Hochschild Mining has vowed to fight what it said was an “illegal” plan by Peru to close two of its mines on environmental grounds, deepening a clash between the mining industry and the left-wing government.
Shares in Hochschild tumbled 50 percent in early trading on Monday after Peru Prime Minister Mirtha Vasquez said at the weekend that four mines in the southern Ayacucho region would be “closed as soon as possible”.
The South American country is the world’s second largest producer of copper and a significant source of gold, silver, zinc and tin. The intervention of the government, led by President Pedro Castillo, will send a chill through the mining sector.
Alongside the London-listed Hochschild, Anglo American, Newmont, Glencore and Freeport-McMoRan operate mines in the country, as well as Chinese-controlled companies including MMG and Chinalco and local producers such as Buenaventura.
Hochschild said in a statement on Monday that it would “vigorously defend its position” and that its mines operate below the “highest environmental standards”.
Two of the targeted mines – Pallancata and Inmaculada – are owned by Hochschild, which is controlled by Peruvian billionaire Eduardo Hochschild, and is responsible for more than two-thirds of the London-listed group’s annual production of gold and silver.
“I would like to announce at this time that with regard to the four mining companies,” Vasquez said in a statement over the weekend, “there will be no further expansion for mining, exploration and even for the closure of mines. We will close the mines as soon as possible. “
Hochschild added on Monday that he “has not received any formal communication from the government on this matter”.
The Peruvian government’s order comes because some right-wing members of Congress, including the defeated presidential candidate Keiko Fujimori, have launched an attempt to prosecute Castillo.
He came power this year promised to print more money from Peru’s miners. His government has already proposed “a new tax on profits” for mining companies and “an end to tax concessions”.
The mining industry accounts for 60 percent of export earnings in Peru. Hochschild employs 5,000 people in Peru and says its mines support another 40,000 jobs.
Shares in Hochschild fell by 25 percent this year. They closed at 164p on Friday, giving the FTSE 250 company a market value of just over $ 1.1 billion. The company is aiming for up to 372,000 ounces of gold and 32 million ounces of silver this year.
“The potential curtailment of these operations poses a significant downward risk for Hochschild equities,” said Patrick Jones, analyst at JPMorgan. “Furthermore, we believe it offers negative reading for Anglo American, whose flagship Quellaveco copper project is located in Peru.”
“Our goal is to continue investing in Peru,” said Hochschild CEO Ignacio Bustamante. “However, given the illegal nature of the proposed action, the company will defend its rights to operate these mines by all available legal means.”