Tax

Humala seeks to reassure Peru mining companies on tax

Reuters News
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Posted: Jun 07, 2011 8:24 PM
Humala seeks to reassure Peru mining companies on tax

By Teresa Cespedes and Patricia Velez

LIMA (Reuters) - Leftist President-elect Ollanta Humala tried to soothe fears of companies in Peru's vast mining sector on Tuesday, saying he would negotiate taxing their windfall profits instead of imposing a new levy unilaterally.

Humala, a former army officer who narrowly beat right-wing lawmaker Keiko Fujimori in Sunday's vote, has ditched his most radical proposals since losing the 2006 election and recast himself as a conciliatory leader.

But he says mining companies whose profits have swollen on lofty global commodities prices should fund social programs in a country where a third of people are poor despite a decade-long economic boom.

"In principle there was a political consensus during the campaign to charge a windfall profits tax on miners," he told Reuters in an interview. "The tax rate we need to talk about with companies, taking their profit margins into account."

Some companies have bristled at the proposal, saying it would encourage them to build mines elsewhere and jeopardize $40 billion in mining projects the government of departing President Alan Garcia has lined up for the next decade.

Before Humala spoke, top miner Southern Copper said it was re-evaluating $2 billion in projects for Peru.

"We are in a holding pattern," Southern Copper Chief Executive Oscar Gonzalez told Reuters. "Until we see what measures the new government will take ... we will be waiting."

OTHERS MOVE AHEAD

Gonzalez did not specify if the $2 billion in mining projects under review includes Tia Maria -- a $1 billion copper project previously put on hold because of stiff opposition from farmers worried about water shortages.

Humala, who is well-liked in the poor provinces, has said he will work to end social conflicts over natural resource projects that have plagued companies.

More than 200 isolated towns in Peru have organized to stop new mines from being built, saying they will cause pollution or fail to bring direct economic benefits.

Unlike Southern Copper, other companies have said they are more confident about investing to expand.

"We don't foresee any changes to our original plans," said global miner Xstrata, reaffirming plans to go ahead with its $4.2 billion Las Bambas and $1.5 billion Antapaccay projects.

The company is already heavily invested in Peru, where it operates the Tintaya copper mine and has a stake in the sprawling Antamina copper pit.

Precious metals miner Buenaventura said its long-term plans remain intact and that it would stay the course with the $3 billion Congas gold project it shares with Newmont.

Pedro Martinez, the head of Peru's association of mining companies, which before the election had criticized Humala's plans to introduce a windfall profits tax, urged the president-elect to work to win the trust of investors.

"He should send a clear message about respecting contracts and the rule of law," Martinez said before Humala spoke. "It's a necessary message we will be waiting for."

LULA, NOT CHAVEZ

Humala, who once railed against foreign investors, has tried to be flexible by scrapping an earlier proposal to raise the corporate income tax rate on mining companies by 50 percent. But some investors fear he might also want to raise royalties, not just tax windfall profits.

More broadly, investors are concerned Humala will destabilize the economy by ramping up social spending to combat poverty and jeopardize growth by tightening state control over the linchpin natural resources sector.

After a record drop of more than 12 percent on Monday, the local stock index rebounded 7 percent on Tuesday as some Wall Street analysts said the historic sell-off was exaggerated. Peru's sol also firmed slightly against the dollar after losing 1 percent.

Buenaventura fell 2.4 percent, while Southern Copper rose 0.32 percent and zinc miner Volcan gained 8.7 percent.

The incoming president has praised moderate leftist leaders like Brazil's former President Luiz Inacio Lula da Silva and distanced himself from one-time political mentor and U.S. foe, Venezuela's firebrand leader Hugo Chavez.

"Humala needs to move quickly to reassure investors that he is more a Lula than a Chavez but before we get that, there will be flight to safety," said David Rees, economist at Capital Economics in London.

Humala's top economic advisers have reiterated promises to soundly manage one of the world's fastest-growing economies by running a balanced budget, keeping inflation low, respecting Peru's many free-trade pacts and private investors.

"We think the path for Peru is its own road, without copying other countries. That needs to be very clear," Humala told Reuters.

(Additional reporting by Terry Wade, Patricia Velez, Marco Aquino, Simon Gardner and Alejandro Lifschitz in Lima, Euan Rocha in Toronto and Steven James in New York; editing by Mohammad Zargham)