commodities boom. The economies of Chile and Peru, the world’s largest producers of the red metal, will receive a shot-in-the arm at a vital time, but growing resource nationalism could kill off a long-term blossoming of the industry.

On April 30, Codelco, Chile’s state-run copper miner, reported a first quarter profit of $1.6 billion, providing a vital source of income to the Chilean government as it continues to roll out its COVID-19 pandemic stimulus and vaccination program. The windfall profit was the company’s largest in a decade, but it came on the back of only a modest increase in production. The real driving force was record prices.

Nicknamed “Doctor Copper” for its uncanny ability to diagnose the health of the global economy, the red metal reached a record $4.76 per pound in mid-May, up from less than $3 in most of 2019 and 2020. During the pandemic, Latin America’s major copper mines overcame early shutdowns due to infections to become a vital source of economic stability during lockdowns. Chile and Peru, the world’s biggest copper miners, produced 5.7 million metric tons and 2.2 million tons, respectively, over the course of 2020.

“In Chile, and to a lesser extent Peru, high copper prices have allowed the government to validate larger increases in transfers to households and small businesses,” Alberto Ramos, head of Latin American economics at Goldman Sachs, tells LatinFinance. “The windfall gives extra room on the fiscal [front] to meet public pressure for more social spending.”

Mexico and Panama also have significant copper mines. In the latter, Canada-based First Quantum Minerals’ Cobre Panama mine increased its first quarter copper production by 46% year-on-year for gross profits of CAD540 million ($444 million) in a country looking to use mineral revenues to prop up its pension system. Argentina and Ecuador are home to some of the most promising copper porphyry development projects in the world.

All told, the outlook for the red metal could scarcely be more bullish.

“Global consumption has been increasing and the decarbonization of the world’s energy and transportation systems will require huge volumes of copper,” says Paul Harris, an independent mining consultant based in Medellín, Colombia. “Existing deposits are depleting, new projects are slow to come online and a supply crunch is opening up. It’s estimated that we need production equivalent to a new Escondida mine every year.”

Image: Paul Harris

Escondida, in operation since 1990 in northern Chile, produced 1.2 million tons of copper in 2020.


The red metal has a diverse array of uses in industrial, manufacturing and electrical processes, but its demand is particularly intense from green energy technologies. A car with an internal combustion engine typically requires 23 kg of copper. A plug-hybrid vehicle requires 63 kg. According to the International Renewable Energy Agency, copper demand from solar energy projects is expected to double to 1.3 million tons by 2030, with a further 900,000 tons required from windfarm projects. By 2050, such renewable energy projects could require 3 million tons annually, or 15% of the current copper supply.

“The external backdrop of copper prices, and other commodities too, is generating significant tailwinds for economic activity that can help the region recover from the slump brought on by the pandemic,” says Ramos. “Its effect goes beyond the narrow contribution of the mining sector, creating more investment outlays and income to other sectors that feed into the industry.”

The bright outlook could push Codelco to return to the markets to restructure its debts and finance its ambitious expansion plans. In September 2019, the company issued $1 billion in 10-year bonds with a coupon of 3.02% and $1 billion in 30-year bonds at 3.71%. The company says it plans to execute $35 billion in structural investments over the next decade, and in January it approved a $1.3 billion project to expand its ageing Salvador mine to increase output by 30%. In December 2020, Codelco raised $500 million in 31-year bonds at historically low rates to buy back $1.1 billion in notes maturing between 2021 and 2027.

Interest in debt finance for other regional resources projects is also growing. At the beginning of the year, London-based Appian Capital Advisory raised $775 million for investment in Latin American mining projects and closed a $140 debt financing for the development of the Serrote copper project in Brazil. In February, Chile’s Mantos Copper announced a $847 million financing package for its project in the Atacama region in the country’s far north, backed by international mining banks and export credit agencies.

“Copper can be a cornerstone asset for a society,” says Harris. “Mines tend to have a life of over 30 years, creating generational employment and providing a tax income that a government can plan its budget around as both Chile and Peru have shown.”


However, just when the industry’s fiscal buffer is most required by economies ravaged by the pandemic, the political tide appears to be turning against mining in Latin America. A new surge of resource nationalism appears imminent.

In June, socialist candidate Pedro Castillo won the Peruvian presidency promising to change the constitution to allow for a drastic increase in the government take from mining projects. His strongest support came in areas with major mines.

“Castillo’s election is a concern for the industry. Congress will look to satisfy populist demands whilst overlooking the deeper implications of new policies,” says Claudia Navas, an analyst for Control Risks, a London-based consultancy. “Castillo is not anti-mining and he is likely to be pragmatic, given that mining revenues will be fundamental to economic recovery, but communities are likely to feel empowered to push for greater resources or revenues from mining companies.”

Other previously mining-friendly countries are likely to adopt measures to boost government take from projects. In May, the Chilean lower house passed a bill to levy a 75% sales tax on copper at prices over $4 per pound. Diego Hernández, president of the Chilean mining society, said it was akin to an expropriation and a vote for “no more mining in Chile.” Although the bill is unlikely to pass the Senate, Chile faces general elections in November and, most probably, a left-of-center government in 2022. Proposed laws to protect the country’s glaciers would also spell the end for some mining projects under study.

Even in market-friendly Panama, Quantum Metals has been the target of a campaign in recent months that questions the legality of its concession and the criticizes the regionally low 2% royalty it pays on its production.

“From an investment standpoint, Latin America is now at its riskiest place since the 1980s.” 

Paul Harris, Mining Consultant

“From an investment standpoint, Latin America is now at its riskiest place since the 1980s,” says Harris. “In recent years, mining companies have targeted $3.50 per pound as the price point above which the development of new projects becomes attractive to companies. However, currently they are not engaging in M&A or financing projects in Latin America because the perceived risk is too high. Copper projects normally cost upwards of $5 billion to build and at the moment the major miners are looking at safer jurisdictions such as Canada or Australia.”

Distributive policies need to be sustainable and carefully calibrated, Ramos says.

“A windfall is a windfall, it doesn’t last forever,” he says. “In terms of commodity price booms, this is as good as it gets. We should see accelerated growth in the short term, but governments should avoid spending commitments that are hard to roll back. Sadly, what usually happens is that policy makers view positive external shocks as permanent and negative shocks as temporary ones.”