Chile and Peru seldom make global headlines. The South American neighbors are both in the grip of political tumult that could drag them significantly leftward. But left-leaning political tumult is hardly unusual in smallish emerging markets (combined population 52 million). What raises the stakes for investors here is that Chile and Peru together produce nearly half the world’s copper, a resource on the cusp of an historic demand surge.
The world will consume 25% to 40% more copper over the next decade, by various estimates, primarily thanks to electric vehicles, which require four times as much of the metal as corresponding internal combustion models. Solar panels, new power grids, EV charging stations, and other Green Revolution essentials are not exactly resource-light either. Half a dozen other metals and minerals should see similar demand leaps during the 2020s.
That expectation is driving up metals prices, maybe a bit prematurely. It is also going to reshuffle geopolitics. Goldman Sachs pegged copper as “the new oil” a month ago. When oil producers banded together to defend their self-interest in the 1970s, it proved pretty darn significant for economics, and what you might call global psychology. Metals could be easier to cartelize than petroleum. Saudi Arabia and Iran hold a quarter of the world’s oil reserves between them, but they are mortal enemies. Chile and Peru control a third of the known copper, with an all-but common culture and history.
Lithium, the essential ingredient for all known variants of the EV battery, is more concentrated still. The contiguous nations of Chile, Bolivia and Argentina sit on more than half of global reserves. Then there’s the spectacularly misnamed Democratic Republic of Congo, which accounts for half of both production and reserves of cobalt, an essential for the current generation of batteries. Scientists around the world are laboring to make new kinds of batteries without cobalt. Until they do, virtuous green vehicles will be hostage to this brutally dysfunctional nation and its corporate impresario, Swiss-based Glencore (GLEN.UK).
Which brings us back to politics in Chile and Peru. Chile was a neoliberal poster child for decades until two years ago, when a humble increase in bus fares sparked riots that revealed yawning income gaps and forced a referendum on a new constitution. Elections to the constitutional assembly took place two weeks ago, and the incumbent neo-liberal president’s party got crushed. It failed to reach a one-third threshold sufficient to block the leftish majority.
Legislators aren’t waiting for the constitutionalists to rethink relations with the copper industry. State-owned Codelco accounts for about 30% of Chilean output; multinational miners like BHP (BHP) and Rio Tinto dig out the rest. Codelco lately warned that 40% of its production could be at risk from a bill that would prohibit mining on environmental grounds near any of the Andean nation’s surviving glaciers. A jump in state royalties is also under discussion.
Politics in Peru are starker still. Pedro Castillo, a cowboy-hatted one-time labor leader, has emerged as the front-runner in a June 6 presidential run-off election. He rails against multinationals’ “plunder” of his country and pledges to renegotiate mining contracts, though he did walk back a previous stand for good old-fashioned nationalization.
None of this amounts to OPEC 1973 yet. Castillo may still lose what looks like a tight race to his rightist opponent, Keiko Fujimori. (If the name rings a bell, her dad Alberto was Peru’s president throughout the 1990s.) Chile’s disparate progressive constitution writers have a lot on their minds beside plucking the copper goose: abortion rights, education reform, and so on. Looking forward, industrial consumers have a potent potential strike-breaker in Australia, which is bulging with strategic metals and dedicated to the corporate model of extraction. BHP and Rio Tinto both have their roots Down Under.
Nevertheless, if electric cars and green grids grow at anything like current projections, their grimy mining underbelly will come much more into focus. The countries that control it will want a bigger cut of the profits, and a much louder voice at the global table. Get ready for the OPEC of metals, or something like it.
great piece; I’m very intrigued by the design space of new social contracts and industrial models around mining, and what ‘OPEC’ in a new world (w new tech infra, media constraints) might look like.
you might like this on building better cities adjacent to mining in the Congo: https://chartercitiesinstitute.org/wp-content/uploads/2022/06/Deconflicting-Critical-Minerals-with-Charter-Cities.pdf