(Bloomberg) – If the partial results of Peru’s presidential elections maintain their trend, the candidate of a Marxist party who habitually wears a straw hat and carries a giant pencil has just narrowly won the second round. This is a minimal margin that points to deep divisions and heralds lasting instability for a country that is currently not only the world’s second-largest copper producer, but has also been considered – until now – a key source of future copper supply. metal that will sustain a greener global economy.
But it is also a warning. Post-covid political upheavals are just beginning, in Latin America and elsewhere.
With 97% of the votes counted, former school teacher Pedro Castillo leads with 50.2%, just a few tens of thousands of votes ahead of 49.7% of his right-wing rival, Keiko Fujimori, a shock to the established political elites of Lima. Daughter of the imprisoned former president Alberto Fujimori, the candidate still does not recognize a triumph of her adversary, but, on the contrary, denounced irregularities in the voting.
Even by the standards of a continent ravaged by COVID-19, Peru has been hit hard by political instability, high numbers of informal workers, and an underfunded healthcare system. The country has the worst per capita mortality rate in the world. The harsh containment measures that failed to save many of its citizens affected an economy that was once a regional leader, but which contracted just over 11% last year, the sharpest drop since 1989. Almost a third of the population currently lives in poverty. Add to this deep resentment in rural areas and huge numbers of young voters, and it is not hard to see why the Andean nation is now on the brink of the unknown.
Castillo, who rose to fame during a teachers’ strike in 2017, has undoubtedly been radical in his pronouncements during the campaign, in keeping with his image as a country man from needy areas and with the official platform of the Peru Libre party. The leftist candidate vowed to rewrite the Constitution and push for higher taxes and royalties in the mining sector, with an eye toward his neighbor, Chile, the main copper producer, where lawmakers are evaluating what could become one of the biggest levies. high in global mining. It’s less clear, given its brief history, how it will actually turn out: whether pragmatism or the calls of hardliners will win the game.
Extreme measures such as Venezuelan-style nationalizations are unlikely, despite campaign warnings from rival Fujimori, especially since such a tight result and a fragmented Congress will make even the basics of governing a headache. There are also examples in the region and elsewhere – including Peruvian Ollanta Humala, once an admirer of Hugo Chávez – of leaders who have become moderate once in command.
But popular demands are strong, and with copper prices at $ 9,900 per metric ton – not far from the all-time highs reached last month – mining companies should prepare for a contraction. In fact, there’s no guarantee that won’t happen even if Fujimori pulls off a last-minute rally. She is well aware of the need to placate rural dwellers in mining regions where wealth has not spread widely. Hence, in part, Monday’s sharp drop in the country’s stock market and the weakness of the currency.
This is because what is at stake here, at least for miners, is not just what Peru represents today – a substantial 11% of the world’s copper supply, a figure that will rise when the more than US $ Quellaveco mine $ 5 billion, owned by Anglo American Plc, reaches full capacity next year – that’s about what that represents for future production, including mines that have yet to be approved, especially wells that will be dug from scratch, which already it is time consuming and expensive. Higher taxes and other risks could make them seem much less attractive, especially in the context of a country where community resistance has already been a problem, such as at Southern Copper Corp’s Tía María mine.
Jefferies analysts estimate that there is $ 2.4 billion in brownfield projects in Peru, but, citing data from Wood Mackenzie, they point to $ 34.7 billion in greenfield operations scheduled to start production in the next decade, including Quellaveco. At a time when high prices should drive capital allocation decisions, Peru is increasing the cost of excavation. Slower investment and higher prices are likely to be seen.
But this is not just a warning to miners. What we see in Peru is not the Latin American combination of hyperinflation and rising debt. Here are problems specific to Peru, including the issue of political and presidential instability, which last year led to three presidents in a single week. But what is not unique to the country is the much broader suffering caused by the covid, the dissatisfaction with the government’s response and the huge divisions both socially and between rural and urban areas.
Those problems, in fact, extend from India to Brazil, where former left-wing president Luiz Inácio Lula da Silva is moving down a similar path. Thanks also to overturned criminal convictions, he is now a credible candidate to beat right-wing President Jair Bolsonaro in 2022.
Original Note: Peru Offers Taste of Post-Covid Politics: Clara Ferreira Marques
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