Peru
Q&A

How Peru accommodates rising mining investments

Bnamericas Published: Wednesday, March 04, 2020
How Peru accommodates rising mining investments

According to a recent study by the US Geological Survey (USGS), Peru has the largest silver reserves and the second biggest copper and molybdenum reserves. It has a portfolio of 48 projects that represent investments of over US$57bn by 2028. Last year, mining investment amounted to US$6.15bn, for this year the figure would increase to US$6.3bn and next year to US$6.5bn.

To maintain the momentum, the government of Martín Vizcarra has modified some regulations to optimize the administrative procedures and deliver the permits that investors require.

Peru's mining vice minister Augusto Cauti talked to BNamericas about the most important issues in the sector, including the portfolio of mining projects, planned investments and ways to overcome social conflicts.

BNamericas: What are the prospects for the Peruvian mining sector in 2021 and beyond? What investment amounts do you expect?

Cauti: We remain optimistic that mining investments will continue.

In 2019 we had investments of US$ 6.15bn, which puts us in a third consecutive year of growth. This year we plan to execute mining investments for US$6.3bn and by 2021 we expect to continue that trend and reach US$6.5bn of investments in the mining sector.

We have mapped the portfolio until 2028 with 48 projects for a total committed investment of over US$57bn.

BNamericas: Does that include gold, copper, silver and molybdenum projects?

Cauti: The portfolio is distributed mainly among copper and gold; then lead, zinc, silver, molybdenum and tin.

Of these projects, 70% corresponds to copper, 15% to gold and the rest to other minerals.

BNamericas: What are the most prospective areas for new investment projects?

Cauti: For the next 8-10 years we have a portfolio that is 45% in the southern part, 35% in the north and the rest in the central area of the country, which shows that in Peru we have geographical diversification of mining projects.

BNamericas: How far has Mina Justa progressed and when will it start commercial operation?

Cauti: It is under construction and is withing the timetable. It is currently 85% advanced. We estimate that by the end of 2020 construction can be completed, the first operations start at the end of the year and commercial production at the beginning of the next.

BNAmericas: And Cobriza? Which solution does exist for the non-compliance with guarantees by Doe Run, the controlling company?

Cauti: There is a liquidator in charge who is looking to carry out this process in the most successful way possible, both for Cobriza Mine and for the La Oroya metallurgical complex. Doe Run had to get the guarantees for the mine closure plan. The process is now handled by the liquidator.

We do not believe that Cobriza's problem could affect interest in the Peruvian mining sector, because it is a specific insolvency situation of a company and is not relevant to the investment issue.

BNamericas: How are mining fees and the works for taxes program working in Peru?

Cauti: Resources are distributed as mandated by law; that is, 50% of the income tax paid by mining companies is distributed to the regions where mineral exploitation is carried out. In the last 10 years, more than 40bn soles (US$11.7bn) in mining fees have been transferred to the regions.

Works for taxes is a mechanism the mining sector in Peru widely uses. This sector is the one that uses it the most.

BNamericas: According to the central reserve bank, last year gold production contracted 14.6%. Why did that happen and what can be expected this year?

Cauti: Production has declined mainly due to the low rates of gold producing mines. Now, just the companies in the area are looking to explorations to reverse the situation. Minera Poderosa operates in the area, Minera Horizonte and Minera Aurífera Retamas.

BNamericas: Could the electoral year in Peru slow down investments or new mining projects until the new government is known?

Cauti: The mining sector has been developing at a good pace since the beginning of the century. We have world-class investors such as Anglo American, BHP, among other large companies. This demonstrates confidence in the country, which has to do not only with the macroeconomic stability and growth that Peru has had in the last 20 years, but also with a favorable legal framework for the promotion of private investments.

In all electoral periods, investments - not only foreign, but national - in the mining sector have continued in their various phases, in ongoing operations and in new projects.

I am optimistic that mining will continue to be an engine that allows greater development of the country and a better quality of life for all.

BNamericas: But opposition from communities to mining projects has been an issue. What is being done to improve this situation and reduce the social conflicts that affect several projects?

Cauti: The projects have different phases and different maturation times. That does not mean the state can deny doing the job of closing gaps, improve people's quality of life. As a ministry, we encourage this to be done in surrounding areas, where mining projects will be developed and in that sense we will continue working.

RELATED CONTENT REPORT - Shifting Dynamics in Social License: Why Community is King in Latin America's Mining Sector

BNAmericas: One of the most important conflicts in the sector revolves around Tía María. What actions are you taking or plan to take?

Cauti: For example, for Tía María we will continue working on the topic of water and other works that have to do with the social environment, which is a job that we have to do as a state.

The energy and mines ministry will continue to promote the sector. We want sustainable mining development with good governance, with a territorial approach to development in areas where mining projects are located. We are working on that.

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