Peru's government is to wring an extra $1.1-billion (U.S.) of taxes from the country's mining sector, making the Andean country the latest resource-rich nation to demand a greater share of the commodities boom.
The decision, announced by prime minister Salomón Lerner in a speech to Congress on Thursday, brings to an end two months of hard-fought negotiations between mining companies and the new government.
Industry executives were relieved by the outcome, saying the new tax was less punitive than they had feared and would maintain Peru's competitiveness with neighbouring Chile.
Some of the world's largest mining companies – including London-listed BHP Billiton Ltd. , Xstrata PLC and Glencore International PLC, as well as Freeport-McMoRan Copper & Gold Inc. of the U.S. and Grupo Mexico S.A.B. de C.V. – have major investments in the country.
The election victory in June of Ollanta Humala, the leftwing candidate who had promised a windfall tax on the mining sector, rattled the nerves of investors and caused a sharp drop in the share prices of Peruvian mining companies.
The shift to "resource nationalism" on the back of record commodity prices also extends to the nation's gas reserves. Mr. Lerner said the government would block the export of gas from the major block of the Camisea concession, lead by Pluspetrol S.A. of Argentina. He also announced that construction on a southern gas pipeline would begin next year.
Peru is the second-largest producer of copper, silver and zinc, as well as being a significant source of gold, lead and tin. It returned to gas-exporting status last year with the opening of a $3.8-billion liquefied natural gas plant.
Mr. Lerner did not say whether the extra revenue from the mining sector would be in the form of taxes or royalties, or when the new arrangement would come into effect.
"We want to announce today that we have ensured mining companies will make tax payments of approximately 3-billion soles ($1.1-billion) a year," Mr. Lerner said.
Roque Benavides, chief executive of Cia. de Minas Buenaventura, Peru's biggest publicly traded mining company, confirmed the tax would be applied to profits.
"It's good the [talks]have come to fruition so that we can contribute more, based on extraordinary profits," he told local radio. "The mining sector is willing to contribute without affecting competitiveness."
The government has softened its position significantly since the early stages of negotiations, when it had been seeking to raise an additional $2-billion to $3-billion, according to people familiar with the discussions.
Nonetheless, miners estimated the new tax would be equivalent to an additional 3-5 per cent of operating profits and would increase the government's tax take from the sector by about a fifth. The actual rate paid will be scaled according to each company's operating margin.
The mining industry has been negotiating as a bloc, threatening to pull some of their $42-billiong planned investment over the next five years if the government imposed too harsh a tax rate. Moreover, companies with stability agreements, which give them immunity to tax changes, have offered to pay the new tax on a voluntary basis.
Luis Miguel Castilla, finance minister, told the FT that any new mining taxes or royalties would not threaten competitiveness, and that the additional revenues would be distributed by central government to poor regions.
Social conflict in Peru is frequently related to environmental issues. Violent rolling protests through May and June saw the cancellation of Southern Copper's $1-billion Tia Maria project, Bear Creek Mining Corp. of Canada's Santa Ana silver project, and Egasur of Brazil's $4-billion Inambari hydroelectric dam.