Editorial: Humula win unsettles miners

It was one of those weeks when miners check the political sections of their newspapers and websites before the business news.

• In Peru, the runoff presidential elections between leftist Ollanta Humala and free-market oriented Keiko Fujimori resulted in a convincing win for Humala. The win took most people in the mining and business community by surprise, as shown by the steep, post-election plunge in stocks traded on the Lima Stock Exchange.

From a humble start, Humala’s poll numbers rose over the months as he dramatically moderated his socialist message, talking less and less of nationalizing Peru’s key industries and pension funds, and instead praising the leadership style and policies of Brazil’s former centre-left President Luiz Inacio Lula da Silva as a model for Peruvians. (Indeed, Humala was getting electoral advice directly from consultants to Lula’s Workers Party in Brazil.)

Humala’s new face was in stark contrast to the one seen during his unsuccessful presidential run five years ago, when he openly embraced Venezuelan President Hugo Chavez’s radical socialism, which has so crippled the country’s political and economic life.

Today’s warming relations between leftist governing groups in Peru and Brazil coincide with burgeoning trade between the two countries, which has grown six-fold over the past decade to US$3 billion annually.

Brazil’s governing elite don’t hide their global ambitions for their country, and Brazil’s commodity exporters are increasingly looking to Peru’s ever-improving highways and ports as vital links to ship their exports to Asia.

Mining companies’ profits are clearly in Humala’s political crosshairs, and throughout the election he stressed the need to institute windfall taxes on miners and redistribute the money to Peru’s poor, who make up a third of the population.

After winning the election, Humala stressed that there is a political consensus in the country for a windfall mining tax, but that his government would not impose one unilaterally. Instead, he wanted to start discussions with mining companies that would ideally result in mutually agreed-upon higher tax rates. Many wonder if Humala will press to increase royalty rates, too.

Overall, Humala’s economic team has promised to run balanced budgets, keep inflation low and respect existing trade agreements, all with an eye to keeping Peru’s status as one of the world’s fastest growing economies.

• Politics in Canada was characteristically calmer, with the new federal Conservative majority government tabling a pro-business budget almost identical to the one it introduced and was defeated on earlier this year.

To the satisfaction of Canada’s mineral explorers, the federal government extended by another year the 15% Mineral Exploration Tax Credit (a.k.a. “super flow-through share program”) to March 31, 2012. The ever-popular individual tax break is applicable to grassroots mineral exploration that takes place on Canadian soil.

Various mining organizations in Canada hailed other budget measures helpful to miners, such as: funding Aboriginal skills training programs; cutting corporate taxes; supporting infrastructure programs such as building an all-season road between Inuvik and Tuktoyaktuk in the Arctic; enabling Ridley Terminals in B.C. to borrow from capital markets so it can expand; and kicking off an India strategy to improve trade and other relations between Canada and India.

• De Beers raised a few eyebrows in May by turning to an outsider for the first time in its history, and naming French car and train engineer Philippe Mellier as chief executive.

Mellier, a long-time Ford Motor Company manager and current president of French rail company Alstom Transport, has no experience in mining, diamonds or southern Africa.

De Beers chairman Nicky Oppenheimer said Mellier was the best choice to lead the company, owing to his proven ability to turn around underperforming industrial units, and his considerable skills in anticipating consumer demand and aspirations five or seven years in advance, and then guiding today’s business activity accordingly.