Peru Stays Competitive With Chile as Humala Boosts Mine Tax

Peru, where companies such as Newmont Mining Corp. and Xstrata Plc plan new mines, will remain as competitive as neighboring Chile even as President Ollanta Humala boosts taxes, the Andean country’s mining group said.

Peru, which is the world’s third-largest copper producer and seeks to double output by 2016, will be able to offset a higher tax rate than Chile with cheaper labor and electricity costs, Pedro Martinez, president of the National Society of Mining, Petroleum & Energy, said in an interview.

“The Peruvian tax is 3.8 percentage points higher than Chile,” Martinez said Oct. 31 in Lima. “But we have other advantages over Chile, such as lower costs that balance things out and keep us competitive.”

Peruvian workers at the Andean country’s largest mines are paid on average 2,500 soles ($922) a month, while workers at Chile’s state copper miner Codelco can earn 2 million pesos ($4,000), according to unions in both countries.

Chilean industries pay on average $170 a megawatt-hour for power, triple Peru’s electricity rates, according to the Peruvian Energy & Mines Ministry.

Humala, a former army rebel, was elected in June on pledges to raise mining royalties and tighten state control over natural resources. His windfall tax seeks to raise income sixfold to 3 billion soles a year to fund social spending.

Metal Prices

Newmont’s $4.8 billion Minas Conga gold and copper project and Xstrata’s plan to invest $5.7 billion into its Antapaccay and Las Bambas copper deposits are part of the $52 billion that mining companies have committed to the Peruvian industry over the next decade, according to the mining group.

Xstrata, Aluminum Corp. of China and HudBay Minerals Inc. aim to start up copper mines by 2014, while Freeport-McMoRan Copper & Gold Inc., Southern Copper Corp. and Cia. Minera Antamina SA plan copper mine expansions. Peru may double annual copper output to 2.4 million tons by 2016, according to the ministry

“It’s very probable that with greater production that commodity prices will fall,” Martinez said. “While China’s economy may slow, it won’t be a dramatic deceleration, and they will continue to require metals for their growth.”

Copper futures for December delivery rose 0.2 percent to $3.5885 a pound at 1:16 p.m. on the Comex in New York. Gold futures for December delivery gained 2.1 percent, to $1,765.10 an ounce.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE