This mixed bag of reports is typical of what The IKN Weekly does while covering the political scene in LatAm. It's mostly mining-related and we try our best to cover events in as many countries as possible, but sometimes it's pure political on a macro level (eg the Peru presidential candidates section last weekend).
The only thing that's missing is the Peru Sol forex chart.
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Regional politics
Argentina Santa Cruz: The “mining tax” is voted down
Back in 2013, the province of Santa Cruz caused a ruckus in its mining sector by creating the “Impuesto Minero”, or “mining tax, based on charging companies for 1% of the value of their in-situ mineral reserves per year. Companies such as Goldcorp (Cerro Negro) and Pan American (Triton) in the region railed against the idea, said it was unconstitutional or impossible to calculate or just plain and simply unfair. The province meanwhile, under Governor and erstwhile CFK supporter Daniel Peralta (who has since fallen out with the Kirchnerists) insisted on its plan, needing the cash to shore up its empty regional coffers. Since that time legal challenges to the law have blocked any real payments and the mining company lawyers along the way won several victories, not least when Pan American managed to get a court to agree that it didn’t have to pay (under the terms of that time) in July 2015.
We therefore cut to last week and what now looks like the final chapter in this surcharge tax story. During in its last session before dissolving the current provincial administration (the new one starts on December 10th same as at the national level), the parliament overwhelmingly voted to annul the ‘mining tax’ (8) and it is now a thing of the past. Good news for mining companies in Santa Cruz.
Argentina: The Macri mining team
With the inauguration of the new President Macri on December 10th just days away, we now have the names of the people who will run mining in Argentina. Top job of Minister of Energy and Mines goes to Juan José Aranguren, an ex-executive of Shell in Argentina who will surely have more to do with the country’s hydrocarbon policy (Vaca Muerta etc) than hard rock mining, as Argentina has always been a bigger player in oil anyway.
Meanwhile the job of Secretary of Mining (i.e. Veep Mining and reporting to Araguren) has been given to Daniel Meilán, a career mining guy and public servant who for a while was sub-secretary of mining in the 1990’s in the Carlos Menem administration. For a glimpse of the way Meilán sees mining in Argentina today, this link (9) is to an interview he gave a few months ago to a Cordoba provincial newspaper and an interesting look at the way he sees the sector, this of course long before he was picked (to many people’s surprise) as the new main mining man. It includes quotes such as this on the mining sector under the CFK government and Jorge Mayoral, the outgoing mining vice-minister:
“We (as a nation) have done so many things badly that to become credible again we need to demonstrate (credibility). This is the job, first to demonstrate all this and then go out looking for foreign investors, but with a package of things already done.”
Then this on the anti-mining attitude of some Argentine provinces:
“The issue of being for or against mining is an issue of lack of dialogue. Without dialogue between parties, the extremist view are favoured. What we need to do is go back and to national/provincial dialogue. If there are provinces that don’t want mining, then accept it, but define territories and zones where mining will be prohibited. We need to get it down an writing (make official) once and for all, we need to go back to making agreements between the Federal government and the provinces, because the last ones were many years ago and we need to revalidate them, to redefine the rules.
“What we need to do is to get agreement with the grassroots concerns before we start calling for investment. The work to do is inside the system.”
All that sounds reasonable enough to me. We wish Meilán good luck (he’ll need it).
Peru: Five candidates do CADE
As noted in last week’s edition, the top five candidates for the 2016 Presidential election ( in no particular order Alejandro Toledo of the ‘Perú Posible’ party, Alan García of ‘Partido Aprista’, César Acuña of ‘Alianza para el Progreso’, Pedro Pablo Kuczynski of ‘Peruanos por el Kambio’, and current poll leader Keiko Fujimori of ‘Fuerza Popular’, normally known as “Fujimorista Party”) had speaking spots at the Peru Chamber of Commerce (CADE) annual conference in Paracas last week. All of them spoke on Friday so I dedicated part of my day on the speechifying. I wish I hadn’t bothered.
