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Peru Update

On Lima’s desk, Peru’s Minister of Mines Iván Merino listed the standards that mining companies must meet if they want to continue operating under the president’s new left-wing government. Pedro Castillo.

Some are related to economic affairs, and some are related to environmental regulations, labor laws, and community relations.

“If you meet every requirement, you will get a tick,” Merino said, putting his thumb and forefinger together to draw a tick in the air. “If you count and meet all requirements, then we will not only allow you to work here, but we will also provide you with support.”

As The Castillo government came to power, For its revenue stream, no industry is more important than the mining industry. This industry accounts for 60% of export revenue Peru, The world’s second largest copper producer, is also an important source of gold, silver, zinc, tin and iron ore.

Multinational companies such as Anglo American, Newmont, Glencore and Freeport-McMoRan, as well as Chinese holding companies such as MMG Ltd and Chinalco, and local mining companies such as Buenaventura are also operating.

The Castillo government stated that the department must make more contributions to help pay for education and medical expenses, but it is not clear how much there is. In a now infamous document published last year, the Marxist-Leninist party Free Peru, which pushed Castillo to power, stated that miners should surrender up to 80% of their profits and warned that if they refuse, “the country must continue nationalization”. “.

Castillo has since launched a A more moderate government plan But even so, it still proposed to “impose a new profit tax” on mining companies and “end tax relief.”

“We must nationalize our wealth, that is, serve the Peruvians with new tax and royalties rules,” it said.

Peruvian Prime Minister Guido Bellido met with farmers in Chumbivilcas. They said that dust clouds on the road to all the Las Bambas mines in China are destroying their crops © Juanpa Azabache/Prezidencia Peru

Merino told the Financial Times that the government is still evaluating these changes. He hopes that “within 100 days” there will be a clearer understanding of the new tax system, and in terms of royalties, Peru will “adopt the best practices used by other countries.”

Peruvians are observing neighboring countries Chile close. There, the Senate is legislating to require copper miners to pay royalties in a floating proportion linked to metal prices. When it rises above US$4/lb—just like this year, reaching an all-time high of US$4.76 in May—royalty fees may account for 75% of sales.

In Peru, the mining department said that this year, driven by high commodity prices, it will contribute nearly $3 billion in taxes and other payments to the state—a record and more than double the amount in 2019 before the pandemic.

“We have reached the limit,” said Pablo de la Flor, head of the Peruvian National Association of Mining, Petroleum and Energy (SNMPE). “We paid eight different taxes and fees, and they took away nearly 50% of the company’s profits. This is heavier than any mining country with which we compete.”

He said that during Castillo’s five-year presidency, mining may provide the state with more than $20 billion in revenue. “In the past five years, it has never produced so much output.”

Mining companies say the problem is not the amount of funds they generate, but how to use or not use these funds at the local level. Once they have paid corporate taxes, the central government will redistribute half of them to local and regional governments. SNMPE estimates that only 61% of this half is reinvested.

Castillo said he hopes to renegotiate the tax stabilization agreement signed between the company and the previous government. These contracts provide the company with a long-term vision of its liabilities and are seen as essential to the investment.

MMG Ltd, a subsidiary of China Minmetals Corporation, signed a tax stabilization agreement at the large Las Bambas mine high in the Andes near Cusco, valid until 2030. Chinalco has similar transactions at its Toromocho mine until 2028. Anglo American, which is building the $5.3 billion Quellaveco mine in southern Peru, and Mitsubishi of Japan have reached an agreement by 2037. These companies will not be willing to renegotiate these deals.

While trying to extract more cash from the miners, Castillo must also play to his electoral basis.A lot of people who voted for him June election From the poor and remote mining areas of the Andes, they have high expectations for the redistribution of wealth. They hope that the government will honor its campaign promise that “the rich will no longer have poor people.”

Pedro Castillo was appointed President of Peru in a left-wing manifesto last month © REUTERS

“In Chumbivilcas, nearly 97% of us voted for Castillo,” said Wilber Fuentes, leader of the protests against the Chinese Las Bambas mine. Local farmers said that the truck fleet leaving the mine on the dirt road continued to produce dust clouds, destroying their crops.

A few days after assuming the presidency, Castillo dispatched Prime Minister Guido Bellido to Chambivirkas to resolve the dispute. The farmers have agreed to stop protesting for 60 days after finding a solution. “We are all supporters of Pedro Castillo, but if we don’t see any progress during that time, we will start the demonstration again,” Fuentes warned.

May be involved in the next few months Tax tug of war Between the government and the mining lobby, the government insists that the proposed changes are overdue.

“As President Castillo said, Peru is a rich country,” Merino said. “We will ensure that these wealth benefit the people.”

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