Td article on Peru election affecting copperI know Lundin in not in Peru but Chile, but it may affect Lundin eventually in Chile
Peru Presidential Runoff Goes Down to the Wire Event Peruvians will vote on June 6 in a general election to decide the next president of the country. The outcome may have an impact on mining taxes and royalties in the country. Impact: MIXED
Peru’s presidential runoff between Pedro Castillo on the left and Keiko Fujimori on the right, this coming Sunday, appears to be split down the middle. The latest polling numbers we have seen suggest that both candidates have ~41% of the vote. Fujimori has closed the gap with Castillo significantly over the past month — at the end of April, she had ~35% of the vote, compared with ~44% for Castillo.
Both Castillo and Fujimori have indicated that, if elected, they would seek increased contributions to government revenues from mining companies. However, Castillo is widely seen to be the bigger risk to the mining industry and has endorsed the onerous sliding-scale royalties that were recently proposed in Chile.
The corporate tax rate in Peru is currently 29.5%. In addition, there is a Mining Royalty (1-2%), Special Mining Tax (2-8.4%), and the Special Mining Contribution (4-13.12%), all of which are deductible from corporate income tax. We understand that Teck's effective Peruvian income tax rate in 2020 was 38.5%.
Hudbay has the largest exposure to Peru among our covered companies as measured by percentage of NAV and revenue. We estimate that the Constancia mine comprises 53% of our mining/project and NAV and 48% of 2021 revenue. That being said, Constancia is protected to some extent by a tax stability agreement that extends to 2031. Teck's exposure to Peru comes via its 22.5% interest in the Antamina Mine and the Zafranal project — on a combined basis, they represent ~16% of our mining NAV. The Antamina Mine's tax stability agreement expired in 2016. Since mid-April, Hudbay's share price is down ~10%, whereas Ero Copper, which has no exposure to Peru, has seen its share price increase ~18%. We believe that Hudbay's share price has, to some extent, discounted a Castillo election in Peru and arguably its shares could rally next week if Fujimori wins.