Peru Mining Stocks Plunge as Humala Claims Election Victory

Published by MAC on 2011-06-13
Source: Bloomberg, Reuters, Canadian Press

Silver mine developer Bear Creek hit again by protests.

Peru Mining Stocks Plunge as Humala Claims Election Victory

By Alex Emery and Leon Lazaroff

Bloomberg

6 June 2011

Cia. de Minas Buenaventura SA led a plunge in Peru's mining stocks as former army rebel Ollanta Humala claimed victory in yesterday's presidential election.

Protest at Puno on Peruvian border Photo: Dante Piaggio, El Comercio

Buenaventura, Peru's largest precious-metals miner, sank the most since December 2008, retreating 11.7 percent to $37.10 in Lima on concern that Humala will raise mining royalties and increase government control over natural resources. The bourse twice suspended trading, ending the session three hours early after the Lima General Index fell the most since at least 1990.

"Investors don't like this candidate," Jose Luis Bustamante, head of trading at Cartisa SAB, said today in a telephone interview. "They're worried that many of the mining companies' new projects won't happen now."

Humala pledged to extend Peru's mining boom to the poor during his campaign and said in a March 23 interview that he will levy a mining windfall tax and renegotiate contracts believed to be "hurting the country's interests." In recent weeks, he sought to reassure voters by defending policies that have made Peru the fastest-growing economy in Latin America over the past decade.

Humala, 48, leader of the Nationalist Party and a one-time ally of Venezuelan President Hugo Chavez, had 51.4 percent of votes compared to 48.6 percent for Congresswoman Keiko Fujimori with 94 percent of ballots counted.

Mine Seizure

Southern Copper Corp. (SCCO), Peru's biggest copper producer, fell 9.9 percent to $31.40 in Lima. Sociedad Minera Cerro Verde SA, a unit of Freeport-McMoRan Copper & Gold Inc., declined 10 percent to $35. Volcan Cia. Minera SAA, Peru's largest zinc producer, plunged 15 percent to 2.65 soles.

Humala, who led a group of fellow army soldiers that seized and occupied Southern Copper's Toquepala mine for a week in 2000 to protest corruption in the government, softened his rhetoric against mining companies this year after trailing in the polls, saying he will seek consent from investors for any policy overhauls.

The ex-rebel hired two of former Brazilian President Luiz Inacio Lula da Silva's campaign advisers during the campaign and said he will seek closer ties with Latin America's largest economy to fuel Peru's growth.

Mining companies will want proof of Humala's new conciliatory stance, Alex Black, chief operating officer of Calgary-based gold miner Rio Alto Mining Ltd. (RIO), said in a June 2 interview.

"We'd want Humala to consult the industry about any changes and not just push them through in a decree," said Black, who plans a $330 million expansion of the company's La Arena gold and copper mine by 2015. "We hope he will be more of a Lula-type government than a Chavez copy."

Southern, Cerro Verde, Volcan and Buenaventura all plan to build new mines in Peru, where the Energy & Mines Ministry has lined up $41 billion in mining investment through 2017.

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Humala offers Peru miners some reassurances on windfall taxes

By Teresa Cespedes and Patricia Velez

Reuters

8 June 2011

LIMA - Leftist President-elect Ollanta Humala tried to soothe fears of companies in Peru's vast mining sector on Tuesday, saying he would negotiate taxing their windfall profits instead of imposing a new levy unilaterally.

Humala, a former army officer who narrowly beat right-wing lawmaker Keiko Fujimori in Sunday's vote, has ditched his most radical proposals since losing the 2006 election and recast himself as a conciliatory leader.

But he says mining companies whose profits have swollen on lofty global commodities prices should fund social programs in a country where a third of people are poor despite a decade-long economic boom.

"In principle there was a political consensus during the campaign to charge a windfall profits tax on miners," he told Reuters in an interview. "The tax rate we need to talk about with companies, taking their profit margins into account."

Some companies have bristled at the proposal, saying it would encourage them to build mines elsewhere and jeopardize $40 billion in mining projects the government of departing President Alan Garcia has lined up for the next decade.

Before Humala spoke, top miner Southern Copper (SPC.LM) said it was re-evaluating $2 billion in projects for Peru.

"We are in a holding pattern," Southern Copper Chief Executive Oscar Gonzalez told Reuters. "Until we see what measures the new government will take ... we will be waiting."

Others Move Ahead

Gonzalez did not specify if the $2 billion in mining projects under review includes Tia Maria -- a $1 billion copper project previously put on hold because of stiff opposition from farmers worried about water shortages.

Humala, who is well-liked in the poor provinces, has said he will work to end social conflicts over natural resource projects that have plagued companies.

More than 200 isolated towns in Peru have organized to stop new mines from being built, saying they will cause pollution or fail to bring direct economic benefits.

Unlike Southern Copper, other companies have said they are more confident about investing to expand.

"We don't foresee any changes to our original plans," said global miner Xstrata (XTA.L), reaffirming plans to go ahead with its $4.2 billion Las Bambas and $1.5 billion Antapaccay projects.

