SANTIAGO – Mining companies operating in Chile, the world's top copper producer, are well positioned to absorb higher domestic royalties required by a new law enacted by the country's leftist government, Fitch ratings agency said on Wednesday.

A long-awaited mining reform approved by Chilean lawmakers in May requires large copper producers to pay more taxes and royalties to the government.

"Chile's new mining royalty law will not materially weaken the competitiveness of the country's copper mining sector, but it will increase taxes, modestly pressuring miners' cash flows," Fitch said in a report.

Global mining companies such as BHP, Anglo American and Glencore are among those whose cash flows will be strained by the reform, Fitch said.

Several large globally diversified industry players "have made substantial capex (capital expenditure) commitments following the royalty finalization, suggesting mining economics remain competitive globally under the new tax regime," it added.

The new tax regime is taking effect gradually, since several operations maintain previously signed tax invariability contracts.

However, Fitch noted that "difficulties related to obtaining environmental permits will likely lead to a period in 2024 where no new projects come online, after the completion of (Teck Resources') Quebrada Blanca this year."

Private copper miners have demanded cuts in energy costs, faster permit approvals and other incentives to offset the burden of the new royalty regime and avoid a decline in investment.

Fitch estimates that Chile's total tax on mining companies will stay above Peru's by roughly two percentage points and be about four percentage points higher than that of Australia and the Canadian province of British Columbia.

However, it will be much lower than taxes on mining firms in African countries such as Zambia and the Democratic Republic of Congo.

Fitch also said it expects Antofagasta Minerals "will maintain its robust financial position despite modest cash flow reduction from higher taxes." The key Antucoya and Centinela subsidiaries of the mining firm have tax stability agreements until 2030 and 2031, respectively, it added.

The new tax proposal will likely affect the cash flow of Chilean state-run mining firm Codelco, which hands all its profits to the government, and the increase in the tax structure will reduce the profit retention agreement the government entered into with the company, Fitch added.