MINING IN PERU

Peru has a lucrative mining industry in which gold, iron ore, coal, and phosphate rock are extracted and exported in substantial quantities. Petroleum is produced along the northern coast and in the Amazon basin, and there is a large refinery at Talara.

Peru's other principal industries include food processing and manufacturing of steel and other metals, textiles, and clothing. There is also a substantial tourism industry.

Peru’s principal exports are copper, gold, zinc, petroleum, coffee, potatoes, asparagus, and textiles. The principal imports are petroleum products, plastics, machinery, vehicles, iron and steel, wheat, and paper.

The table below reflects the most recent economic data published by The Economist.

Origins of gross domestic product (2006)	% of total
Agriculture, livestock & forestry	8.3
Fisheries	0.5
Mining & hydrocarbons	6.1
Construction	5.2
Manufacturing	15.1
Services	53.2

 

Principal exports (2006)	US$ m
Copper	6,034
Gold	4,061
Zinc	1,991
Fishmeal	1,333

 

Main destinations of exports (2006)	% of total
US	23.6
China	11.0
Canada	7.7
Chile	5.5

 

Overall, the Peruvian economy is robust and growing. Peru experienced a 7.5% growth in GDP during 2006. Inflation for the year decreased to 1.1%, reflecting the healthy economic situation of the country.

The value of Peru’s total exports increased by 23% to US$23.8 billion, of which US$ 14.7 billion (62%) was contributed by the mining sector.

The value of imports increased by 14%, to US$14.87 billion.

Peru’s net international reserves at the end of 2006 reached US$$17.27 billion, a figure 16% higher than that of 2005.

 

 

Peru's mining industry contributes significantly to the country's economy (6.5% of the GDP). It is a major producer of gold (largest producer in Latin America), silver, tin, copper, lead and zinc.

Peru's mineral production is based on the growth of its gold sector as well as expansion into hydrometallurgical projects. Peru experienced a 3-.6% growth in GDP during 2003 with the value of all Peruvian exports increasing by 11% to US$8.2 billion. Among the most important news in 2003 was Barrick Gold's decision to start construction of the Alto Chicama gold project.

In 2003, the value of Peru's mine production grew by 21% to US$5.6 billion as the output of most minerals increased. The biggest increases were recorded for cadmium (16%), zinc (12%), and gold (9%). The value of mining products exported during the year rose to US$4.25 billion. Together with oil export revenues, mining revenues made up 60% of the country's total export revenues.

Peru is embarking on a privatisation programme that has seen the piece meal privatisation of Peru's largest mining company, Empresa Minera del Centro del Perú S.A. (Centromin). Foreign investment in Peru has resulted in the development of several world class deposits, including Yanacocha and Pierina Gold Mines and the massive Antamina copper-zinc mine.

In this process of expansion, mining has become yet more central to the national economy, and in particular to macroeconomic management. Although the mining sector only accounts for approximately 6-7% of GDP, 50% of Peru’s foreign currency is generated by mineral exports - indeed, over the period 1990-2003, mineral exports passed from US$ 1,447 million to US $ 4,554 million (Cooperacción, 2006). In 2003, mining accounted for 57% of all exports in Peru (World Bank, 2005) and 55% in 2005 (Dorman, 2006). Mining has also become a pole of foreign direct investment, and between 2001 and 2003 accounted for 37% of FDI in Peru (World Bank, 2005).

The macroeconomic importance of the sector has also meant that the Ministry of Energy and Mines (MEM) has become a particularly powerful factor.12 Mining legislation and regulations have been designed in such a way that they have enhanced this power. Thus it is that all decisions about mine project development and approval are taken within MEM.

MEM grants concessions; it reviews and approves (or not) the Environmental Evaluations (Evaluaciones Ambientales) that allow concessionaires to proceed with exploration; and the MEM then reviews and approves the Environmental Impact Assessments that companies prepare in order to move to the exploitation phase. The MEM is responsible for monitoring the environmental and social performance of companies against the standards laid down in the Environmental Impact Assessment.

Peru is the largest producer of gold in Latin America, and ranks fifth in the world in gold and copper production. Peru is also the world’s largest producer of silver, and ranks in the top five for zinc, lead, and tin.

