IKN

Every why hath a wherefore

The ‘Regional Politics’ section of The IKN Weekly issue 343 (out last Sunday evening)

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.

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