Hochschild Mining will fight ‘illegal’ move to close Peru mines

Hochschild Mining has vowed to fight what it said was an “illegal” plan by Peru to close two of its mines on environmental grounds, deepening a clash between the mining industry and the left-leaning government.

Shares in Hochschild tumbled 50 per cent in early trading on Monday after Peruvian Prime Minister Mirtha Vasquez said over the weekend that four mines in the southern Ayacucho region would be “closed as soon as possible”.

The South American country is the world’s second-biggest producer of copper and a significant source of gold, silver, zinc and tin. The intervention by the government, headed by President Pedro Castillo, will send a chill through the mining sector.

Alongside London-listed Hochschild, Anglo American, Newmont, Glencore, and Freeport-McMoRan operate mines in the country, as do Chinese-controlled companies including MMG and Chinalco and local producers such as Buenaventura.

Hochschild said in a statement on Monday that it would “vigorously defend its position” and that its mines operate under the “highest environmental standards”.

Two of the targeted mines — Pallancata and Inmaculada — are owned by Hochschild, which is controlled by Peruvian billionaire Eduardo Hochschild, and account for more than two-thirds of the London-listed group’s annual production of gold and silver.

“I want to announce at this time that with respect to the four mining companies,” Vasquez said in a statement over the weekend, “there will be no further expansion for exploitation, exploration and even for the closure of mines. We will close the mines as soon as possible.”

Hochschild added on Monday that it “has not received any formal communication from the government regarding this matter”.

Line chart of Price moves in London trading showing Hochschild shares dive after Peru threat to close mines

The order from the Peruvian government comes as some rightwing members of Congress, including defeated presidential candidate Keiko Fujimori, have launched an effort to impeach Castillo.

He came to power this year pledging to squeeze more money from Peru’s miners. His government has already proposed “a new tax on profits” for mining companies and “an end to tax breaks”.

The mining industry accounts for 60 per cent of export revenue in Peru. Hochschild employs 5,000 people in Peru and says its mines support a further 40,000 jobs.

Shares in Hochschild have fallen 25 per cent this year. They closed at 164p on Friday, giving the FTSE 250 company a market value of just over $1.1bn. The company is targeting up to 372,000 ounces of gold and 32m ounces of silver this year.

“The potential curtailment of these operations presents significant downside risk for Hochschild shares,” said JPMorgan analyst Patrick Jones. “Furthermore, we believe this presents negative read-across for Anglo American, whose flagship Quellaveco copper project is located in Peru.” 

“Our goal is to continue investing in Peru,” said Hochschild’s chief executive Ignacio Bustamante. “However, given the illegal nature of the proposed action, the company will vigorously defend its rights to operate these mines using all available legal avenues”

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