Peru miner reviews $2 bln spend on Humala worries

By Marco Aquino

LIMA (Reuters) – A top mining firm in Peru was reviewing $2 billion in planned projects Tuesday as investors wait to see if leftist president-elect Ollanta Humala will name moderates to his cabinet — a move that would soothe markets.

Southern Copper Chief Executive Oscar Gonzalez said his company, a unit of Grupo Mexico, said the firm was re-analyzing investments. It had already put its $1 billion Tia Maria copper project on hold because of stiff opposition from farmers worried about water shortages in the area.

“We are in a holding pattern,” Oscar Gonzalez, CEO of Southern Copper, one of the world’s largest copper producers, told Reuters. “Until we see what measures the new government will take … we will be waiting.”

Gonzalez did not specify if the $2 billion in new mine and mine expansion projects on hold includes the Tia Maria project.

Peru’s vast mining sector has balked at Humala’s plans to introduce a windfall tax on profits, and while he scrapped an earlier plan to raise the corporate income tax rate on miners by 50 percent, some investors think he might want to raise royalties too.

More broadly, investors are concerned Humala will destabilize the economy by ramping up social spending to combat poverty and jeopardize growth by tightening state control over the linchpin natural resources sector.

After plunging more than 12 percent on Monday in its biggest drop ever, the local stock index was rebounding 6 percent Tuesday as some on Wall Street said the historic sell-off was exaggerated. Peru’s sol firmed slightly against the dollar after losing 1 percent.

Humala’s top economic advisers reiterated promises on Sunday and Monday to soundly manage one of the world’s fastest-growing economies by running a balance budget, keeping inflation low, respecting Peru’s many free-trade pacts and private investors.

Humala also vowed to emulate moderate leftist leaders like Brazil’s former President Luiz Inacio Lula da Silva but investors are wary he will veer toward his one-time political mentor and U.S. foe, Venezuela’s firebrand leader Hugo Chavez.

“Humala needs to move quickly to reassure investors that he is more a Lula than a Chavez but before we get that, there will be flight to safety,” said David Rees, economist at Capital Economics in London.

Although the overall stock index was staging a recovery, shares of mining firms were mixed. Precious metals miner Buenaventura was down 2.7 percent, Southern Copper was off 1.27 percent, while zinc miner Volcan was up 10.56 percent.

Humala has sought to reassure investors, ditching some of his more radical proposals since narrowly losing the last election in 2006 and defeating right-wing rival Keiko Fujimori, daughter of an ex-president jailed for corruption and using death squads to battle leftist insurgents, in Sunday’s run-off.

Kurt Burneo, a top economic adviser to Humala and a former central bank and Finance Ministry official seen as a possible pick for finance minister, told Reuters on Monday the next government would guarantee counter-cyclical fiscal policy, respect the central bank’s independence and honor investments by private companies.

(Additional reporting by Terry Wade, Patricia Velez, Marco Aquino, Simon Gardner and Alejandro Lifschitz in Lima; Editing by Bill Trott)