* Firms reach deal in negotiation with government-sources
* New royalty rate still to be determined-sources
By Teresa Cespedes and Patricia Velez
LIMA, Aug. 16 Peru's mining firms have agreed
to pay higher royalties in an overhaul of the current system,
sources on both sides of negotiations between companies and
leftist President Ollanta Humala's government said on Tuesday.
Under the new system, companies would pay royalties based
on their operating profits instead of their sales. The new
system would be similar to one used in Chile.
The new royalties rates still need to be defined, but they
would likely be higher than the current rates of 1-3 percent
charged on sales, a mining source said.
A government source said the agreement had been reached.
"There is agreement that they (royalties) be charged on
operating profits instead of sales, with the aim of not hurting
the competitiveness of the sector," the government source
During his campaign, Humala promised to introduce a tax on
the windfall profits of miners to raise funds for social
programs in a country where a third of the people live in
The new royalties' structure would likely apply a sliding
scale to miner's operating profits, the source representing
In Chile, the world's No. 1 copper producer, miners agreed
to a new royalty contribution of between 4 and 9 percent of
operating profits to fund reconstruction after a deadly
earthquake in 2010.
"The important thing is that there was consensus that the
royalty should not be applied to sales, because that creates a
distortion and makes it hard to turn a profit on new projects
or expansions," a source representing miners said.
The sources said meetings would continue this week with the
goal of agreeing on precise tax rates as soon as possible, to
avoid uncertainty for investors.
Even companies that signed tax stability agreements with
the government in the 1990s have agreed to pay more in
royalties, the mining source said. Many of those agreements are
scheduled to expire in the next few years.
Mining accounts for 60 percent of Peru's exports. The
country is the world's No. 2 producer of copper and silver and
the sixth most important gold producer.
Large international mining firms including Xstrata XTA.L,
BHP Billiton (BHP.AX), Anglo American (AAL.L), Barrick Gold
(ABX.TO), and Grupo Mexico 's (GMEXICOB.MX) Southern Copper
operate in Peru.
"This system is expected to generate a kind of partnership
between the state and investors in the sense that when prices
are soaring both sides will have more resources, but when
prices fall neither side gains," the mining source said.
(Reporting by Teresa Cespedes and Patricia Velez; editing by
Terry Wade and Carol Bishopric)