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Posts Tagged ‘Peru’

Mining sector feels heat as Peru turns left

June 8, 2011 Comments off

“Shares in mining companies operating in Peru fell sharply on Monday after a leftwing former coup leader won a narrow victory in the country’s presidential election. Grupo Mexico, a metals mining company with operations in Peru, fell 8 per cent in New York trading. Hochschild, a silver miner, and Southern Copper Corp, tumbled 5 per cent and 11.3 per cent respectively. Shares in Xstrata, which is building one of Peru’s biggest mines, were off 0.86 per cent, while Volcan Compañía Minera, in which Glencore has a stake, fell 8 per cent.

Ollanta Humala’s victory has provoked widespread fears he would lead a wave of nationalisations and higher taxes on foreign companies. Mr Humala has suggested Peru could impose a windfall tax of up to 40 per cent on mining companies, and also raise the 30 per cent rate that miners currently pay. Trading was suspended after Peru’s stock market plunged more than 12 per cent. The precipitous fall dragged down other markets from Chile to Mexico. BHP Billiton, Rio Tinto and Anglo American, none of which have Peruvian operations, escaped the sell-off.”

Source: Wall Street Journal, June 7 2011

Observations:

  • Current corporate tax rate for miners in Peru is 30% + 3% royalties/duties + 4.1% on dividends, which is below international benchmarks (see PWC Global mining tax comparison for details)
  • The most active international mining companies in Peru are Xstrata, Newmont, Freeport-McMoran, and First Quantum. The effect of the election results on the stock price of Newmont is displayed below, showing a sudden 2% loss vs. other gold miners.

Implications:

  • The average stock price decrease of around 10% of Peruvian companies reflects the risk of a tax increase. As the market value is the market’s expectations of future profits, the 10% increase corresponds well with a high likelihood of an approximate 10% tax increase (i.e. 10% after-tax profit reduction) plus the additional risk of increased government control.
  • Besides the risk of tax increase and increased government control, foreign companies face the risk of rapid employment cost increases as the new government will quickly try to make a mark in supporting wage increases.

©2011 | Wilfred Visser | thebusinessofmining.com

Peru cancels Southern Copper’s Tia Maria Project

April 15, 2011 1 comment

“Peru has canceled the controversial Tia Maria project owned by Southern Copper Corp., a mining ministry spokeswoman said Friday. The spokeswoman said the project was ruled “unacceptable” by the ministry, which is in charge of giving approvals for mining projects.

The cancellation was announced at a brief televised press conference of regional and national government representatives following the deaths this week of three anti-Tia Maria protesters. ‘We want to return to normal,’ said Peruvian Minister for Energy and Mining Pedro Sanchez, who refused to answer further questions. A spokesman for Southern Copper Peru said the company had no immediate comment.

The Tia Maria mine project, which was seen producing 120,000 tons of copper a year, had been dogged by a series of protests from residents fearing it would damage their water and environment.”

Source: Wall Street Journal, April 8 2011

Observations:

  • Southern Copper, part of Grupo Mexico, is one of the world’s largest copper miners, but is largely unknown by many people in the industry. The company has operations in Mexico and Peru and exploration projects in Chile.
  • The 120 thousand ton/year Tia Maria project should have increased expected 630 thousand ton production in 2011 to 700 thousand ton/year in 2012. Approx. 3/4 of the company revenue comes from copper.

Implications:

  • Southern Copper will need to submit a new environmental study to prove the mine will not contaminate groundwater. Public opinion in Southern Peru has turned against the company and led to large protests.
  • The intervention by Peru’s government might have impact on other development projects in the country. Furthermore, a potential increase of mining taxes is one of the key debates in the presidential election. Miners in Peru will have to be more aware of the social and political operating environment in the coming years.

©2011 | Wilfred Visser | thebusinessofmining.com

Price of tin hits highest level in two years

July 27, 2010 Comments off

“Falling supplies and rising demand from manufacturers in Europe and Asia are pushing tin prices to their highest levels in two years.

The price of the metal, a raw material in soldering and food packaging, has doubled since early 2009 and analysts believe it will soon rise above a key $20,000 a tonne barrier because of falling production in Indonesia, the world’s largest supplier, and strong demand from the manufacturing industry in Japan, South Korea and Europe.

The Sucden brokerage says: ‘It is hard to escape the conclusion that the tin market is tightening quite considerably and may continue to do so in 2011.’ The cost of tin rose nearly 9 per cent last week and on Tuesday it gained 2.5 per cent to $19,670 a tonne at the London Metal Exchange, the highest price in two years.”

Source: Financial Times, July 26, 2010

Observations:

  • Shortage of tin is expected as demand is increasing and no major new production is scheduled to start in the next year.
  • Over two-thirds of both production and demand of tin are in China and Indonesia. However, as national production in China does not keep up with demand, international trade is picking up.
  • The leading tin producing companies are Yannan Tin (China), PT Timah (Indonesia), Malaysian Smelting Corp. and MinSur (Peru)

Implications:

  • None of the diversified international mining houses is active in tin production (as core product). Diversification into this space is unlikely, as tin mining methods are very specific. As efficiency gains could be achieved versus the incumbents, junior niche players are likely to enter the base metal market.
  • Peru, Brazil and Bolivia have significant tin reserves, providing a potential for a surge of the tin market in Latin America. Solder, packaging and chemical applications would be the most likely demand source for the market.

©2010 | Wilfred Visser | thebusinessofmining.com

Phosphate: Mosaic in Talks to Buy Mexican Firm

June 15, 2010 Comments off

“Mosaic Co. is in talks to acquire Mexican fertilizer company Grupo Fertinal SA in a deal that could be worth up to $1 billion, people familiar with the matter said. A deal for Grupo Fertinal, one of Latin America’s leading fertilizer makers, would give the publicly traded Mosaic its first footprint in Mexico.

It is unclear if and when a deal could be completed but the parties have been in talks for about six months, the people familiar with the matter said. While Mosaic is seen as the most likely buyer, the people cautioned that the deal may still fall apart. An acquisition of the Mexican fertilizer company would expand Mosaic’s access to the phosphate rock it needs for making fertilizer in North America.

Mosaic, which owns extensive phosphate rock deposits in Florida, produces about 10% of the world’s potash fertilizer and controls 13% of the world’s capacity to make phosphate fertilizer.”

Source: Wall Street Journal, June 15 2010

Observations:

  • Mosaic has over $2 bln in cash. The company wants to use the money to increase access to phosphate deposits.
  • Grupo Fertinal owns a phosphate mine and processing plant in San Juan (Baja California).

Implications:

  • Vale might emerge as a competing bidder for Fertinal. The Brazilians want to expand in the fertilizer business. However, they don’t have a strong foothold in Mexico yet.
  • Mosaic recently announced investments in Peru, indicating the US company wants to expand into South America.

©2010 – thebusinessofmining.com