"The industry is under a lot of inflation pressure," says Ganoza, who sees inflation particularly in services and labor. Ganoza is trying to implement measures to combat rising prices like producing dore bars, a semi-pure blend of gold and silver in bar form that is then transported for further refining, instead of selling gold and silver concentrate. This could cut down on costs saving the company around three quarters of a million dollars a month.
There is also the threat that the more money Fortuna makes, the more they will have to hand over to the Peruvian government. Mining companies in Peru will now be taxed on their operating profits on a sliding scale basis by 1%-12% and must pay a windfall tax of 2%-8.4% on operating margins. This tax increase was actually considered a victory by the mining industry due to the fact that newly elected socialist leader, Ollanta Humala, didn't get more aggressive.
Ganoza brushed off the tax, saying it was immaterial. "The net effect of this on our income tax in Peru is only 2% ... We think the new tax scheme that has been put in place in Peru is reasonable especially in the context of rising prices." Ganoza thinks that Peru will continue to focus on being a popular mining area and therefore not get overly aggressive with its taxes.
For now it's Fortuna's growth profile that is attracting analysts. The stock currently has 5 buy ratings, 1 hold and 1 sell ratings, now the company hopes to attract investors.-- Written by Alix Steel in New York.
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