The company is already heavily invested in Peru, where it operates the Tintaya copper mine and has a stake in the sprawling Antamina copper pit.

Precious metals miner Buenaventura said its long-term plans remain intact and that it would stay the course with the $3 billion Congas gold project it shares with Newmont.

Pedro Martinez, the head of Peru's association of mining companies, which before the election had criticized Humala's plans to introduce a windfall profits tax, urged the president-elect to work to win the trust of investors.

"He should send a clear message about respecting contracts and the rule of law," Martinez said before Humala spoke. "It's a necessary message we will be waiting for."

Lula, not Chavez

Humala, who once railed against foreign investors, has tried to be flexible by scrapping an earlier proposal to raise the corporate income tax rate on mining companies by 50 percent. But some investors fear he might also want to raise royalties, not just tax windfall profits.

More broadly, investors are concerned Humala will destabilize the economy by ramping up social spending to combat poverty and jeopardize growth by tightening state control over the linchpin natural resources sector.

After a record drop of more than 12 percent on Monday, the local stock index rebounded 7 percent on Tuesday as some Wall Street analysts said the historic sell-off was exaggerated. Peru's sol also firmed slightly against the dollar after losing 1 percent.

Buenaventura fell 2.4 percent, while Southern Copper rose 0.32 percent and zinc miner Volcan gained 8.7 percent.

The incoming president has praised moderate leftist leaders like Brazil's former President Luiz Inacio Lula da Silva and distanced himself from one-time political mentor and U.S. foe, Venezuela's firebrand leader Hugo Chavez.

"Humala needs to move quickly to reassure investors that he is more a Lula than a Chavez but before we get that, there will be flight to safety," said David Rees, economist at Capital Economics in London.

Humala's top economic advisers have reiterated promises to soundly manage one of the world's fastest-growing economies by running a balanced budget, keeping inflation low, respecting Peru's many free-trade pacts and private investors.

"We think the path for Peru is its own road, without copying other countries. That needs to be very clear," Humala told Reuters.

(Additional reporting by Terry Wade, Patricia Velez, Marco Aquino, Simon Gardner and Alejandro Lifschitz in Lima, Euan Rocha in Toronto and Steven James in New York; editing by Mohammad Zargham)

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Silver mine developer Bear Creek hit again by Peruvian anti-mining protests

Reuters

9 June 2011

TORONTO - Shares of Bear Creek Mining tumbled as much as 10 percent on Wednesday, as anti-mining protests resumed in southern Peru, where the company is developing its Santa Ana silver project.

Shares slipped as low as C$4.92 Wednesday morning on the TSX Venture Exchange, but recovered to C$5.31 by midday, still down 3 percent. The company has lost about 45 percent of its value since Jan. 1, when shares opened at C$9.70.

Protesters started to retake control of highways on Wednesday in the Puno region, some 1,385 kilometers (860 miles) from Lima, after putting protests on hold ahead of the country's election on Sunday.

The demonstrators, most of them Aymara aboriginals who say they are concerned about pollution, are demanding a halt to all mining in the region.

Bear Creek Chief Executive Andrew Swarthout said he was frustrated that his project was being linked with the potential pollution of local lakes, including storied Lake Titicaca, which sits between Bolivia and Peru.

"Santa Ana is a zero discharge facility, so it can't contaminate anything," he said.

"Not only that, it's located in a different basin. So even if there were potential to contaminate, it wouldn't go into the Lake Titicaca system."

Last week, the Peruvian Ministry of Energy and Mines suspended Santa Ana's environmental and social impact assessment process until May 2012.

The government also tried to calm protests by promising to turn a broad stretch of land in Puno into a nature reserve.

Bear Creek had originally planned to have the silver mine in production by 2012. Swarthout said as soon as President-elect Ollanta Humala's new government is in place, the company will look to start a dialogue over permits.

"I think we have a chance to shorten that May 2012 date," Swarthout said. "But we're not counting on it."

Humala, who is well-liked in the poor provinces, has said he will work to end social conflicts over natural resource projects that have plagued companies.

Bear Creek also owns the Corani project southwest of Lima, which could produce some 10 million ounces of silver annually for its first six years, as well as various exploration targets in the Andean nation.

While investors have pulled out of the Vancouver-based company on fears over the protests and the election of Humala, analysts remained relatively positive.

"We still believe the Santa Ana development will proceed," said Paradigm Capital analyst Don Blyth in a note to clients. "But cooler heads must prevail to examine the project with fair and objective criteria."

Blyth cut his target price for Bear Creek to C$9 from C$12, based on the assumption of higher taxes and royalties, and a longer timeline for permitting. Other analysts have also cut their targets for the exploration company.

Shares of Rio Alto Mining, which is developing a copper-gold project north of Lima, have tumbled in recent weeks. It rose 2.3 percent to C$2.25 on the TSX Venture Exchange Wednesday afternoon, while Peruvian gold miner Minera IRL was up 5 percent at C$1.05 on the Toronto Stock Exchange's main board.

