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The expected announcement of an agreement between representatives of the mining industry and the new Peruvian government on the changes to the royalty system is a positive signal for the industry and the country as a whole.
As the governments of numerous mineral-rich countries announce reforms to increase revenues through royalties and other industry-specific taxes – attracted by high metals prices and the bumper profits these generate for mining companies -, the negotiations undertaken by the parties in Peru are worthy of praise, especially given the initial worries that the election of President Ollanta Humala sparked in the financial markets.
It was well known that the new president would seek a greater share of the mining revenue so undertaking a rapid and timely reform of the sector’s taxes was the best route to take. Although changing the ground rules for the industry could jeopardize the prevailing investment climate, an uncertain future with the authorities and industry leaders trading blows through the media would have been much more damaging.
The decision of both sides to opt for dialog – at least until this publication went to print – is a sign of maturity which in turn reflects the lessons learnt from other countries.
It is also to be welcomed that the parties have opted to seek a consensus and solutions which suit both sides.
Thus in the talks held up until the end of August, the new administration has achieved its aim of increasing the sector’s contribution to state coffers (to finance social programs): meanwhile the companies have managed to ensure that the royalty will be calculated based on their operating profits – as is done in Chile – rather than on sales.
The restraint with the negotiations have been handled reinforces the impression that the right route is being taken in order to protect such a valuable asset as Peru’s good image as a destination for mine investment.
Similarly, the appointment of a recognized and respected professional like the engineer Carlos Herrera Desacalzi as minister of energy and mines is doubtless likely to give peace of mind to the sector.
According to information provided by the Ministry of Energy and Mines, around US$16 billion is due to be invested in eleven mine projects whose environmental impact studies have already been approved. In this issue, we look at the case of Minas Conga which was recently approved by the boards of both Newmont and Buenaventura.
The project will require an investment estimated at USR$4.8 billion, generate around 5,000 jobs during its construction phase and provide multiple benefits for the population of Cajamarca.
As executives have stated, it is a display of confidence in the country. Steps taken so far towards an agreement on mine royalties appear to indicate that this trust is justified.
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