Hochschild Mining has promised to fight what Peru said was an “illegal” plan to close its two mines on environmental grounds, deepening the conflict between the mining industry and the left-leaning government.
Shares of Hotchild fell 50 percent early Monday as Peruvian Prime Minister Mirtha Vasquez said over the weekend that four mines in the southern Ayakucho region would be “shut down as soon as possible.”
The South American country is the world’s second largest producer of copper and a significant source of gold, silver, zinc and tin. Government intervention led by President Pedro Castillo will send a chill through the mining sector.
In addition to the London-listed Hutchchild, Anglo-American operates mines in Newmont, Glencore, and Freeport-McMorran countries, as well as Chinese-controlled companies, including MMG and Chinalco, and local producers such as Buenavantura.
Hochschild said in a statement Monday that it would “firmly defend its position” and that its mines operate under “the highest environmental standards”.
The two target mines – Palancata and Inmaculada – are owned by Hochchild, controlled by Peruvian billionaire Eduardo Hochchild, and account for more than two-thirds of the London-listed group’s annual gold and silver production.
“I would like to announce at this time that in honor of the four mining companies,” Vasquez said in a statement over the weekend, “there will be no further expansion to stop exploitation, exploration and even mining.
Hochschild added on Monday that it had “received no official communication from the government on the matter”.
The order came from the Peruvian government as some right-wing members of Congress, including the defeated presidential candidate Keiko Fujimori, began their efforts to impeach Castillo.
He came to power this year with a promise to loot more money from Peruvian miners. His government has already proposed a “new tax on profits” and an “end to tax breaks” for mining companies.
The mining industry accounts for 60 percent of Peru’s export earnings. Hochschild employs 5,000 people in Peru and says its mines support another 40,000 jobs.
Shares of Hochschild have fallen 25 percent this year. They closed at 164p on Friday, giving the FTSE 250 company a market value of just $ 1.1bn. The company is aiming for 372,000 ounces of gold and 32m ounces of silver this year.
JPMorgan analyst Patrick Jones said, “The potential decline in these operations presents a significant negative risk for Hutchchild shares.” “Furthermore, we believe that this presents a negative lesson for Anglo-Americans, whose flagship Quellaveco Copper project is located in Peru.”
“Our goal is to continue investing in Peru,” said Ignacio Bustamante, chief executive of Hochchild. “However, given the illegal nature of the proposed action, the company will vigorously defend the right to operate these mines using all available legal means.”