Markets are overreacting to Peru’s June 6 election of Ollanta Humala, a leftist former army officer, according to mining executives who do business in the South American nation.
Peru’s stock exchange fell by more than 10% shortly after opening, and trading was suspended for two hours on June 6.
The iShares Peru fund (NYSE:EPU) fell harder, 14% on June 6 before bouncing back more than 4% on June 7 and another 3% this monring.
“I think the market is overreacting, “ Bear Creek Mining CEO Andrew Swarthout told Business in Vancouver June 7.
“The market wants to see what sort of key ministers [Humala] puts in place, particularly minister of finance, economics, interior minister, prime minister – key positions – and to see what kind of message he articulates going forward.”
Swarthout’s company (TSX-V:BCM) told BIV June 1 that the Peruvian Ministry of Energy and Mines had suspended the environmental and social impact assessment on Bear Creek’s flagship Santa Ana silver project in Chucuito province (see “Vancouver junior miner up the creek amid Peruvian protests” – BIV Daily News; June 1).
Swarthout holds out hope that the new administration will put his silver project back on track to be under construction next year. The project is estimated to create 2,500 direct and indirect jobs and would result in an estimated US$330 million in royalties and taxes.
Investors fear that the new government would invoke new taxes and royalties.
Swarthout, however, said that regardless of who won the election, tax rates would be revisited.
That’s happening all over the world, he said, noting that Australia, Chile and even Canada have recently looked at taxes and royalties from the mining sector.
“I expect we will see some discussion [of boosted mining taxes in Peru.] There hasn’t been any solid numbers put forth and that’s been delayed until the new congress and the new administration take office.”
Glen Korstrom
Twitter: Glenkorstrom