In the last five years, the value of Peru's mineral production has grown by nearly 25 per cent. In 2005, gold production increased by 20%, and gold exports generated more than $4 billion in revenue in 2006.

Also in 2006, copper, gold, and zinc accounted for nearly $12 billion in exports. The newly-released Peru Mining Report for 2007, prepared by Business Monitor International (BMI), reports expectations that Peru’s mining industry will grow in size over the next five years as Peru cements its position as one of the most important mining countries in Latin America. The BMI Report projects that the value of output of the country’s key metals will continue to grow (thanks predominantly to higher commodity prices) to around US$9bn.

Yanacocha, a gold mine in northern Peru, is one of the biggest and most profitable mines in the world. Yanacocha has produced over $7 billion worth of gold since production began in 1993. The Yanacocha project was the first large foreign investment in Peruvian mining since 1976, and is symbolic of Peru’s entrance into the world of modern mining. The mine has significant reserves and will be a large producer for many years into the future. Nevertheless, new developments, particularly in sulfurized and gold- and copper-bearing minerals could give the operations a new dimension.

In 2006, Peru’s copper exports exceeded US $6 billion. Peru’s largest copper producer is Southern Peru Copper Corporation (SPCC), one of the 10 largest private-sector copper mining companies in the world. SPCC operates the Toquepala and Cuajone copper mines located high in the Andes, approximately 400 miles southeast of Lima. Annual production from the company’s mines typically exceeds 370,000 tonnes of copper.

Phelps Dodge also operates the Cerro Verde Mine, located 34 km from Peru’s second largest city, Arequipa. The mine is located at an elevation of 2,700m and consists of two opencast operations; Cerro Verde and Santa Rosa, of which the Cerro Verde is currently being exploited. Phelps Dodge retains a 82.5% interest with partners Beunaventura 9.2% and others the remaining 8.3%. Cerro Verde employs low cost SX/EW process to extract copper from reserves containing an average of 0.64% copper.

Mining opportunities in Peru have grown considerably as a result of political changes that began in 1990, when President Alberto Fujimori’s administration adopted a wide-ranging privatization program that opened the door to international investors.

 

By liberalizing Peru’s economy, the Fujimori administration eliminated competition from nationalized firms that controlled significant access to mineral deposits.In addition, the administration implemented a floating exchange rate, eliminated price controls, direct subsidies and restrictions on remittances of profits, dividends and royalties.

The Fujimori administration also created tax stability contracts and a host of legal and financial protections for large foreign investors. Finally, a radical reformation of land tenure rights under the National Mining Cadastre Law guaranteed mining firms control of the necessary land resources to implement their operations.

 

In the past year, political developments in Peru have made the country even more attractive to North American companies. With the election of President Alan Garcia, who immediately signed a trade agreement with the United States, Peru has become much friendlier toward foreign mining companies.

 

In April of this 2007, President Garcia, along with the Minister of Mines and its vice-minister appeared in Piura and publicly stated that the government will promote mining in Northern Peru and intends to help formalize all informal mining. This business-oriented approach stands in stark contrast to other South American mining countries, such as Bolivia, Venezuela, and Ecuador, which have leftist-leaning governments that are far less accommodating to foreign investment.

 

An additional benefit of working in Peru is the country’s established history with prominent mineral exploration companies. Peru already has major companies such as Newmont, Barrick, Xstrata, Phelps Dodge, and Teck-Cominco operating within the country’s borders.

Peru's gold production increased by 9% in 2003 to reach 171,551 kg. Exports were valued at US$2.05 billion an increase of 38% from 2002. Gold represented 47% of the value of all mining exports in 2006 and 23% of Peru's total exports.

Minera Yanacocha and Minera Barrick Misquichilca contributed 68% of the total output, informal gold miners contributed 17% and Cia Minera Ares and Cia de Minas Buenaventura each contributed 3%.

Minera Yanacocha represents the first major foreign investment in Peru and remains the country's largest single gold producer. It increased output by 22% to 88,583 kg in 2003. Newmont holds a 51.35 %, with the Peruvian mining company Compania de Minas Buenaventura, S.A. holding 43.65 % and the remaining 5 % by the International Finance Corporation (IFC). The mine is located north of Cajarmarca in the Peruvian Andes.

