skip to Main Content
Get your free newsletter: Actionable insight each morning for self-directed investors. 

Political uncertainty in the world’s two largest copper producing countries, Chile and Peru, is adding some volatility to copper trading but presents a bigger threat to mining companies operating in the two countries.

Chile is facing a presidential run off on December 19 between far right former congressman Jose Antonio Kast and former student activist Gabriel Boric. In the last poll Kast had a slight advantage with nearly 28% of the votes in favour versus Boric’s 25.75%.

Both candidates managed to get less than 30% of the vote and are considerably short of the majority which they would need for an outright win. The votes are split between those asking for a harder line against crime and immigration (Kast’s manifesto) and those wanting a change in the free-market model supported by Boric.

Where does this leave the mining sector?

Despite Boric’s left-wing image and promises to raise taxes on the super rich, his advisors were keen to promise that mining companies like BHP Group and Anglo American would not come under any additional pressure if he were elected. His plans include raising taxes to fund a green transformation but at the same time he would not remove incentives to invest in the mining industry.

Bloomberg quoted Willy Kracht, one of Boric’s top advisors and the director at copper research centre CESCO as saying that, “there’s no intention to change the rules of the game, just to strengthen institutionality so that things function better.”

Subscribe for more stories like this, 8am weekdays - for free!


So while neither of the candidates threatens the operations of the copper miners, the political uncertainty that will be in place until the pre-Christmas presidential run off will maintain some volatility in the metals futures market. Mining companies’ share prices may experience more of a fallout with investors cautious about the potential increased state interference with foreign miners’ profits.

After a set of initial declines in late November London-listed copper miner Antofagasta (LSE:ANTO) is trading up 3.64%, Anglo American (LSE:AAL) gained 5.39% while BHP (ASX:BHP) rose 3.74%.

And then there’s Peru…

In Peru, where socialist candidate Pedro Castillo narrowly won the presidential election in June against conservative rival Keiko Fujimori, there is fresh political uncertainty as Castillo faces possible impeachment and a vote of no confidence. In his pre-election manifesto Castillo promised to introduce royalties on mineral sales and increase tax on profits from mining companies.

During his four months as President Castillo made several U-turns, initially planning to close four privately-owned mining companies on environmental grounds only to abandon plans within days. The hardest hit was FTSE 250-listed Hochschild Mining (LSE:HOCM), which lost 27% of its share value in late November shortly after the announcement.

Analysts note that while the current impeachment may not have legs to stand on, rightwing members of Congress in Peru including the defeated Fujimori are working on further impeachment plans. It is likely a question of when, and not if, Castillo will eventually be impeached.

Local pressure is also a factor

But while Castillo might end up having to yield his position to the more conservative Fujimori, mining companies in Peru will continue to face a different type of pressure on the ground. Last month protests by local communities forced Peru’s largest copper mine, BHP, Teck Resources (NYSE:TECK) and Glencore-owned Antamina, to stop operations because they failed to support local workers and their families.

Other major miners in the country including Anglo American, Newmont (NYSE:NEM), and Freeport-McMoRan (NYSE:FCX) as well as Chinese-owned MMG (HK:1208) and Chinalco will continue to feel friction over issues like social responsibility and environmental requirements, even if Fujimori takes over.

Shares in mining companies operating in Peru plunged in June and for most, the stock price has barely recovered over the last few months. Hochschild is trading up 3.31% today while small Canadian miner Chackana Copper (TSX.V:PERU) gained 5.08%.

Copper futures shook off most of the South American political issues and are being hit by worries over Omicron and global economic growth.

Related

Please note this article does not constitute investment advice. Investors are encouraged to do their own research beforehand or consult a professional advisor.

Stuart Fieldhouse

Stuart Fieldhouse

Stuart Fieldhouse has spent 25 years in journalism and marketing, including as a wealth management editor for the Financial Times group, covering capital markets and international private banking, and as an investment banking correspondent for Euromoney in Hong Kong. He was the founder editor of The Hedge Fund Journal.

Stuart has worked at CMC Markets, supporting the re-launch of its global financial spread betting and CFD trading platforms. He is also the author of two books on trading, published by Financial Times Pearson. Based in The Armchair Trader’s London office, Stuart continues to advise fund managers, private banks, family offices and other financial institutions.

Stocks in Focus

Here are some of the smaller companies we are following most closely. They all represent significant growth stories in our view. Our in-depth reports go into more detail on why we like them.

Comments

Subscribe for more stories like this, 8am weekdays - for free!


Get your free daily newsletter: 

Thanks to our Partners

Our partners are established, regulated businesses and we are grateful for their support.

Pepperstone
FP Markets
IG
Spreadex
WisdomTree
ActivTrades
Back To Top