President-elect Gabriel Boric of Chile reacts before giving a speech to his supporters after the presidential runoff election Dec. 19, 2021 in Santiago, Chile. Source: Marcelo Hernandez/Getty Images News via Getty News

The mining industry brushed aside risks posed by left-leaning politician Gabriel Boric's resounding victory in Chile's runoff presidential election Dec. 19, despite the president-elect's campaign promises to rein in the sector and raise fees.

After winning roughly 56% of the vote in the second round of elections, 35-year-old Boric underscored his opposition to Minera Andes Iron's Dominga iron-copper-gold project, and on the campaign trail, Boric promised to create a state-run lithium company and supported mining tax hikes and royalties. Boric is looking to squeeze miners to bring in cash for public services while protecting the environment.

Despite the threats, several miners and analysts have taken Chile's apparent shift to the left in stride, citing the outsized role of mining in Chile's economy and checks in presidential power as reasons for calm. Chile is the world's No. 1 copper producer and boasts some of the largest lithium resources and reserves on Earth. The mineral-rich nation is on track to produce 26.7% of the world's mined copper and 31.9% of the world's lithium chemical supply in 2021, according to S&P Global Market Intelligence analysts.

"Like metal prices, governments are cyclical and it's all relative," David Harquail, board chair of Canada-headquartered mining company Franco-Nevada Corp., said of the potential fallout from Boric's election.

Boric's win over right-wing candidate José Antonio Kast comes amid feverish gains by left-leaning candidates across the region. Many have run on platforms that promise to beef up social safety nets and fight income inequality by scraping together more revenue from private mining companies. Mining alone accounts for about 10% of Chile's total GDP, according to the U.S. International Trade Administration, a government agency.

On election night, Boric reiterated his commitment to protecting the environment against new mine project.

"We do not want projects that destroy our country, that destroy communities," Boric told supporters in his victory speech.

President Diego Hernández of La Sociedad Nacional de Minería, Chile's national mining society, congratulated Boric and expressed a "willingness to collaborate to work on an agenda that allows mining to continue contributing to the development of Chile," according to a Dec. 19 statement.

Boric has thrown his support behind tax reform measures to hiking copper and lithium mining taxes, saying his administration will drum up more revenue by raising mining taxes as well as corporate, income and wealth taxes, among other measures. These proposals could be difficult to see through, given Chile's divided Congress and shaky economy, analysts said.

"We believe that political and technical factors will curtail the scope of the tax reform, as it has been the case in previous attempts," analysts for Moody's Investors Service said in a Dec. 20 comment.

Other hurdles such as "high inflation, a restrictive monetary policy stance, and a soft fiscal and debt picture in need of consolidation" could also complicate Boric's plans, Goldman Sachs analysts said in a Dec. 20 note. "On the positive side, the new administration is expected to continue to benefit from high copper prices and a still strong global growth environment."

The London Metal Exchange copper cash price settled at $9,463 per tonne at close Dec. 20, essentially unchanged from $9,467.50 on Dec. 17 and up 20.9% year over year. Market Intelligence analysts forecast Chile producing 5.9 million tonnes of mined copper in 2022, or one-quarter of the world's share of mined copper.

Boric's proposals face high hurdles

Chile's leader will be pressured to maintain the country's competitive economic edge globally, said Aline Soares, a senior analyst at Market Intelligence.

"The market may be overreacting to Boric's victory," Soares said. "For sure change is coming, but maybe not as drastic as some market players expect."

And mining companies may be taking solace from recent setbacks facing the new left-leaning presidential administration in Peru, which could foreshadow the challenges ahead for the Boric administration.

Despite having the support of newly elected President Pedro Castillo, a bid in Peru's Congress to raise mining taxes in December was voted down, marking a setback for the leader who built his campaign platform on taxing the mining industry.

"As we have seen in Peru, the new government may have grandiose plans, but the Senate or Congress have the final say," David Davidson, base metal analyst with Paradigm Capital, said in an email. "The Congress in Chile is balanced, so unlikely to pass anything radical."

A new constitution

A Chilean constitutional convention is rewriting the nation's governing document, and the new structure is expected to come to a vote in the fall. The prospect of a new constitution in Chile does leave the mining industry with some degree of uncertainty, and the geopolitical uncertainty will chill future investment in new mining projects, analysts said.

"We are expecting a short-term decline in investments as companies are likely to take a wait-and-see approach and assess the new government's plans for the sector," said Sid Rajeev, vice president and head of research at Fundamental Research Corp., an analysis firm for investors. "We are not expecting any changes that would hurt the sector materially."