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Peru mining political risk is rising due to the election run-off

This piece is from the IKN Weekly subscription service IKN365, out last Sunday evening. It's a tight race between Keiko and PPK and both sides are scrambling for every vote they can get, not a scenario that makes for business stability in Peru. What I do know is that due to the sudden appearance of Hernando de Soto on the scene, there re a lot of mining executives in Peru who are getting a quiet and controlled attack of nerves.


Peru: Keiko adds Hernando de Soto to her team
With the voter intention polls indicating a tight race between Keiko Fujimori and Pedro Pablo Kuczynski, the Peru election campaign is now about finding minor issues and attracting specific sub-sets of voters. Keiko Fujimori is going full populist as well, with the last week seeing her announce that she’d scrap the current mining formalization plan and also saying she opposes “Civil Union” (i.e. not marriage but legal rights of partnership) for homosexual couples. On that one she’s simply running the numbers pretty cynically, as she spoke publicly in favour of Civil Union as recently as August 2015.

And as this paragraph points out, Keiko’s penchant for populist vote-winning policies may be about to land on the mining industry as well. Yesterday Saturday brought confirmation (8) that economist Hernando de Soto was joining the Keiko campaign. As he’s one of the very few Peruvian figures known on the world stage, it’s a significant fillip for her campaign and adds potential prestige to her eventual government. It’s also interesting because De Soto was a strong supporter of her disgraced father when he was President in the 1990’s. On the subject of mining, it was De Soto last year who proposed (9) that the “Ollachea Model” of giving at least 5% of any mining project to local populations (in the way Minera IRL has done at Ollachea) should be adopted nationwide. As Keiko’s party has also flirted with that idea, it could become a formal policy for the industry and if so, watch out. It’s the type of thing that sounds fine on paper but in practice there are a ton of traps waiting for any similar policy and it would only work on some very specific projects, such as a geographically controlled (no geologically, we’re talking maps) Ollachea. Imagine for example what would happen when a line is drawn around Antamina/Las Bambas/Toquepala and all those villages inside the deemed “area affected” (be it 10km or 20km or whatever km) get presented with 5% of billions of dollars’ worth of production, while those outside the imaginary line get nothing? Not to mention the backlash we’d get from the mining companies, their shareholders and FDI sponsorship people on political risk issues when producing and stable operations are suddenly forced to hand over 5% of their assets and cash flow by law. How “Miner Friendly” would Peru look all of a sudden?

Finally, the latest voter intention poll came out today Sunday (10) and it’s at the bottom of our lengthening list here:

  • IPSOS April: Keiko 40%, PPK 44%
  • CPI April: Keiko 43.6%, PPK 41.5%
  • Datum April: Keiko 40.4%, PPK 41.1%
  • IPSOS April: Keiko 39%, PPK 43%
  • CPI May 1st: Keiko 42.3%, PPK 40.1%
  • IPSOS May 8th: Keiko 42%, PPK 39%

We need to take pollsters in Peru with a pinch of salt because they have their own agendas, but this new IPSOS poll is a departure from the other results because it’s the first poll that’s changed position. IPSOS was giving PPK a clear lead last week but has swung to Keiko.