SANTIAGO, Jun 17, 2010 (Dow Jones Commodities News Select via Comtex) -- Chile's government will insist on getting changes to the existing royalty on copper mining signed into law after it recently suffered another setback in Congress, Finance Minister Felipe Larrain said Thursday.
The government put forward a reconstruction financing bill, with modifications to the existing royalty, to partially finance its $8.4 billion share of reconstruction efforts after the massive earthquake that rocked Chile in late February.
Legislators on Tuesday agreed to bring the initiative before a joint commission, after the Senate rejected the proposed changes to the copper royalty.
"I still hope that at a joint commission we can turn this thing around," Larrain told reporters.
If the government fails to implement the new copper royalty scheme, which it estimates could garner $600 million to $700 million, it will have to resort to other "not so good options" to raise the money, according to Larrain.
These options include having to dip further into one of its sovereign wealth funds, specifically the Economic and Social Stabilization Fund that currently holds $11.13 billion, or having to issue more debt.
The government has insisted that it will "moderately" withdraw from the wealth fund so as to avoid an influx of dollars that would boost the peso and make Chilean exports more expensive. Analysts believe the government won't tap the fund for more than $1.0 billion.
Chile also plans to issue $1 billion in 10-year dollar-denominated debt and $500 million in 10-year peso-denominated debt abroad to help finance reconstruction. On Tuesday, Chile filed with the U.S. Securities and Exchange Commission to sell up to $3 billion in global bonds, clearing the way for the country to re-enter international capital markets for the first time since 2004.
Chile's Congress authorized local sovereign bond issues for up to $7 billion in 2010, and some $3 billion have already been issued locally so far this year.
If approved, the new royalty scheme for 2010 and 2011 has a variable tax rate of up to 9% depending on a copper-mining company's sales margins and on copper prices. It would then revert to 4% from 2012 to 2017.
Under the existing legislation, which went into effect in 2005, large-scale miners currently pay a royalty of 4% on their copper sales. This tax is in effect until 2017.
Chile is the world's premier copper producer, accounting for over a third of global output.