6 de marzo de 2015

Mines, gold and taxes in Peru. The Yanacocha case.


A new report produced by LATINDADD (Latin American Network on Debt, Development and Rights) questions the tax payments of one of the world’s biggest gold mines based in Peru – Yanacocha –, which is partly owned by the World Bank. The report is the latest addition to a growing body of literature that shows the devastating effects of transnational companies’ tax dodging in developing countries. Eurodad here presents a quick overview of the report and recommends anyone interested in tax avoidance, private investments, and FDI to study the explosive content of the report further. 

Written by the journalist Raúl Wiener and the auditor Juan Torres, the report Large scale mining: do they pay the taxes they should? The Yanacocha case analyses the accounts of the Yanacocha gold mine in Peru over a 20-year period from 1993 to 2013. The mine is owned by Newmont Second Capital Corporation from Denver (USA), Buenaventura Minera Condesa SA from Peru and the International Finance Corporation (IFC) of the World Bank. 

The conclusions are stark: in order to avoid substantial contributions to Peru’s tax coffers, the company has carried out financial and accountable manoeuvres that are designed to extract undeclared profits. They have done this in several ways, including by overestimating costs, generating unprecedented depreciations to obtain resources for new projects and developing unsupervised production lines. 

The report reveals why the most important gold mine in South America – which is also the third biggest and the most profitable one in the world, according to its owners – has done very little for the country and the region where it operates.

The history

The controversial story of Yanacocha starts in the 1990s when the mine property was the subject of a dispute between the original partners (Newmont, Buenaventura and the Bureau de Recherches Geologiques et Minières (BRMG) from France and the World Bank’s IFC. The final decision – with obvious political interference – declared that the oldest member, which had made the initial exploration (namely, BRMG), had to sell its share to the other two companies (Newmont and Buenaventura). The initial and current propriety of Yanacocha can be seen in the two boxes below.

The land currently owned by Yanacocha was previously owned by communities and peasant families. They were forced to sell their lands without sufficient information about the wealth beneath the soil. The presence of Yanacocha in the Peruvian region of Cajamarca has also had a significant political, economic, social and environmental impact in the region. The mine’s history has been marked by several conflicts including the mercury contamination of the Choropampa community in 2000; the resistance at the start of operation in the Cerro Quilish in 2004-2006; and the intense conflict of Conga. 

The facts

Over the past 20 years, 34 million troy ounces of gold metal have been extracted from Yanacocha, worth approximately $50 billion according to today’s prices. Over the past few years, the international price of gold has skyrocketed, representing a substantial increase in revenue per troy ounce sold even though production at the mine has been declining since 2006. For instance, if we compare 2005 (year of higher production) and 2012 (year of higher prices), we can see how the value of sales in 2012 exceeded those of 2005 by roughly 50% as can be seen in the box below made by the report’s authors.

The report sheds light on a very strange and suspicious fact: that is, the rapid increase in production costs in parallel with the rise in international prices. This has meant that, in some years, the increase in costs share has been higher than the prices share. Thus the pre-tax revenues recorded for the mine have decreased significantly, and the anticipated level of taxes and royalties in such a favourable international context has not reached Peru’s tax authorities.

The study concludes that Yanacocha’s earnings were underestimated in its accounts. The authors find that the company declared the figure of $5 billion in earnings over 20 years when these earnings could have easily exceeded $10 billion. This leads to the conclusion that only the extra costs concept could be producing an avoidance of $1.186 billion in taxes during the 20-year period from 1993-2013.

This is only one of the startling conclusions presented in the LATINDADD report – conclusions that, as the authors confirm, have never been acknowledged by the government organs overseeing the mine.

The report can be downloaded in either Spanish or English here.