The heap leach operation produced gold from its four open pit mines: The Carachugo, Maqui, San Jose Sur and Cerro Yanacocha. Yanacocha produced 1.89 Moz in 2001 at cash costs of only $88/oz. Yanacocha still has reserves estimated at 245Mt grading 0.81g/t gold.

Another major development has been Barrick's Pierina mine development. Pierina was developed in record time, taking only 31 months from discovery to first gold production. In 2003 Pierina produced 28,358 kg of gold and steadily increasing.

Barrick are continuing the work on their latest discovery at Alto Chicama in North-Central Peru, where an inferred resource of 61 Mt grading 1.76 g/t, for a total of 3.5 Moz gold. In total, Barrick invested over US$110 million in 2004 for construction of the Alto Chicama project.

Santa Rosa has been estimated at containing 10 Moz gold. Other major gold producers were Cia Minera Sipan (6.5t), Minera Aurifera Retamas (5.2t) and Cia Minera Ares (4.8t). Cia Minera Ares is one of Peru's latest "small" producers, producing 172,000 ounces of gold and 1.7 Moz silver each year.

Informal miners supply 12% of the country's gold production. Peru experienced a 20% increase in gold production in 2005, and is continually growing due to a warmer political climate towards foreign investments.

Peru's copper production in 2003 remained very close to that of 2002 reaching 839,223 t worth an estimated US$1.34 billion. Copper exports totalled 787,300 t valued at US$1.26 billion.

Peru’s largest copper producer is Southern Peru Copper Corporation (SPCC), one of the 10 largest private-sector copper mining companies in the world. Shareholders of SPCC are Asarco (54.1%), Marmon Corporation (14.2%), Phelps Dodge (14.%) and common shareholders (17.7%).

Asarco, the largest shareholder, is in turn a wholly owned subsidiary of Mexican mining company Grupo Mexico. SPCC operates the Toquepala and Cuajone copper mines located high in the Andes, approximately 400 miles southeast of Lima. Production from the company’s mines totalled 371,415 t copper in 2003.

Antamina is the second largest copper producer in Peru however its 2003 copper output was 22% lower than 2002 at 267,867 t . Cerro Verde is the country's third largest copper producer reporting an output of 87,327 t. Tintaya more than doubled its output in 2003 to 51,644 t having resumed operations after temporarily suspending mining operations during 2002.

Phelps Dodge also operate the Cerro Verde Mine, located 34 km from Peru’s second largest city, Arequipa. The mine is located at an elevation of 2,700m and consists of two opencast operations; Cerro Verde and Santa Rosa, of which the Cerro Verde is currently being exploited. Phelps Dodge retains a 82.5% interest with partners Beunaventura 9.2% and others the remaining 8.3%. Cerro Verde employs low cost SX/EW process to extract copper from reserves containing an average of 0.64% copper. The mine had a life of 35 years and produced 169.7 Mlb of copper in 2001.

Peru has several large scale projects that are currently being made available for privatisation. Included are several projects ranging from copper, gold, coal, iron ore and phosphates.

The La Granja copper deposit, located in the Andes northeast of Lima has proven reserves estimated at more than 2 billion tons averaging around 0.6% of copper. Total costs to set up the operation (including the mine, smelter and refinery complex) is expected to exceed $2 billion. Billiton Base Metals purchased La Granja from Cambior for $35 million and is required to complete a feasibility study within the next five years.

The development of one of the largest copper-zinc ore bodies in the world, Antamina, has been completed, with first production from the mine being shipped in October 2001.

Antamina is a joint venture between Noranda Inc (33.75%), Billiton Base Metals (33.75%), Teck Cominco (22.5%) and Mitsubishi Corporation (10%). The mine is located 285 km north of Lima in the Peruvian Andes and will transport concentrates as a slurry via pipeline to the Pacific coast.

Antamina has an in-pit resource of 560 Mt grading 1.24% copper, 1 % zinc, and 13 g/t of silver, and is expected to produce 295 000 t copper and 163 000 t zinc annually over a 20 year mine life.

UK based Antofagasta Plc and Inca Pacific Resources are evaluating the Magistral copper gold porphyry deposit located close to Antamina in central Peru. Here Antofagasta has a 51% interest in the project that has outlined a mineral resource containing some 190 Mt grading 0.83% copper and 0.06% molybdenum.