Peru´s Elections Results Affect Grupo México

Grupo México shares have fallen 6.36 percent due to Peru´s election results, which give victory to Pedro Castillo, who has announced his intentions to introduce important changes within the industry, such as tax increases and redistribution of wealth.

Grupo México's shares have been affected because it has significant investments and participation in Peru. The company has an 88.91 percent stake in Southern Copper Corporation, which is the largest copper extractor in Peru. The country is the second largest producer of copper, producing 44 percent of all Grupo México's copper. Meanwhile, the Mexican company ranks fifth worldwide in copper production with 1.26 million tons per year.

Last week, Grupo México went from MX$776.086 billion (US$38.86 billion) to MX$726.729 billion (US$36.36 billion), which is a loss of MX$49.356 billion (US$2.47 billion) in market value. Meanwhile, its shares went from MX$99.69 (US$4.99) to MX$92.17 (US$4.62) on the BMV. Sofía Rivera, Analyst at Signum Research, said "in the event that Pedro Castillo becomes president and has done what is necessary to implement taxes on mining production, the profit of Grupo México and Southern Copper will be highly affected."

June 6 was the second round of the elections in Peru, in which the presidency was disputed between the socialist Pedro Castillo of the Free Peru Party and the conservative Keiko Fujimori of the Popular Force Party. So far, the National Office of Electoral Processes (ONPE) has not given official results because some ballots from marginalized areas have arrived later and due to Fujimori's accusations that the elections were a fraud. Nevertheless, the last count with 99.93 percent of the counted ballots claims Castillo as the winner with 50,140 of the votes.

Castillo has gained sympathy with his campaign promises that aim to reshape the constitution and redistribute the country´s mining wealth. Castillo has said he will not allow multinational companies to take the wealth out of the country. According to Bloomberg, the new president of Peru will not be able to make major changes as he is expected to have a fragmented Congress. However, investments will not arrive until market confidence and conditions improve.

According to Eileen Gavin, Analyst at Verisk Maplecroft, mining contributes to 11 percent of Peru´s gross domestic product and 15 percent in total tax revenue. "The state is not in a position to manage the sector by itself or to go to international arbitration for breach of contract with the main world companies."