Peru’s mining restrictions rock metals markets

By on November 22, 2021 0

Industrial commodity markets reacted on Monday to the Peruvian prime minister’s statement that the country would not grant extensions to the operating licenses of four mining companies late last week.

On Monday, raw materials heavily exploited in the Latin American country were losing ground. As of 1:30 p.m. EDT (UTC-5), copper was selling at $ 4.39 an ounce, down 0.24%. Zinc fell 2.8% to $ 10.22.

This could have serious consequences for the supply of world markets as Peru is one of the largest producers of copper, zinc and silver, ”said Daniel Briesemann, analyst at Commerzbank, adding that he could s ‘take some time for the problem to become critical.

Edward Moya, senior market analyst at Oanda, told Capital.com that “Peru will help to considerably tighten the markets for industrial and precious metals.

PM announcement

Peruvian Prime Minister Mirtha Vasquez said the closures came after community protests over environmental damage from mining. The government, she said, would negotiate terms with the four mines regarding the closure.

“We will close the mines as soon as possible,” Vasquez said. “There will be no extension, whether for mining, exploration or even closure.”

Under Peruvian law, all mines have a scheduled closure date, although those dates can be changed if regulators allow. However, many mining companies have ongoing contracts for several years, Briesemann said.

Taxes

Left-wing Peruvian President Pedro Castillo, who won the July election, campaigned on promising that miners would pay higher taxes and royalties to redistribute the country’s wealth. A few weeks after becoming president, he called for the resignation of the former prime minister so that he could appoint Vasquez.

However, Briesemann said, Peru relies heavily on tax revenues and royalties from mining companies.

By stopping any future project, Peru would eliminate part of this income, ”he said.

The copper

Peru is the world’s second largest producer of copper and mining accounts for a large part of its gross domestic product.

Copper is missing. Mainly because of its versatility. It is used in everything from electronics and electric motors to wind turbines and electric vehicles.

In a note to customers on Monday, Briesemann wrote: “When it comes to copper, it will be interesting to see whether the supply deficit in the world market – which the International Copper Study Group has so far said has been quite large – has grown further or whether the market was again better supplied. for some time.”

Victims

Of the four mines, two are owned by a British company Hochschild Mining as well as two other smaller operations.

Hochschild Mining shares plunged 34% on Monday.

According to London Times, the company called the action “illegal” and plans to tackle it. The closure affects Hochschild’s Inmaculada and Pallancata mines, which account for about three-quarters of the company’s value.

According to Moya, given the focus on inflation grappling with Wall Street, “Peru’s controversial decision to exclude mining extensions shouldn’t be all that surprising.”

Read more: Hochschild Mining (HOC) fights mine closures

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