August 25, 2011 / 4:00 PM / in 6 years

UPDATE 4-Peru gov't, miners reach deal to increase royalties

 * Miners, gov't negotiate new royalty scheme
 * Humala campaigned for higher taxes to help the poor
 * Mine society sees rates defined in next couple weeks  (Updates with time frame to set rates, trader comment)
 By Caroline Stauffer and Patricia Velez
 LIMA, Aug 25 (Reuters) - Peru has reached an agreement with mining companies that will raise the vital industry's annual payments to the government to about $1 billion, the government said on Thursday, fulfilling a campaign promise by leftist President Ollanta Humala.
 Humala took office in late July, vowing to tax mining companies' windfall profits to bolster social programs in a country where one of every three people is poor. Mining accounts for 60 percent of Peru's export revenue.
 The new royalty rates have not been set yet but a sliding scale will be devised to take individual company profits into account, Pedro Martinez, the head of Peru's mining company association, told Reuters.
 The royalty rates should be defined "in the next couple of weeks," the sector's lead negotiator added.
 Companies now pay royalties of between 1 percent and 3 percent, charged on sales in the world's No. 2 copper producer and No. 6 gold producer. Mines Minister Carlos Herrera said the new levy will be applied to operating profits instead of sales, a change that mining companies supported.
 "We want to announce today that we have ensured mining companies will make tax payments of approximately 3 billion soles a year," Prime Minister Salomon Lerner told Congress, where he was presenting Humala's government plan.
 "This tax will not affect investment or companies' competitiveness," he said.
 Last year, miners contributed $646 million in royalties and paid corporate income taxes at a rate of 30 percent. It was unclear whether Lerner was referring to revenue from royalties alone or overall tax contributions.
 Mining profits have surged on the back of record high gold, silver and copper prices this year.
 "It is healthy to have reached a successful conclusion, that we can contribute something more," Roque Benavides, head of Peru's biggest precious metals producer Buenaventura (BVN.LM) (BVN.N), told local radio.
 Asked how the contribution would be paid, Benavides said: "This is a more complex issue because this is based on profits, which do not have a set value and which depend on metals prices (and) the cost of each company's operations."
 He said the government's revenue calculation of approximately $1 billion was based on metals prices and company profits from the first half of 2011.
 (Factbox on mining companies' profits and royalty payments:
  [ID:nN1E77O14L])
 GREATER CERTAINTY
 Humala's government has been under pressure from his leftist backers to act on campaign promises to improve the lot of the poor, after he pleased investors by appointing a pro-market economic team. [ID:nN1E76K0HO]
 In his speech, Lerner reaffirmed Humala's commitment to gradually improving social programs.
 "We will not have an economic policy that is divorced from our social policies," he said. "Our model of economic growth with social inclusion implies a profound, gradual reform of the state and its ties to society."
 Lerner also said the government would aim for economic growth of at least 6 percent a year.
 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 (SCCO.N) operate in Peru.
 Peru collects a mere 15 percent of GDP in taxes, well below the nearly 35 percent of GDP in Brazil and less than the 18.2 percent in Chile.
 "The announcement of a negotiated agreement between the government and mining companies eliminates one of the remaining sources of uncertainty about the overall direction of policies in Peru," Goldman Sachs analyst Eduardo Cavallo wrote in a research note.
 A stocks trader in Lima said shares in mining companies were unaffected by the news. Lima's benchmark exchange .IGRA, which is heavily weighted by miners, closed down 0.14 percent.
 "Lerner has given the framework that the government seeks but investors want to know what the (royalty) rates are and if they will be competitive for each company," the trader said.
 ($1=2.73 Peruvian soles PEN=PE)  (Additional reporting by Teresa Cespedes and Marco Aquino; Writing by Hilary Burke; Editing by Dale Hudson, David Gregorio, and Bob Burgdorfer)   

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