Peru Nationalist Pledges Royalties On All Miners

Peru nationalist pledges royalties on all miners

by Robin Emmott, Reuters / LIMA, Peru

31st March 2006

Peru's front-running presidential candidate Ollanta Humala pledged on Friday to charge a royalty on mining companies currently exempt from the levy to "share resources with the poor" if he is elected.

Peru last year introduced a royalty on mineral sales but 27 companies and mines, including Newmont Mining Corp.'s (NEM.N: Quote, Profile, Research) Yanacocha gold pit, have long-standing tax pacts that protect them from the levy until as late as 2018.

Humala, a nationalist who is leading the polls before the April 9 vote, says those pacts would be revised, along with the contracts of all foreign companies operating in Peru.

"All miners will have to pay royalties. They must pay royalties to share the country's resources with the poor. Our motherland is not for sale," Humala told Reuters.

Humala is campaigning to bring a "revolution" to Peru's poor, who make up half the population, and complains that mining companies export the Andean nation's gold and copper while nearby communities do not enjoy any benefits.

Mining companies such as BHP Billiton (BHP.AX: Quote, Profile, Research)(BTL.L: Quote, Profile, Research) and Antamina say that they already pay income tax, invest in poverty-alleviation projects and have helped build schools.

They say increased taxes will scare off investment in Peru's capital-intensive mining industry and drive companies to Mexico and Chile, where tax regimes are more business friendly.

Local and foreign companies last year invested $1 billion in Peru's mining industry -- the backbone of the $75 billion economy -- and are projected to repeat that again in 2006.

But Humala, who led a failed coup against then President Alberto Fujimori in 2000, said that high metals prices mean that mining companies should also pay a windfall tax on "excessive" profits.

Southern Copper Corp. (SPC.LM: Quote, Profile, Research)(PCU.N: Quote, Profile, Research), one of the world's biggest producers of the red metal, in January reported a 42.5 percent jump in its 2005 profit to $1.4 billion.

"We consider that a foreign company should meet certain requirements, of job creation, transfer of skills and paying taxes and royalties," Humala added. "That appears to put us in conflict with what mining companies want in Peru."

Mining is under the spotlight in the run-up to Peru's election as the poor Andean nation hunts for more funds to pay for social programs and improve the lives of those left behind by Peru's strong economic growth since 2002.

Around 90 percent of Peru's budget goes toward servicing its $30 billion debt and paying salaries in a bloated public sector, leaving little room for social spending.