Castillo of Peru has copper fiscal agreements in view; Chinese companies at risk
Peru’s presidential frontrunner is targeting coveted fiscal stability deals from copper mining companies that freeze tariffs, and the plan could have a disproportionate impact on Chinese miners at the world’s second-largest red metal producer.
Socialist candidate Pedro Castillo, small favorite to win Sunday’s second round, has proposed new royalties on mineral sales and launched a plan to renegotiate long-standing tax deals made under previous governments. Read more
A teacher who won the shock in the first round of the ballot, Castillo accused the mining companies of “plundering” the wealth of Peru. read more He spoke of more than doubling the state’s share of mining profits to 70%, and using the funds to boost health care and education and reduce income inequality.
Reuters analysis of government data shows it would hit Chinese mining companies the hardest, including MMG Ltd (1208.HK) and Aluminum Corp of China (Chinalco) (601600.SS), if Castillo wins the election and follows his plan. . .
Chinese mining companies have become a key player in the Peruvian mining industry. The Asian country is by far the biggest buyer of Peruvian copper, used for everything from construction to the development of electric cars.
Peru has signed up to 25 fiscal stability agreements since the 1990s, according to data from the Ministry of Mines and Energy shared with Reuters. The deals aim to protect investors from political or economic upheaval and experts say they are laying the groundwork for investment in some of the country’s largest mines.
Castillo’s tax plan could further disrupt markets and increase uncertainty in the world’s largest copper-producing region. In neighboring Chile, the world’s largest producer of copper, the lower house of Congress has already approved a plan to increase mining royalties. Read more
MMG, which operates the Las Bambas copper mine in Peru, signed a contract in 2011 that guarantees no change in taxation on its operations until the end of 2030, according to ministry data.
The deal encouraged the company to invest $ 10 billion in the sprawling mine which now produces 350,000 tonnes of copper per year, according to company data.
Brokerage firm Jefferies said in a note that MMG was highly exposed in Peru, given the importance of the Las Bambas mine.
“Peru’s tax and royalty increases could therefore be a problem, depending on the outcome of the next presidential runoff,” he said.
Chinalco has signed a fiscal stability agreement until 2028 with Peru, according to the data. The company’s Toromocho mine produces 200,000 tonnes of copper concentrates per year.
Future projects could also be impacted.
Mining giant Anglo American (AAL.L) and its partner Mitsubishi (8058.T) have signed a fiscal stability agreement until 2037 for their soon to be completed $ 5.3 billion Quellaveco copper mine. be commissioned in 2022 with 330,000 tonnes of copper production.
The companies did not immediately comment on this story.
A victory for Castillo, who is neck and neck in the polls with pro-business conservative Keiko Fujimori, would increase political risk in the region. Chile, the main producer of copper, is also debating whether to increase royalties on miners and has begun a process of overhauling its constitution.
This uncertainty is supporting global copper prices, which have reached record highs as Chinese demand rebounds, while a rapid push towards electric vehicles is expected to stimulate appetite for copper in the years to come.
Several other miners in Peru could face further talks with the Peruvian government if Castillo wins on Sunday, data shows.
The Constancia copper mine, operated by Canadian company Hudbay Minerals (HBM.TO), has a tax agreement that will expire in 2031.
Cerro Verde Mine (CVERDEC1.LM), controlled by Freeport McMoRan (FCX.N), and Glencore’s Antapaccay Mine (GLEN.L) hold similar deals until the end of 2028.
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