Peru is famous for its mineral endowment. Now the government is proposing to lower income taxes for miners; the cut would be from 30% to 28% in 2015, 27% in 2017, and 26% in 2019. At the same time, it also proposes to raise dividend taxes from 4.1% to 6.8% for 2015 and 9.3% in 2019. (Here’s an article about it, in Spanish.)

What does this mean?

Overall, it’s positive. It shows that the government understands how important mining is to Peru’s economy. Cutting income taxes is an obvious plus. Even the higher dividend tax looks more like a move to encourage investment than to raise taxes, since it can be mitigated if companies reinvest their cash.

The dividend tax hike is not good news for investors keen on dividend income. Our bets, however, are mostly on higher share prices. Hence our positive view.

On the other hand, anti-mining protests have heated up in Peru, a place where they can turn deadly. As gold major Newmont found when its $5 billion Minas Conga project was attacked and burned by a mob, even the largest projects are vulnerable.

Protests can happen anywhere, of course—even in Canada—so we’re quite willing to invest in Peru, but in a highly selective way. We want companies that have solid track records of positive relations with local communities. Due diligence is essential.

We’ll keep a close eye on the situation.