Gold Fields waiting on Peru power race

[] — PERU, the South American country known for altitude sickness and llamas, could add taxes to its national iconography. A slight exaggeration, perhaps, yet its people do go to the polls on June 5 which could see candidate Ollanta Humala elected president – a known resource nationalist.

Gold Fields, which owns two operations there – Cerro Corona and the Chucapaca prospect – says it is “monitoring the situation’ at the polls, no doubt doing its best to look sanguine. But in Humala’s hands, Gold Fields could find its attempts at geographic diversification somewhat dead-legged.

It seems wherever you go, emerging markets want more of the commodity pie. Even were Humala’s opponent Keiko Fujimori – daughter of the discredited Alberto Fujimori, a former president of Peru – to win the election, more pressure on company profits may be the result.

Earlier this week, Peru banned further mining concessions in certain provinces for 12 months. “While most of the mining companies should not be affected, sentiment could weigh on companies with Peru exposure, as investors may question whether the government is willing to take more steps to appease voters,’ said stockbroker CIBC in a recent note to clients.

Gold Fields spokesperson Sven Lunsche confirmed the ban on concessions did not apply to the districts in which the company operated. The same is true for Newmont, First Quantum, Barrick, and Teck. As the list suggests, however, there are alot of investment dollars turning on a sensible investment climate in Peru.

Not so encouragingly, Humala once took succour from Venezuela’s leader and occasional mountebank, Hugo Chavez, when attempting to overthrow the Fujimori administration in a short-lived rebellion. He claims now to have slightly more centrist views, but the valid fear is that having rewired his political views, there’s no knowing exactly how he will rule the government should he take the seat.

Nick Holland, Gold Fields CEO, told Bloomberg News in May that higher royalties and higher taxes may flow in Peru. “It’s conceiveable,’ he told the newswire. He hoped, perhaps vainly, that such taxes could be linked proportionately to profit. Global royalties paid by Gold Fields last quarter increased by 40% to R165m, Bloomberg reported.

Gold Fields operates Cerro Corona in Peru, a gold/copper deposit forecast to produce up to 340,000 gold equivalent ounces in the year ended June. The Chucapaca deposit is an exploration gold/copper site in which Gold Fields has an interest.

“The risk of operating in Peru might be in the price (of Gold Fields) a bit already,’ said Liston Meintjes, a manager for Abercrombie Investment Managers. “Peru has been doing well lately, especially its currency,’ he said. “The feeling is that Peru’s new government might be willing to give more ear to Gold Fields than, say, the South African government,’ he said.

As for the outcome on June 5, it is proving almost impossible to call.

Stockbrokerage Eurasia Group reckons the presidential race is tight but could see Humala victorious. “Humala looks likely to win a larger share of undecided voters, who are mostly poor and therefore tend to be less concerned about the risks commonly associated with Humala,’ it said in a recent note.