Sorry!! The article you are trying to read is not available now.
Thank you very much;
you're only a step away from
downloading your reports.

Newmont, Metals Eyeing Peruvian Elections


Peru's election casts the spotlight on an increasing trend of countries attempting to capture a larger portion of the wealth derived from their natural resources.


Editor's Note: Minyanville is proud to introduce this column by long-time Minyan Adam Michael. Adam is a partner at a Houston-based Investment Advisor. Prior to this, Adam spent five years at Honeywell International in various capacities focusing on the energy industry. He has a Bachelors Degree from Texas A&M University in Industrial Distribution and a Masters in Business from Rice University.

On June 4, Peru will hold a runoff election to determine a new President. In the running are Peruvian Nationalist party leader Ollanta Humala, a "Chavez-like" socialist who has promised to reclaim Peru's natural resources for the people of Peru, and Alan Garcia, a former President who guided Peru to hyperinflation and some of its toughest economic times in the late 1980's. (On Sunday night, Peru held a debate between the two candidates – here is a good summary.)

Several pre-election polls show Garcia with a double digit lead over Humala, but a large amount of Peruvian voters remain undecided. Although Garcia would be better for foreign investment than Humala, his checkered past is enough to warrant caution. Should Humala win, he has made it clear on numerous occasions he intends to renegotiate contracts with foreign investors over Peru's natural resources at a minimum, and might even go as far as full nationalization. In addition, Humala has promised to sever the free trade agreement between the United States and Peru, industrialize the coca leaf, and rewrite the constitution to empower the indigenous and poor.

Peru's election casts the spotlight on an increasing trend of countries attempting to capture a larger portion of the wealth derived from their natural resources. While the trend has not been limited to South America (Russia, Mongolia, and Nigeria also come to mind), countries such as Venezuela, Bolivia, and Ecuador have all made moves in the past year to nationalize natural resources or renegotiate contracts with foreign investors.

Peru has significant gold and silver natural resources currently produced by some of the largest and best run mining companies. For example, Newmont Mining's (NEM) 2005 annual report shows 16.8 Million of their 93.2 Million ounces of gold reserves and 34% of Newmont's revenues came from Peru. Newmont Mining even cited the Peru elections as a risk in their 10K, saying:

"Presidential, congressional and regional elections will take place in Peru in 2006, and a new national government will take office in July 2006. We cannot predict the new government's positions on foreign investment, mining concessions, land tenure, environmental regulation or taxation. A change in government positions on these issues could adversely affect Yanacocha's assets and operations in Peru."

How much political risk from Peru is embedded in the stock price of Newmont is debatable (my analysis suggests a fair value of around $60 USD for Newmont using $600 gold even when one assigns zero value for its Peru assets). Will a Garcia victory provide a catalyst that sparks the precious metals to resume their climb? Perhaps. More important in my opinion is the general trend of a world that wants a larger share of the natural resource wealth created by the rising prices of commodities. Investors should keep an eye on Peru as the June 4th elections approach.


Minyanville contributors may trade securities that are discussed on the site, both before and after the articles are published and/or may have a position in such securities for either personal or firm account(s). Minyanville contributors will indicate whether he or the firm has a position in stocks or other securities in any of the companies he discusses in an article. He will not disclose his or the firm's ownership of any securities issued by companies that are not discussed in an article. The disclosures will be accurate as of the time of publication of an article and may change at any time thereafter without notice to the reader.

The information on this website reflects an analysis of market conditions by Minyanville contributors and should not be interpreted as or deemed to be a recommendation to any investor or category of investors to purchase, sell or hold any security. Any investment decisions must in all cases be made by the reader or by his or her investment adviser. Minyanville contributors will not respond to requests for individual and specific investment advice.

The views expressed on this website are solely those of the writers whose articles appear on this site and do not necessarily reflect the views of the Fund or of any other person except where expressly indicated.

Copyright 2006 Minyanville Publishing and Multimedia, LLC. All Rights Reserved.

< Previous
  • 1
Next >
Position in NEM

The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.

Featured Videos