On July 28th, 2021, Pedro Castillo, a former teachers union leader and head of a party that counts among its leaders avowed Marxist-Leninists, became the 63rd President of Peru. The mining sector was not amused. Not long before his candidacy gained traction, Castillo claimed that he wanted the government to claim up to 80% of the profits of the nation’s mines. His rhetoric has softened considerably since, but mining remains the point of focus of a tax raising effort needed to pay for the economic devastation wreaked by some of the world’s strictest COVID lockdowns.
Negotiations with mining companies and legislative efforts in the months ahead will define how the mining sector is treated by the Castillo administration over the next five years. History has taught that new regulations and taxes tend to long outlive any one administration, such that Peru’s mining investment landscape is about to be re-carved — with long-term repercussions.
Our Mining Coffee Chat on Tuesday, September 14, 2021, focused on Peru’s mining future. John Price, (Managing Director, Americas Market Intelligence), was joined by four experts, Miguel Inchaustegui Zevallos (Former Minister of Energy and Mines of Peru), Nick Copeland (Founder of Above Ground Risk Solutions), Daniel Palomino Seguín, (Partner at Estudio Muñiz), and Raziel Zisman, (Partner and Leader at Whittle Consulting) in a fascinating discussion of Peru’s mining sector.
Among the key highlights of the Chat:
- Peru pleasantly surprised the world as flexed its institutionality in dealing with a contentious election. Important economic reform, such as changes to the tax code and the nationalization of companies, must pass through the Peruvian Congress, in which President Castillo’s party does not hold a majority. Such checks and balances can put investors at ease.
- The Minister of Economy will engage in roundtable discussions with the country’s mining association prior to proposing new taxation. However, mining investors are protected by tax stability agreements already set in place.
- The administration announced the need to launch a new formalization process for small-scale and artisanal miners. Currently, more than 88k people work informally. These activities often take place in remote locations, limiting the ability of the government to enforce such regulation.
- President Castillo’s vision of the future of mining in Peru tasks mining companies with “social profitability”, a term the new administration must further define, and with promoting of territorial developments where projects are located. President Castillo stated that social profitability goes beyond the social license to operate. The government must provide clarity surrounding these terms, to send the right message to the mining community.
- Major miners should prepare for reduced support from regional and national governments, including a lack of police and public security. This is particularly true in the case of social conflict, which miners should avoid at all costs. Mining companies must win the hearts and minds of the people. Stakeholder engagement strategies gain a more important role in project development due to the lack of government support.
In addition to these main points, the Chat also focused on questions from the audience. Click below to see the full Mining Coffee Chat, including detailed, insightful answers from the panel to audience questions.
Mining Coffee Chats are monthly meetings in which AMI explores important topics affecting the mining industry. The Chats are held via Zoom during the first Tuesday of every month at 11 a.m. ET (New York) time, usually featuring expert speakers and always allowing for attendees to obtain answers to the challenges that face them during COVID-19 and beyond.
If you have not already registered for Mining Coffee Chats, please click here to do so.
To find out more about AMI’s consulting work in the area of risk management for mining in different areas, please explore our webinar on rebuilding sustainable operations post COVID-19, case studies of our work in the mining sector, our whitepaper on 7 key above-the-ground risks facing miners in Latin America, and our analysis articles, which cover topics such as industry outlooks, political risk, operational risk, reputational risk and more.