Most of the time all they talked about was themselves and how they were cut out to be the next President, rather than talk policies or manifestos. A long way second came real policy notes, which I found surprising to an audience of Peru’s rich and successful business community and the people you need to have on your side at this early stage. A potted summary:
Alejandro Toledo: The deterioration of Toledo is marked, which could be due to his long-documented drink problem (I get to write these things, other places worried about lawsuits will only whisper or suggest). He’s turned into a joke, a cardboard cut-out politician who is an embarrassment to his country. He had his moment in the early 2000s, that time has gone and so has any credibility he might have had.
César Acuña: Boorish, pompous and a terrible public speaker. Unpresentable in polite society, he may be a successful businessman, politico and rector of the university he founded (that’s made him very rich) but he has the charisma of a wet lettuce and is so full of himself he’s almost as painful to witness as Toledo. Mind you, none of those character weaknesses ever stopped people from becoming high level politicos in any country. Even though he’s polling fairly well at the moment I cannot see Acuña mounting a real challenge, plus there are some dark corners of his personal life that won’t sit well with the public (e.g. history of family violence and an ex-wife who isn’t afraid of telling the world about it).
Alan García: As usual, world class oratory and a control of an audience that the others who shared the podium on Friday can only dream about. García is Peru’s only serious politician and a master of his (dark) art. However, García also managed to use his time to say virtually nothing of substance in his eloquent manner (another of his strong points). Of the five he came off best, because only he’s by far the best speaker of them all. Content was light, he’ll be relying on the APRA party machine to get him up in the polls in 2016.
Pedro Pablo Kuczynski:He went over a few of the manifesto points that have already been announced, such as his plan to reduce sales tax (IVA) to 15% from the current 18% (a liquidity thing, which will help money velocity), while offering pre-boxed platitudes such as his thoughts on mining (translated), “Mining is 50% of Peru’s exports. We must support mining, (but) no in an irresponsible way. Mining has to be environmentally responsible”, which revealed nothing new to anybody present or listening in, perfect politikese. The rest of his time was spent playing up his business background and qualifications. The worse thing was his persistent cough, which was distracting all through his speech but also returns focus to his health and whether a man in his mid-80s is in conditions to be President. It’s one of the main points against PPK among rank and file Peruvians, so any signs of health weakness will be jumped upon by his detractors. He did himself no favours on the health score last Friday though on the other hand he got the highest approval rating from those present, a solid 84% thumbs-up for his speech by the CADE business crowd. That’s to be expected, after all.
Keiko Fujimori: Alberto’s daughter of course, and as such I personally think she’d be negative for the country and set Peru back in terms of judicial reform and the fight against corruption, but that’s based more on internal social matters than economy thoughts and I will give her the credit for being the only one who unveiled real policies and some of her election platform on Friday instead of going the “Aren’t I wonderful?” onanist route of the other male strutting candidates. My chief Keiko takeaway was that her economic policies would be hands-on, with a Finance Ministry that would be proactive to promote growth (i.e. neo-Keynesian style government intervention in macro matters) rather than the current (in her words) auto-pilot Economy Ministry.
Summing up the five, the good news is that when it comes to Foreign Policy, Foreign investment and economic growth, none of the five are far from each other and they can all be classed as “business friendly” and miner friendly”, they’re all pretty neoliberal with some small degrees of difference. There’s nothing in these five for those on the outside looking at Peru as an FDI destination should fear. The bad news is that they’re all mediocre.
Moises Naim does CADE
Head of the influential magazine Foreign Policy, the right-wing Venezuelan national Moises Naim was invited (paid) to address the Peru CADA conference and his main message is captured by this short report in El Comercio (10) which I’ll translate in full.
During his presentation at CADE, Naim said that micro-regional powers can block national interests, such as what has happened with the Conga project in Cajamarca, which generates poverty.
The expert recommended not to use hardline strategies nor have a predilection to violently repress protests against (mining) projects.
“It’s a false temptation to go in heavy handed (ottonote: In Spanish “mano dura”, which means “hard hand” and explains the situation when e.g. police move in with firearms and batons to break up protests). Projects would have national appeal. In which universities, media, the church and others are involved. These issues won’t be solved by pressure but by democracy”, he said.
