Thread by @wmthomson22

1/20 South American Copper 🧵1: Traditional stomping grounds of Chile and Peru appear increasingly difficult jurisdictions for big copper mines. Grades are declining and the PolRisk arising from fiscal uncertainty in both Chile and Peru are problematic. #mintwit #copper #PolRisk

2/20 I don't think searching for copper equity opportunities in the region makes sense at the current prices we see. You might be paying up for quality in a few cases ($FIL comes to mind) but I expect the next few years to be difficult ones for Chile and Peru.

3/20 PolRisk situation makes starting a project (brown or green field) hard and the projects that exist are too big for juniors on their own,, that mix creates limited equity opportunities. The following are some points to support that assertion.

4/20 Please highlight were I am wrong, or the opportunities that are ripe.

5/20 YoY decline in Chilean copper production is ~10% as of August (Cochilco numbers) and 2% YoY in Peru (MINEM Numbers). Together Chile and Peru are responsible for ~37% of Global Copper Production (~21 million metric tons in 2021). This is not a good trend, and will continue.

6/20 Peru/Chile Grades: Global ore reserve grades declined from 0.7% in 2000 to 0.5% in 2020. Chile, the biggest copper producer, has seen grades of ore mined decline from c.1% in 2000 to 0.7% in 2019.

7/20 Peru has experienced a similar degradation in grade (I believe), meanwhile outside of the traditional copper mining locals, ore grade across projects (both proposed and operating) appears to be north of 1%, perhaps even 1.25%.

8/20 High grade opportunities exist outside Peru/Chile

9/20 Peru/Chile PolRisk: Chile has delayed the approval of new projects and is proposing a change in the tax on mining, from a flat rate regardless of copper price to a tiered approach.

10/20 According to GS the tax change would increase average incentive price for Chilean projects by 15%.

11/20 The timing on this change is problematic as over 50% of foreign owned mines in Chile have tax stability agreements expiring in 2023.

12/20 Peru is not as far along in the process (perhaps) but the new president (Pedro Castillo) seems intent on a rewrite of the constitution with greater redistribution of mining profit.

13/20 As an aside, I believe in both the cases (Chile and Peru) we are seeing the shift from Political Economic systems tilting in favor of capital (last 20+ years) to tilting in favor of labor (next 20+ years).

14/20 Social Unrest in Peru: Local protests at mines such as MMG's Las Bambas and Southern Coppers Cuajone are an ever present threat at the moment. I would expect more of this the more economic pain Peru feels. Unrest at Tia Maria is a never ending headache. Expect more of this.

15/20 Social Unrest among indigenous peoples is spreading beyond just mining, Bloomberg columnist @ethomson1 has cover this trend in a series of two Bloomberg articles:

bloomberg.com/news/features/…

bloomberg.com/news/articles/…

16/20 Permitting Issues in Chile: In May, the Chilean authorities rejected an environmental permit for the Los Bronces underground extension, and have also rejected plans for Anglo Americas Soldado. Expect more of this, especially in water sensitive regions.

17/20 Macro Structural Comment: I believe that we are at a transition point globally in which policies that favor capitalist accumulation of wealth (orthodox monetary policy) at the cost of wage compression, to address macroeconomic disequilibria will not work going forward.

18/20 Washington Conesus fiscal and monetary development/macro stability policies in the current political economic context put political elite and working classes at variance in unsustainable ways producing undesirable outcomes in the medium to long-term.

19/20 PM Take Away: Peru and Chile are no longer necessarily the low cost high bulk copper producers they have been. The highest asymmetry opportunities may rest in opening new regions, as opposed to new mines in old regions.

20/20 Looking else where means a risk trade off a the asset level (which is not the same as the equity level) between the increased OpEx and PolRisk in Peru/Chile for new jurisdiction and execution risk.