CHILE - Vancouver-based PLACER DOME will have the option of avoiding the proposed Chilean mining royalty at its Zaldvar copper mine in Region II, a company official said. The exemption would come as part of the DL 600 foreign investment contract that Placer holds at Zaldvar, project development VP Bill Hayes said during a conference call.
While Placer can choose to avoid paying the proposed tax at Zaldvar, no such protection is available at the company's La Coipa gold mine in Region III, in which Placer has a 50% share. Similarly the company's proposed Cerro Casale gold/copper project in Region III will also have to pay the new royalty if Chile's senate approves the legislation. Placer has a 51% share in the Cerro Casale project, which it described as one of the world's largest undeveloped gold and copper deposits.
"If it is passed as currently envisaged, it's a 5% tax on operating earnings. The net effect of that would be to raise the overall income tax bite in Chile from 35% to about 38.25%," Hayes said.
Placer CEO and president Peter Tomsett said the existence of a new mining royalty will be one of the factors taken into account before making a development decision at Cerro Casale. "There are a number of areas we have to look at regarding Cerro Casale, such as the whole operating cost and capital cost structure, power [costs] and how the royalty might affect it," he said. "The royalty is one of the variables in the whole mix and we'll see as the year goes on."
The royalty proposal honors all existing contracts between mining companies and the state, which are protected under Chile's DL 600 foreign investment law, and it will not be applied to them while their current tax contracts remain in force. Companies that choose to renounce their DL 600 status would face a 4% mining tax, keeping the benefits of accelerated depreciation until end-2007, plus a tax stability clause. New investors and companies that opt out of DL 600 could claim the royalty payment as a 50% partial credit from primary taxes for the 2006-07 period.
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