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Posts Tagged ‘Southern Copper’

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