Looks like a heckuva deal! I still have reservations on being there though based on the political environment. Hopefully Humala doesn't win.
Peru tax threat to miners
Teck, Falconbridge and Barrick among big players
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PRESIDENTIAL FRONT-RUNNER: Former Army officer Ollanta Humala leads his closest opponent in Peru's presidential election race with a 31% approval rating.
Photograph by : Eitan Abramovich, AFP; Getty Images
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Drew Hasselback and Boyd Erman, Financial Post
Published: Thursday, March 30, 2006
Canadian miners operating in Peru could face upheaval after the left-wing front-runner in the country's presidential election yesterday pledged to introduce tax changes he described as a "21st-century nationalization."
Vancouver-based Teck Cominco Ltd. and Toronto-based Falconbridge Ltd. and Barrick Gold Corp. are among Canadian companies with interests in large operations in Peru.
Opinion polls name Ollanta Humala as the leader coming into Peru's election on April 9. A run-off is scheduled for May 7.
In an interview with the Financial Times, Mr. Humala said he wants to renegotiate mining agreements to ensure companies pay more taxes and royalties.
He singled out Yanacocha, a gold mine in northern Peru operated by Denver-based Newmont Gold Corp. The U.S. company has called its 51% stake in Yanacocha the "crown jewel" of its international mining portfolio.
In 2000, Mr. Humala and his brother, Antauro, were part of a group of 50 soldiers who seized a copper mine owned by Arizona-based Southern Copper Corp. to protest government corruption.
"We won't revise all contracts, but we will change those with companies that aren't paying taxes and royalties," he said yesterday. He didn't say how a Humala administration would go about the changes, but stressed: "We will not act outside the law."
Still, Mr. Humala's remarks add to a level of rhetoric that appears to challenge the future of foreign investment in Peru.
Mr. Humala also talked about imposing a "windfall tax" on foreign miners, which have invested US$9-billion in Peru over the past decade.
Peru is the world's fourth-largest copper producer, fifth-largest gold miner, third-largest zinc miner, and second-largest silver producer. The country exported US$8.9-billion worth of minerals in 2005.
Mr. Humala is a former army officer and a friend of Hugo Chavez, Venezuela's left-wing president. Mr. Chavez has hiked taxes and royalties on oil firms.
Mr. Humala's lead in the polls has hurt Peruvian stocks, causing a slump last week in the country's benchmark index. "Peru would certainly not be at the top of your list in terms of places you'd actively look [to invest]," said Gavin Graham, director of investments with the Guardian Group of Funds.
Falconbridge owns 33.75% of Antamina, a huge base metals mine high in the Andes Mountains. Teck owns 22.5%, Melbourne-based BHP Billiton Ltd. owns 33.75% and Japan-based Mitsubishi Corp. owns the remaining 10%.
Falconbridge said the Antamina mine has a "stability agreement" with Peru's government that protects royalty and tax levels for a 15-year period. The mine began operation in 2001.
"This is only an election period," said Denis Couture, Falconbridge spokesman. "We don't know who's going to be elected. So it's premature for us to saying anything about these things."
Steven Poloz, chief economist with Export Development Canada, said Mr. Humala might win the presidency, but he might also face a fractured legislature that limits his powers.
"It's easy to overreact to these things, but there's no question that in this kind of situation investors need to be more cautious, especially the direct investors -- the people who put the money directly in the ground."
A Barrick spokesman was not available for comment. Barrick operates two gold mines in Peru, Alto Chicama and Pierina.
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