Peruvian Politics No Deterrent to Century Mining
By James West
10 May 2006 at 08:20 AM EDT
VANCOUVER (ResourceInvestor.com) -- Peru’s recent lean to the left personified by the victory in first round voting of Ollanta Humala, the retired army officer with ties to Venezuelan President Hugo Chavez, is not putting a dent in any Peruvian mining companies’ plans. If anything, there is ample evidence to suggest mining investment in Peru in 2006 will increase.
Humala has rattled investors slightly by implying he was in favour of nationalizing “strategic sectors” of the economy such as mining, hydrocarbons and utilities. Most mining executives dismiss the comments as election hyperbole.
Seldom has there ever been seen such a frenzied level of acquisition activity in the Inca Kingdom, what with copper and gold prices hitting record highs.
In fact, on the day that Ollanta Humala was counting his first victory votes, Peggy Kent, CEO of the Century Mining [TSXv:CMM], was finalizing the takeover of the San Juan mine in southern Peru near the city of Camana.
“Regardless of who governs, the people of Peru are dependent on the wealth generated by mining companies like ours to sustain the economy,” said Ms. Kent from Lima. “Mr. Humala’s statements in regard to Mr. Chavez have been seized upon by the media and blown out of all proportion. This mine is owned 40% by the local Peruvians who comprise the current labour force.”
Century Mining is a U.S. based emerging gold producer traded on the Toronto Venture Exchange. The company recently acquired 60% controlling interest of San Juan Gold Mines S.A.A. and Minera Chorunga S.A.A, , the mine’s previous owners. Century expects to produce 90,000 ounces of gold in 2006.
Denver, Colorado-based Newmont Mining [NYSE:NEM], for example, has so far increased production from the Yanacocha project 600 kilometres north of Lima, the Peruvian capital. Yanacocha is the largest gold mine in South America employing directly and indirectly 8,000 workers. It is estimated that at least 26,000 regional inhabitants participate in the economic benefits of Yanacocha.
Of Newmont’s 1.8 million ounces of gold sold during the first quarter of 2006 from worldwide operations, 770,000, or 43%, came from the Yanacocha operation.
“We are confident that the economic and social benefits that our mines generate, including those in Peru, will be recognized by elected officials - regardless of political stripe,” said Newmont spokesman Vince Borg.
“People in the neighbouring communities are very supportive in environmentally responsible mining and particularly of those companies that reach out to the community in terms of providing jobs, training, skills development, sourcing supplies, contributions to infrastructure development, etc.”
Considering that over half of Peru’s export revenue is derived from mining, no government elected is going to be in too much of a hurry to harm that golden goose. Political stability in Peru, which has been tenuous at best in times of economic uncertainty, is anchored when mining activity flourishes.
Barrick [NYSE:ABX; TSX:ABX], the world’s largest gold company after swallowing Canadian rival Placer Dome, is also supremely invested in Peru. The Lagunas Norte mine in north-central Peru produced 550,000 ounces of gold in 2005 while the Pierina mine weighed in with 628,000 ounces.
Peru became the no. 5 world producer of gold in 2005 with 210 tonnes, displacing Russia. That represents a 20% in production over 2004.
It is ranked 20th in terms of mining-favourable taxation in a study by Canada’s Fraser Institute, a think-tank with partners in 70 countries. The annual survey goes on to rank Peru as the second best jurisdiction in the world in terms of mineral potential, however that rank slips to 44th place when policy risk is incorporated.
Mining companies paid a total of $879 million in taxes and royalties on mineral exports of $9.6 billion.
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