MAC: Mines and Communities

Miners Must Start Paying Royalties

Published by MAC on 2006-07-06

Miners Must Start Paying Royalties

BN Americas

6th July 2006

Ten mining companies in Peru do not declare or pay mining royalties because they have been protected by tax stability contracts, local newspaper Gestión cited Nahil Hirsh, head of the country's tax regulator Sunat as saying.

However, the country's congress recently approved a law requiring mining companies that have signed tax stability contracts with the state to start paying royalties.

The 10 companies are BHP Billiton Tintaya (now owned by Switzerland's Xstrata), Antamina, Milpo, Santa Luisa, Sipán, US-owned Doe Run Perú, Los Quenuales, Barrick Misquichilca, Yanacocha, and Cerro Verde, according to Gestión.

Mining companies argue that the new law is unconstitutional because the stability contracts are locked into Peru's constitution and that the change in the rules will deter mining investment.

The law still needs to be ratified by Peru's executive branch, which will return it to congress because it is not constitutional, gold miner Buenaventura CFO Carlos Galvez told BNamericas.

"If they don't do it [the executive], we [mining companies] will have to go to the constitutional tribunal or international courts," said Galvez.

Buenaventura's direct operations already pay mining royalties as they do not enjoy tax stability contracts. But the gold miner, Peru's largest, has minority interests in Yanacocha and Cerro Verde, which will be impacted by the law.

Peru approved a 1-3% sliding royalty on concentrate sales in June 2004 but companies that had previously signed stability contracts were protected from the measure.

By Emily Russell,

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