Mining Agreements Peruvian experience

Transcription

1 Mining Agreements Peruvian experience César Polo Robilliard Marzo de 2009

2 Peru a mining country 2

3 Gold Potential is huge 3

4 More than 200 mining prospects 4

5 5

6 Main producers and Mining projects 6

7 Mining Dynamism and global economy 7

8 Mining Exports 8

9 Taxes have been multiplied by 20 in 10 years 9

10 10

11 11

12 With and without mining 12

13 Negotiation of mining agreements Only between private enterprises or natural persons. Two examples: Pierina: Barrick and Arequipa resources.- Transference of shares. US$ 790 M. Toromocho: Peru Copper and Chinalco.- Transference of shares. US$ 792 M. In both cases the state, resource owner, doesn't receive any amount,as taxes, due to capital gains on those transactions based on its natural resources. It is the current procedure in the stock exchange, but is it fair? Which should be a fairer procedure for the countries? There are also royalty agreements, NSR basis. 13

14 Mining agreements with the state Under Peruvian mining law, the right to explore for and exploit minerals is granted by way of a mining concession. Ownership of surface rights in Peru is independent of the ownership of mineral rights under mining concessions. The Peruvian mining law settled a full stability agreements with the Government: taxes, regimes and administrative procedures (juridical, tax and administrative stabilities). It has been interpreted as a typical law-contract once it is signed, i.e. the mining royalty law enacted in 2005 didn't apply to the previous contracts. Solidarity agreements and profit participation. 14

15 Mining agreements with the state (2) Duration terms of 10 or 15 years, regarding the amount of the investment, greater than US$ 20 or 50 M. Until 80% net profit could be reinvested, free of taxes. Void for new contracts, but currently applied to reinvest profits coming from previous investment- contract. Cerro Verde 2 implications to subnational government resources. Freedom to dispose of foreign currency. Investment in public service infrastructure is deductible from the taxable profit. Freedom to make remittances of profits, dividends and financial resources abroad. Freedom to commercialize mining products on the domestic and foreign markets. Accelerated depreciation regime. 15

16 Mining agreements with the state (3) - Public Biddings Specific mining prospects were privatized by public biddings. In addition to accomplishing with the mining law, the bidding basis settled obligations and competition factors: two cases Las Bambas (Copper).- Minimum price US$ 40 M, exploration investment commitment US$ 42 M (option period). Operation Investment commitment, US$ M or a TPD plant. The innovation was the obligation to create a Social Trust Fund (STF), oriented to communities, local and regional sustainable development. Results: Xstrata Schweiz AG Suiza US$121,0 M, that includes more than US$ 40 M as initial payment for STF. In addition 3% of royalties based on sales value destined to the region. The option should be exercised after exploration period (4 years). Michiquillay (Copper).- Minimum price US$ 40 M, exploration investment commitment US$ 38 M. Operation Investment commitment, according to feasibility study, minimum US$ 700 M. Results: Anglo American US$ 403,0 M, in 5 years, that includes more than US$ M for STF. Until 3% of royalties, according to the law. The option should be exercised after exploration period (4 years). 16

17 Mining Agreements and sustainable development We have emphasized the economics in the mining agreements, which is only one of the aspects of the sustainable development. The current law has been improved by amendments, regarding social and environmental dimensions, according to the complexity and the modern requirements to Extractive Industries: Environmental assessments previous to each phase of the mining cycle: exploration at different levels of complexity and extraction (underground and open pit) and metallurgical treatment. Social participation and public transparence are required. Mine closure and the correspondent statutory law has been issued. Mine closure Plans and financial guarantees have to be provided for its implementation. No more mining legacies. Commitment with the sustainable development ruled by a Supreme Decree (DS EM). The first contact must be social: Environmental excellence Respect to the local institutions and authorities, as well as their culture and habits. Continuous and opportune dialogue with the authorities. Local development beyond the life of the mine. Local employment, training programs. Purchasing preference in local goods and services. 17

18 Conclusions and final remarks 1. Sustainable development is fundamental to managed Mining. 2. Peruvian experience is an example of good legislation but with a lot of social and environmental conflicts and problems of implementation. 3. It is necessary to improve the capacity to address social and environmental issues with autonomy, transparency, the highest technical quality. 4. The new Environmental Ministry is expected to play that roll, to overcome mistrust among all mining stakeholders and to close perceptions to reality. 5. Stability contracts, good but not enough, fundamental to promoting private investments. It is necessary to adequate them to different circumstances of the mining cycle. 6. In addition to the law prescriptions, my proposal is to settle a profitability rate, as a threshold trigger, to share profits between the private investor and the state. 7. We should promote a fairer scheme for the state participation in capital gains coming from selling shares abroad, in cases where the value fundamentals are the country natural resources. 18

19 Conclusions and final remarks (2) Summarizing the proposal of mineral rent distribution Contract agreements with governments: Look forward to an Optimal mix of: Small Value Based royalty ( no more than 3% NSR), to assure revenues to governments, but following commodity prices. Income tax according to the current law. Profit sharing after a competitive Rate of Return (IRR) over the capital invested is reached. That IRR would be the trigger to begin sharing profits. Private property abroad transference: Income Tax over the capital gains on that transference, in favor of the country which is the natural resource owner. 19