Peruvian Prime Minister Mirtha Vasquez announced that four mines in the southern Ayacucho region would be “closed as soon as possible”.
Two of the targeted mines – Pallancata and Inmaculada — are owned by Hochschild and account for 80% of the British group’s annual production of gold and silver. The Inmaculada gold and silver mine, which started production in 2015, is forecast to account for more than 60% of its production this year. Pallancata, which has been operating since 2007, is predicted to account for 17% of its output.
In the immediate aftermath, shares in the company dropped by more than 40%, wiping more than £300m off the company’s value. The company closed the day 27% down, its lowest level since April 2020.
The Peruvian Government decided to order the mine closures due to “alleged environmental complaints”, and state that a commission has been constituted in order to negotiate the timetable and terms for the closure of certain mining projects.
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The company said that it did not receive any formal communication from the Peruvian Government before the decision, finding out through news reports over the weekend.
The plan could have severe consequences for Hochschild, which sources more than two-thirds of its gold and silver from its Peruvian mines.
Hochschild said on Monday that it would “vigorously defend its position” and that its mines operated under the “highest environmental standards”.
The intervention of Pedro Castillo’s government could have further implications for mining interests in Peru. Several foreign miners operate in the country, including Anglo American, Newmont, Glencore, Freeport-McMoRan, and MMG.
“This further increases the geopolitical risk for miners operating in Peru,” said JPMorgan analyst Patrick Jones. “This presents negative read-across for Anglo American, whose flagship Quellaveco copper project is located in Peru.”
The decision to close to mines comes as President Castillo faces an attempt by some rightwing members of Congress to impeach him. Castillo came into power pledging to harness Peru’s vast material wealth to benefit the entire populace. His government has already proposed “a new tax on profits” for mining companies and “an end to tax breaks”.
However, critics have labelled his latest decision as misguided. The mining industry in Peru accounts for upwards of 60% of its export revenue. Hochschild alone employs 5,000 people in the country and a further 40,000 jobs indirectly.
Hochschild’s chief executive told the Financial Times that , “given the illegal nature of the proposed action, the company will vigorously defend its rights to operate these mines using all available legal avenues”.