Bloomberg News

Guatemala to Seek Mining Tax Rise Next Month, Minister Says

July 13, 2012

Guatemala President Otto Perez Molina will send a bill to Congress next month to increase royalties on mining companies to 5 percent, Energy and Mines Minister Erick Archila said.

The modification to the mining law is separate from a package of 43 constitutional changes Perez Molina seeks that would let the state have as much as a 40 percent stake in non- renewable resource companies, Archila said in an interview yesterday in Guatemala City. Natural resource companies in Central America’s biggest economy pay a voluntary 1 percent royalty, he said.

“The reform will redefine and strengthen national mining laws and eliminate the voluntary payment of taxes,” Archila said. “If approved, the taxes will be obligatory for the mining sector.”

Guatemala is seeking to broaden its tax base and doesn’t want the measures, opposed by the country’s biggest industrial chambers, to adversely affect investment, Finance Minister Pavel Centeno said in a July 9 interview. The government won’t expropriate stakes in natural resource companies or take a stake in those already in the country, he said.

’More Order’

“There are companies that want to partner with the state to have a better capacity to operate within the country,” Archila said. “It will create more order and responsibility in the mining sector and won’t affect investments in the country.”

Tahoe Resources Inc. (THO), which is awaiting final approval for its Escobal silver mine southeast of Guatemala City, jumped more than 1 percent immediately following the comments. Shares in the Reno, Nevada-based company closed down 2.2 percent at $12.67. Tahoe has met “all operational requirements” established by the ministry, Archila said, without giving more details.

The potential tax increase was expected, said Craig West, an equity analyst at GMP Securities LTD, in an e-mail.

Guatemala, Central America’s largest oil producer, is in talks with Vancouver-based Ivanhoe Energy Inc. (IVAN:US) to construct a refinery to process the country’s heavy petroleum that is currently used primarily for asphalt, Archila said.

Oil production has fallen to 10,000 barrels per day from 30,000 barrels in the last 30 years and could disappear if exploration falters, Archila said. More oil permits will probably be issued this year in seven untapped areas and the government intends to increase production to 80,000 barrels per day by 2022.

“Ivanhoe is the company that wants to come to Guatemala,” Archila said. “They know of government plans to increase oil production in Guatemala and we are listening to their proposal to come here.”

Hydroelectric Potential

The economy will grow 3 percent this year after growth of about 4 percent last year, Centeno said. Gross domestic product expanded 3.4 percent in the first quarter from a year earlier, while consumer prices rose 3.5 percent in June from a year earlier, the slowest pace since February 2010.

About 50 percent of Guatemala’s electricity is produced by hydroelectric plants using only 15 percent of the country’s 6,000-megawatt potential, Archila said. Guatemala will hold an auction for bidders to purchase licenses to generate as much as 600 megawatts of hydroelectricity over the next 15 years, he added.

“The country has enormous hydroelectric potential,” Archila said. Guatemala seeks to create 1,500 megawatts of hydroelectricity over the next 15 years, he added.

To contact the reporter on this story: Adam Williams in Guatemala City at awilliams111@bloomberg.net

To contact the editor responsible for this story: Joshua Goodman at jgoodman19@bloomberg.net


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