Peruvian election strikes fear into global miners – by Brenda Bouw (Globe and Mail – June 7, 2011)

The Globe and Mail is Canada’s national newspaper with the second largest broadsheet circulation in the country. It has enormous impact and influence on Canada’s political and business elite as well as the rest of the country’s print, radio and television media. Brenda Bouw is the Globe’s mining reporter.

The election of a left-wing nationalist as Peru’s next president has panicked investors, who fear the country will join a growing trend of governments squeezing more profits from the resource sector.

Ollanta Humala’s narrow victory Sunday over conservative Keiko Fujimori is expected to result in, at the very least, higher tax and royalty rates for mining companies operating in the mineral-rich nation.

Investors are also fretting that Mr. Humala’s past ties with Venezuela’s president Hugo Chavez will lead to suggestions about nationalizing operations based in Peru. The concerns caused Peru’s stock market to drop by a record 12.5 per cent on Monday, alongside steep selloffs of Canadian and international mining companies with operations in the country.

That’s despite Mr. Humala’s attempt to run a free-market friendly campaign this time around, a shift in stance from his unsuccessful 2006 run for the top job.

Mr. Humala even went as far during the campaign as to rest his right hand on a Bible and swear not to alter the country’s constitution or the market economy, according to local media reports in Peru. The grand gesture was intended to symbolize his abandonment of past political beliefs.

The former army rebel also surrounded himself with well-regarded economic advisers during the campaign to show support for his new, more moderate position.

Despite these moves, and even though Mr. Humala’s party represents just one-third of the nation’s Congress, making it difficult to pass unpopular legislation, markets reacted badly to his win.

Miners with operations in Peru saw their stocks plummet around the world Monday. Hochschild Mining, which has three mines in Peru, saw its shares fell nearly 9 per cent on the London Stock Exchange, while shares in Southern Copper Corp., Peru’s biggest copper producer, fell more than 11 per cent in New York. Toronto-listed International Minerals & Chemical Corp. (Canada) Ltd. stock fell by almost 5 per cent while HudBay Minerals Inc., which recently took over the Constancia copper project in Peru with its purchase of Norsemont Mining Inc., fell by about 4 per cent.

“Financial markets are not enthralled. Go figure,” Scotia Capital economists Derek Holt and Karen Cordes Woods said in a note Monday. “At stake is progress that has allowed Peru to pursue years of strong growth and turn aside its political problems of the past.”

Peru is one of the fastest-growing economies in Latin America, driven by surging prices for its commodities, including base metals such as copper and gold. About 70 per cent of Peru’s GDP comes from the mining industry, which gives executives faith that the negative market reaction will be short-lived.

Many industry players believe Mr. Humala will waste little time proving to the markets that he favours international investment to help generate wealth for his country.

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