Hochschild Mining’s market price plummeted on Monday after Peru moved to close its two mines due to environmental issues, escalating tensions between the mining industry and the left-wing government.
Shares in the FTSE 250 company fell 47 percent in sales this morning after Peruvian Prime Minister Mirtha Vasquez announced over the weekend that four mines south of Ayacucho, two of them by Hochschild, were “closed recently”.
Hochschild said Monday he would “strongly defend his position” and that his mines were operating under “the highest standards of the environment”.
Intervention of Presidential government Pedro Castillo, will send cold through the mining sector. South America is the second largest producer of copper in the world and has gold, silver, zinc and tin.
Anglo American, Newmont, Glencore, and Freeport-McMoRan also operate mines in the country, as do Chinese-owned companies including MMG and Chinalco and local manufacturers such as Buenaventura.
“This increases the… Geopolitical risk for miners in Peru,” said JPMorgan expert Patrick Jones. “This shows the incomparability of Anglo American, whose copper project Quellaveco is based in Peru.”
The two expected mines – Pallancata and Inmaculada – belong to Hochschild, which is controlled by Peruvian billionaires. Eduardo Hochschild, and comprises two-thirds of the London-based group that produces annual gold and silver.
“I would like to announce at this time to honor the four mining companies,” Vasquez said in a words on weekends, “there will be no further expansion of exploitation, exploration and closure of mines. We will close the mines soon ”.
Hochschild said he “had not received any contact with the government on the matter”.
An order from the Peruvian government comes as some members of Congress, including former president Keiko Fujimori, begin campaigning against Castillo.
He arrived power this year promising to squeeze more money from workers in Peru. His government has already introduced a “new profit march” for mining companies and a “tax cessation”.
Mining companies generate 60 percent of their foreign exchange earnings in Peru. Hochschild employs 5,000 people in the country and says its mines support another 40,000 jobs.
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“We do not know if the magnitude of what this could mean for Peru’s foreign economy has been fully appreciated by the government, which we think could change soon,” said RBC expert Tyler Broda.
Shares in Hochschild were already below 25 percent this year when they closed at 164p on Friday, giving them a market value of more than $ 1.1bn. The company is looking at 372,000 gold and 32m silver hours this year.
Hochschild CEO Ignacio Bustamante said the company, based in Lima, wants to continue selling money in the country.
“However, in view of the prohibition against its intentions, the company will vigorously defend its right to operate the mines by using all available means.”
Hochschild was hoping to receive approval for a renewed ecological survey that would open the way for Inmaculada growth.
“If this is not accepted, this could start disrupting production from 2023,” Jones said.
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