Peruvian Congress Approves Law Setting Mining Tax on Profits

Peru’s Congress passed a law increasing a mining windfall tax by sixfold as the Andean country seeks to tap metals prices to boost public spending.

The 130-member legislature approved the law today by 80 votes to one with 21 abstentions. Peruvian mining companies agreed to pay about 3 billion soles ($1.1 billion) in an annual tax on profits, Cabinet Chief Salomon Lerner said Aug. 25. Peru is the world’s third-largest copper and zinc producer and second-largest silver producer.

“The fact that it’s mostly attached to profits and not revenues is looking quite reasonable,” Joanne Freeze, chief executive officer of Canadian metals exploration company Candente Resource Corp., said today at the Bloomberg Mila conference in New York.

The company makes its business plan with a forecast of copper costing $2.25 a pound and “if we’re selling copper at $4 a pound and paying more tax, that’s OK,” Freeze said

Peru’s President Ollanta Humala, a former army rebel, won the June 5 election on pledges to raise mining royalties and tighten state control over natural resources. The country boosted first-half mining export revenue by 31 percent to $13.2 billion as copper jumped 46 percent and gold rose 21 percent from a year earlier.

The tax replaces a previous levy during former President Alan Garcia’s mandate from 2006-2011, when mining companies paid 2.5 billion soles in tax over five years. The tax will enable miners to remain competitive, Southern Copper Corp. (SCCO)’s Chief Executive Officer Oscar Gonzalez Rocha said in a Sept. 13 interview.

The Andean country is relying on $50 billion in investments by companies including Southern, Newmont Mining Corp. (NEM), and Xstrata Plc (XTA) to halt a decline in minerals output as aging mines deplete. First-half copper output in Peru fell 3 percent to 589,684 metric tons and gold declined 7 percent to 79,738 kilograms, according to the Energy & Mines Ministry.

The expansion of copper and zinc mines will boost production next year, Mining Minister Carlos Herrera said Sept. 9.

Copper futures for December delivery fell 27.55 cents, or 7.3 percent, to $3.4885 a pound on the Comex in New York. Gold futures for December delivery dropped $66.40, or 3.7 percent, to $1,741.70 an ounce on the Comex in New York.

To contact the reporter on this story: Alex Emery in Lima at aemery1@bloomberg.net

To contact the editor responsible for this story: Dale Crofts at dcrofts@bloomberg.net

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