Peru Elections Move Zinc Price

By James Wellstead – Exclusive to Zinc Investing News

The concern that swept over Peruvian markets in the lead up to the election which nominated the left-leaning Ollanta Humala appears to have abated some. Humala gained President-elect status on Monday as his pro-business rival, Keiko Fujimori, conceded defeat. Neither candidate was strongly supported nationally, as the run-off election left Humala and Fujimori with less than 50 percent of votes needed to win outright.

Peru’s stock market sank more than 12.5 percent, its biggest loss ever, hitting lows not seen since 1982 before trading was suspended until Tuesday. The sol, Peru’s currency, fell 1.24 percent, prompting the central bank to offer to sell about $215 million in deposit certificates to calm the currency’s fall.

The markets had moved on concerns that Humala, a former army commander led an unsuccessful revolt against the previous Peruvian President Albert Fujimori in 2000, would increase mining tax rates and ban natural gas exports.

More recently, Humala reassured investors that Peru will respect existing contracts with mining companies. However, the incoming government will likely ask mining companies to pay more tax on surging commodities, particularly copper and gold, Kurt Burneo, Humala’s chief economic adviser said on Wednesday. No specific comments were given on the fate of zinc, which is trading far below the record highs seen in other commodities.

However, the risk remains as zinc is a major component of Peru’s mining capacity, with production output at more than 1.5 million tonnes in 2009, second in the world behind China. Zinc was down $9 to around $2,283/ton Thursday, but actually traded higher following the news of Humala’s election, likely in response to the efforts to calm the markets following his election.

A History of Discontent

With a rich history in mining dating back more than 10,000 years, Peru has an equally rich history in political discontent surrounding resource extraction. Recently, Reuters reported, more than 200 rural towns in Peru have organized to stop the building of new mines, oil wells and hydroelectric dams that residents say will cause pollution or fail to bring them direct economic benefits.

Protests of Aymara aboriginals over concerns of potential pollution from Bear Creek’s planned silver mine project in Santa Ana led the Peruvian Ministry of Energy and Mines to suspend the environmental and social impact assessment process until May 2012. After being put on hiatus during the recent election, the protests reignited earlier this week.

Louis James spoke on the political risk in Peru on Monday at the World Resource Investment Conference in Vancouver, Canada. Louis felt that “the politics, win or lose, were going to be very rocky [in Peru]…We saw Rio Alto… Bear Creek Mining, and we saw a number of companies sell off.” He also commented on the previous government of Alan Garcia, saying that “it’s quite striking still that a very pro-business government went and did this and basically went and banned mining in three provinces for the time being. That’s a very strong move.”

Despite the real concerns of some in the investment community, Peru offers some tantalizing prospects, with more than $40 billion in mining projects lined up for the next decade. Overall, the political risk remains lower in Peru due to lower concerns of revenue and expenditure transparency. However, the vicissitudes of politics can often prove more challenging for international investors to manage than the graft and corruption which persist in other resource-dependent economies.

Peru-Related Company News

Volcan (NASDAQ:VOLC)

Peru’s biggest zinc and silver producer, was up 10.56 percent on Tuesday after falling 7.1 percent to 3 soles in the lead up to the election on June 1. Despite the concern over major producer and exporter Volcan said recently it expects to boost its production of zinc over the next three years to 800,000 tons from 690,000 tons. “We expect to grow 5 percent per year,” said Volcan General Manager Juan Jose Herrera during a presentation on the company’s plans for the industry.

Zincore Metals Inc. (TSX:ZNC)

Reports that, due to adverse market conditions following the recent Presidential election in Peru, it is revising the terms of the brokered private placement of units originally announced on May 24, 2011. Under the revised terms, the company will seek to raise gross proceeds of up to $6.4 million on a best efforts basis.

Zincore CEO and President, Jorge Benavides, commented “The result of the recent Presidential election in Peru has created significant short term volatility in the market. For this reason, it has become necessary for us to amend the terms of our proposed financing. The fact that we are still raising these funds to carry out our programs in Peru is a testament to our belief that Peru will remain a good place to do business.”

The foundation of Zincore rests in the zinc and lead deposits at Accha and Yanque, both located in Peru.