The leader of the Peruvian president is dangerous for Chinese mining companies | Wall Street Journal Business and Economic News
The leader of the Peruvian president is targeting copper mining companies’ coveted tax stabilization agreement to freeze tariffs. The plan could have a huge impact on Chinese miners, the world’s second largest producer of red metals.
Socialist candidate Pedro Castillo (Pedro Castillo), who won the second round of voting on Sunday, proposed a new royalties on mineral sales and proposed a plan to renew Negotiate long-term tax agreements reached by previous governments.
As the teacher who unexpectedly won in the first round of voting, Castillo accused the mining companies of “looting” Peru’s wealth. He has talked about more than doubling the country’s share of mining profits to 70%, and using these funds to promote health care and education and reduce income inequality.
Reuters analysis of government data shows that if Castillo wins the election and implements his plan, it will deal the most serious blow to Chinese mining companies including MMG Co., Ltd. and Chinalco.
Chinese mining companies have become important players in Peru’s mining industry. To date, this Asian country is the largest buyer of Peruvian copper, used in everything from construction to electric vehicle development.
According to data shared by the Ministry of Mines and Energy and Reuters, Peru has signed up to 25 tax stabilization agreements since the 1990s. These deals are designed to cushion investors from political or economic turmoil, and experts say they have laid the foundation for investing in some of the country’s largest mines.
Castillo’s tax plan may further disturb the market and increase uncertainty in the world’s largest copper-producing region. In neighboring Chile, the world’s largest copper producer, the House of Commons has approved a plan to increase mining royalties.
According to data from the Ministry, MMG operates the Las Bambas copper mine in Peru and signed a contract in 2011 to ensure that the taxation of its business will not change before the end of 2030.
According to company data, the transaction encourages the company to invest US$10 billion in this huge copper mine, which now produces 350,000 tons of copper per year.
The brokerage firm Jefferies stated in a report that given the importance of the Las Bambas mine, MMG has a large exposure to Peru.
“Therefore, the increase in taxes/royalties in Peru may be a problem, depending on the outcome of the upcoming presidential runoff,” it said.
Data show that Chinalco and Peru have signed a tax stabilization agreement by 2028. The company’s Toromocho mine produces 200,000 tons of copper concentrate annually.
Future projects may also be affected.
Mining giant Anglo American and its partner Mitsubishi signed a tax stabilization agreement until 2037, and its soon-to-be-completed Quellaveco copper mine worth US$5.3 billion will be commissioned in 2022, with a copper output of 330,000 tons.
The companies did not immediately comment on this story.
Record high price
The victory of Castillo, who went hand-in-hand with the pro-business conservative Keiko Fujimori in the polls, will lead to a surge in political risk in the region. Chile, the largest copper producer, is also debating whether to increase the royalties of miners and has begun to reform its constitution.
This uncertainty is supporting global copper prices. With the rebound in Chinese demand, copper prices hit a record high, and the rapid development of electric vehicles should boost demand for copper in the next few years.
Data shows that if Castillo wins on Sunday, several other miners in Peru may face new negotiations with the Peruvian government.
The Constantia Copper Mine, operated by Hudbay Minerals in Canada, holds a tax agreement that expires in 2031.
The Cerro Verde mine, controlled by Freeport McMoRan, and Glencore’s Minera Antapaccay conducted similar transactions until the end of 2028.