($1=$0.98 Canadian) (Reporting by Julie Gordon, additional reporting by Patricia Velez in Lima; Editing by Frank McGurty)

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Peru government postpones Bear Creek environmental review at Santa Ana project

The Canadian Press

1 June 2011

VANCOUVER - The Peruvian government has decided to suspend an environmental assessment at Bear Creek Mining's Santa Ana property for 12 months to allow the political situation in the region to stabilize, the junior miner announced Wednesday.

The company said in a statement that it does no agree with the ruling by Peru's Ministry of Energy and Mines ministry, and is considering legal action to challenge the suspension of the Santa Ana Environmental and Social Impact Assessment process.

Bear Creek said it believes the decision is "based on weak legal grounds in that the action is based upon recent regional protests as opposed to the technical merits or procedures relating to its ESIA submission."

"We continue to believe that these protests and government responses are the result of the pre-election political climate," chief executive Andrew Swarthout said.

"We remain confident that the protests will be successfully resolved allowing companies like Bear Creek to return to the normal, well-established permitting and other procedures under which all mining companies in Peru have operated for decades."

The company is considering an appeal to the legislative body that oversees the ministry's procedures and rulings. "We will continue, as always, to work with local and federal authorities to assist in resolving the regional issues even as we pursue our legal alternatives," Swarthout said.

Bear Creek is developing the Corani and Santa Ana silver projects in Peru. Share in the junior miner were down three cents at $6.03 in morning trading on the TSX Venture Exchange.

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Xstrata halts activities at Las Bambas due to protests - Peru

By Ryan Dube

Business News Americas

18 May 2011

Anglo-Swiss mining group Xstrata has temporarily suspended activities at its US$4.2bn Las Bambas project in Peru's Apurimac region due to protests, spokesperson Domingo Drago told BNamericas.

"We have suspended our activities in the area, essentially to preserve the security of our collaborators," Drago said. "We hope to resume our activities as soon as possible when the security conditions allow for it."

Protests began last Saturday (May 14) and were expected to finish on Sunday, but residents decided to extend activities indefinitely following a clash with police, newspaper Correo reported.

Demonstrators are demanding that the company hire more local residents for the construction of Las Bambas, the report said.

However Drago said the protests are not directly aimed at the project. "There are also demands for the state to do more infrastructure work in the zone," he said.

The mines and energy ministry (MEM) approved the ESIA for Las Bambas in March. Construction is scheduled to start in Q3 following the completion of final permitting and first ore is expected to be processed in 2Q14, Xstrata said previously.

Las Bambas will have a mine life of 18 years with initial production of 400,000t/y of copper in concentrate, including gold, silver and molybdenum by-products.

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Ayacucho initiative to manage social conflicts could be model for regions, experts say - Peru

By Ryan Dube

Business News Americas

31 May 2011

An initiative by Peru's Ayacucho regional government to set up a committee to manage social conflicts related to the mining sector could be a good model to repeat throughout the country, sector experts told BNamericas.

"[The project] seems very interesting and very innovative," said the head of community rights and extractive industries at Lima-based NGO Cooperacción, José de Echave. "These types of initiatives are needed to create regional institutions that can start to look at the problems that can surface in the mining sector."

The committee was created by Ayacucho's government in early May and will comprise representatives from the sector and from the regional council. The objective is to prevent social conflicts related to mining.

Numerous projects and billions of dollars of investments have been halted over the last few years as a result of local opposition in Peru.

Mining is relatively new to Ayacucho in comparison to other regions but increasing activity is leading to growing concern. "We are seeing a lot of exploration activity in Ayacucho over the last few years," De Echave said. "This situation is creating some concern in the region, and that is what provoked this type of initiative."

The director of Lima-based consultancy firm Instituto de Desarrollo Social, Ricardo Morel, supports the decentralization of conflict management.

Social conflicts have risen steadily during the administration of President Alan García. Peru's ombudsman reported a total of 233 social conflicts in the country in April up from 91 in August 2006, just after García assumed office.

One of the main reasons for the increase was the decision by ex-prime minister Jorge del Castillo to create high level committees responsible for solving conflicts, Morel said. These committees are led by the prime minister.

"What that did was to create the expectation throughout the country that the prime minister was the person in charge of resolving conflicts," Morel said. "This took away the power from everybody else."

The high level committees did not have enough resources and often arrived too late to the scene of the conflict, according to Morel. In addition, they did not understand the local actors involved.

"It is impossible to maintain this management model," Morel said, although it has not been changed.

The most recent conflict in the mining sector is in southern Puno region. Residents have been protesting since May 9 and are demanding the cancellation of Vancouver-based Bear Creek Mining's Santa Ana silver project in Chucuito province; the revocation of seven mining concessions in Huacullani and Kelluyo acquired by Bear Creek in 2007; and the definitive cancellation of all mining and oil concessions in the region.