Sat. Nov 27th, 2021

Shares in Hochschild Mining rose on Wednesday after Peru’s government said it would not close mines unilaterally and would consider extending operating licenses if legal requirements were met.

The London-listed company lost 25 percent of its market value on Monday after Prime Minister Mirtha Vásquez said four mines in Peru’s southern Ayacucho region – including the company’s flagship Inmaculada mine – would be closed as soon as possible.

However, Lima withdrew from that position on Wednesday after talks with the National Association of Mining, Petroleum and Energy.

“We exclude the closure and request for the unilateral termination of the operations of the mining units, which comply with legal requirements and conditions laid down in national and sectoral legislation, and which have corresponding permits in place,” the government said in said a statement.

Hochschild shares rose 6 percent to 120p, making it the biggest rise in the FTSE 250.

Lima’s U-turn will be welcomed by the mining sector. The South American country is the world’s second largest producer of copper and a significant source of gold, silver, zinc and tin.

Anglo American, Newmont, Glencore and Freeport-McMoRan also operate mines in Chile, as do Chinese-controlled companies including MMG and Chinalco and local producers such as Buenaventura.

Following local protests, Vásquez attended a meeting in the town of Coracora in the Ayacucho region on Friday and undertook to negotiate conditions for the closure of two small privately owned mines and Hochschild’s Inmaculada and Pallancata operations, which account for about 80 percent of the company’s annual production of gold and silver.

Hochschild, 38 percent owned by Peruvian billionaire Eduardo Hochschild, retorted on Monday, saying it would “vigorously defend its position”. Wednesday’s government’s U-turn followed further talks with the company.

Analysts at UBS said the prime minister’s move was a reminder that tax and licensing risks in Peru remained high.

“We can not rule out potential disputes over permits at individual operational mines and expect some form of tax increases for Peruvian miners,” they said in a note.

Political risk has intensified since president Pedro Castillo took office in July. The government is in the process of proposing higher taxes on mining to help fund social programs. Peru was hit hard by the pandemic and mining is a major generator of export earnings.

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