In Peru mining represents 14% of GDP and more than 60% of total exports. In copper, it’s the world’s third largest producer.
This is one of those situations where Peruvians may finally react and the subject gain traction because instead of being told the obvious by the usual suspect greenies and lefty hand-wringers, somebody “famous in business” tells them instead. Naim is right, he’s not making any startling new discovery here, but its the type of discourse that could positively affect the upcoming election run.
More Peru: Peru’s forex versus the dollar
Here below is a ten year chart of the Peru Sol (PEN) versus the US Dollar (USD) and it’s a good visual on how the currency pair has rushed back up to the highs last seen in 2006, when Toledo was President and gold traded around U$600/oz (seems a long time ago). Peru’s Sol is a decent proxy for the state of other LatAm countries’ currencies against the dollar, as its strength has been commodity-based, it’s a free floating currency and has a Central Bank that normally uses orthodox policies to keep the transitions smooth (i.e. intervention is on a short-term level to stop big moves). The interesting bit is the last few weeks in the pair, because the move up to this weekend’s 3.36 versus the US Dollar has been a spike, but we now have most national commentators saying that it’s no flash in the pan and the Sol is likely to keep moving up, to 3.50 or 3.60, because the Central Bank doesn’t have much in the way of ammo left to defend it.
If you check the official figures, the Peru Central Bank (BCRP) currently counts on U$62Bn in international currency reserves but that figure is padded out by the number of dollars held in bank accounts by citizens and companies, which comes to around U$36Bn. In fact the BCRP itself has around U$25Bn in liquid reserves and because it’s been selling dollars in 2015 to keep the Sol from any sharp deval event, that’s down from just over U$35Bn at the end of 2014. Put in simple terms, the BCRP is running out of ammunition. The market is now keenly aware of this (of course) and the Central Bank isn’t likely to drain its dollar holding down to zero, the result being the acceleration of the deval.
This is good news for mining costs in Peru in dollar terms, of course. Not so great for its citizenry, who are about to go through a burst of inflation due to the import costs of goods.
Chile: More on the country’s rise in mining unemployment
Following on from last week’s report in IKN342 that 167 of Chile’s 1,100 small copper mining concerns have closed in 2015, this week the country’s official stats office, INE, reported (11) that total employment in mining in 2015 has dropped by 19,000, or 7.9%, compared to the same period of 2014. At present some 222,770 people are directly employed by mining, compared to 241,770 this time last year. All sector commentators expect the layoffs to continue and say that there isn’t a company out there that hasn’t seen significant layoffs. Even the State controlled Codelco has rid itself of 4,292 employees.
For a little more context, Chile’s government normally uses a 2.5X factoring for direct to indirect jobs in mining, i.e. the number of auxiliary jobs that depend on the wealth created by the mining industry. If we use that thumb-rule number and put the two groups together, we can estimate that 66,500 jobs have been lost in Chile due to the slowdown in mining. In a country with a labor force of 7.6m, that works out at 0.9% added to the unemployment stats just this year by mining layoffs. That’s significant and even more so when you consider that mining jobs in Chile are traditionally some of the highest paid jobs in the country, especially when compared on a like-for-like basis to similar level employment opportunities in other sectors.
Ecuador: Cordova does Mines & Money
It was interesting to read that Javier Cordova, Mining Minister for Ecuador, was doing the rounds at London’s Mines & Money conference last week and talking to the press about the State burden deal his country expects to close with Lundin Gold (LUG.to) soon (according to Global Mining Observer (12). The deal is 22% corporate tax plus a 5% royalty), or that according to this Bloomie report (13) Rio Tinto “is considering investment in Ecuador” on one or more of the copper project areas coming up for grabs as from January 2016 when the government tenders new concession areas to the world.
I voiced my...errr...opinion of Señor Cordova on the blog on Thursday (14) when hearing these multiple messages start coming through, but I’ll expand on that here by saying that Cordova is a classic “jam tomorrow” artist who has been promising the world for the Ecuador mining sector ever since Correa came to power, but so far has delivered very little.
Also, the LUG situation is already flagged as the company has stated its timeline includes a finalized deal with the government at end 2015 or early 2016 (by law each mining company in Ecuador negotiates its own State burden deal). The figures cited by Cordova sound reasonable too, but we must remember that they’re only part of the whole package and according to the nation’s constitution, the State must take at least 51% of total gross proceeds.
As for Rio Tinto, it may be true and it may be false, but as it comes at a time when Rio Tinto is pulling out of copper projects such as La Granja in Cajamarca Peru, the thought of it moving to pick up space in the sketchy Ecuador jurisdiction doesn’t sit right. Especially from a man with Cordova’s track record while pressing flesh at a trade bash. Avoid Ecuador.
Political risk increases for Tahoe Resources (TAHO) (THO.to)
Last week we noted the potential for increased political risk for Tahoe Resources at Escobal in Guatemala and part of the translated report was about Alberto Rotondo, the Peruvian ex-army man who was contracted by TAHO to run its security campaign and as a result of the violence as arrested by the government. Here’s an excerpt:
The ex-army officer is currently in prison waiting to stand trial for acts of violence against community members (in San Rafael Las Flores). Also, according to the CALAS lawyer, “Since 2012 the company has faced a legal action for environmental damage caused since the time of its construction and the legal case is about to come before a judge.”
As luck (?) would have it, it turns out that Señor Rotondo absconded from his house arrest in Guatemala, an event reported by Mining Watch on December 1st (15). Rotondo made his escape on November 28th because he didn’t want to face his trial that was due to start in January. He is now in Peru according to his own defence attorney (16), but here’s how Mining Watch told it earlier in the week:
Guatemala City/Ottawa/Tatamagouche) On Monday, plaintiffs in the criminal case against Tahoe Resources’ former security manager, Alberto Rotondo, were informed that he had escaped police custody. Rotondo is accused of having ordered private security guards to attack peaceful protestors outside the Escobal mine in southeastern Guatemala on April 27, 2013, wounding seven men.
“This demonstrates that the Guatemalan justice system, especially the National Civil Police, still suffers from high levels of corruption and influence peddling. The police failed to implement the judge’s order to ensure constant police supervision of Rotondo, now turned fugitive,” remarked Rafael Maldonado, Director of the Centre for Environmental, Social and Legal Action (CALAS).
This could cause a major headache for TAHO, as even though they’re bound to swear blind it has nothing to do with them the optics are very poor and come at a time when the incoming President Jimmy Morales may look for his example for a crusade against corruption and sketchy goings on in the Otto Pérez Molina administration period. Meanwhile, the political risk mounting in Guatemala for TAHO is being completely ignored by the market and TAHO continues to trade in the front rank of precious metals plays (and more like an outperforming goldie, rather than a stock largely dependent on silver for its well-being). IKN reiterates its “avoid” call on this stock, risk does not justify the potential reward and there are far safer ways of playing the PM space.
Colombia awards an environmental permit to an open-pit project
This went largely undetected by the English language trade press but I think it’s important. Last week the Gramalote project (51% AngloGold Ashanti, 49% B2Gold) was awarded its environmental permit to continue work, a permit that will allow Gramalote to move forward with work on its pre-feasibility study eventually to feasibility stage that AngloGold Ashanti (project operator) estimates for 2018.
Notably B2 didn’t make a squeak about this event (it doesn’t seem to care much about Gramalote any more) but it caught my eye because as this local report (17) points out, even though it’s only a permit to continue exploration work rather than a full EIA for a mine operation to come it’s the first time that any environmental impact permit has been awarded to any open-pit gold mining project in Colombia in decades (and yes, that statement includes La Colosa). When it comes to the bureaucratic swamp that is the government of Colombia, anything positive that that happens to promote the mining industry needs to have as much light as possible shone on it because if so, they may feel willing to do it all again. Or as Ken Kluksdahl, Senior VP Projects for AngloGold Ashanti in Colombia, put it (translated), “This is an important step for the future, which shows us that the Colombian authorities back large and modern mining projects that comply with the highest social and environmental standards. It shows the opening of the country to business and that our future in Colombia is advancing, as we work towards concluding our current pre-feasibility study”. A more obvious hint towards La Colosa’s future is difficult to imagine.