Peru's Mining & Metal Investment Guide 2017/2018

The 2017-2018 Guide brings together key information on the mining industry in Peru that should be considered by investors.

This mining & investment guide is the first, and still the finest, handbook of its kind. This document has been structured to serve as an initial step in the process of evaluating the mining landscape in Peru. As such, it will be useful to those who contemplate at least the possibility of making long-term investments into the exploration and development of new mines in the country.

This publication has brought together several of the mining industry’s leading professionals from EY Peru, with a mix of legal, tax, economic and accounting backgrounds, to share their unique insights and explain the key elements for a successful expansion by international mining and metals companies into Peru.

Within this guide we have examined various aspects usually taken into consideration by miners and investors from around the world before making critical decisions on the development of new mining operations. Included in this guide is an overview of Peru’s political structure, business environment, macroeconomic profile, key indicators and outlook for the next years, geological potential, mining and metals sector trends and recent developments. The guide also provides access to essential information to assist foreign investors in understanding the regulations governing investment and in particular the legal, taxation and regulatory requirements to operate in Peru’s mining sector.

Importance of Peru’s mining sector

The mining sector is, and has always been very important to the national economy of Peru. Its well-known mining tradition dates back to the pre-Inca times, and goes on through the Inca, colonial and republican periods. In each of those stages, mining has been one of the major activities in the country’s development. Traditionally it has contributed about half of the country’s export revenues.

Peru is one of the most extensively mineralized countries of the world. It currently plays host to some of the largest precious and base-metals mines in the world, including, Glencore-Xstrata, Vale, Freeport-McMoRan, Rio Tinto, Anglo American, MMG Ltd, Chinalco and Barrick. Since the liberalization of the industry in the 1990s local and foreign investment – increasingly Chinese – has been deployed to develop major modern mines.

Mining potential

Increasingly, Peru is being targeted for inbound investment and is perceived by international mining and metals companies as a global player. This is partly due to the scale of opportunity where most of its territory is yet to be subjected to vast exploration and partly as a result of its attractive legislation and regulatory environment.

Although Peru is endowed with large deposits of a variety of mineral resources, it is estimated that only 0.30% of the country’s total territory was being explored in 2016 (0.29% in 2015). Likewise, only a small percentage of Peru’s mineral reserves are being exploited. It is estimated that in 2016 only 0.96% of its territory was under exploitation (0.93% in 2015). According to recent mining statistics, Peru’s production rates are minimal with regards to the country’s mineral potential. However, through modern techniques and equipment, a vast potential of diverse marketable minerals are increasingly becoming available from previously inaccessible regions.

Peru’s mineral production

Recent developments and future trends in the mining industry in Peru

Peru becomes the world’s second copper producer

Despite the troubles facing the sector, 2016 will be remembered as the year in which Peru consolidated itself as a key mining country worldwide. Copper production jumped from 1.7 million tonnes in 2015 to 2.4 million tonnes last year, a 38.4% increase, solidly placing Peru as the second largest copper producer in the world after Chile.

Mining policy trends

Peru has a long history of major minerals projects and the mining industry is widely recognized as a driver of growth and a job provider. In contrast with the situation two decades ago, large mining operations are now held by domestic and foreign privately-owned mining companies. Private domestic interests own most of the medium and small-sized mining operations.

Social license to operate

Income and regional inequalities continue to be a source of social conflicts, which have had a negative impact on a number of mining projects. Achieving a social license to operate is one challenge, maintaining it is another. The key to both is communicating value through the concept of shared value and, more broadly, of corporate social responsibility, which must be part of mining companies’ operations.

Environmental concerns

Government still faces the important challenge of formalizing illegal gold miners, who have destroyed estimated 53,000 hectares of the Amazon rain forest with mercury. They concentrate 20% of Peru´s gold production, equivalent to USD 3 billion. At this point, the Peruvian government has approved a widespread ban on illegal mining to rid the country of a dangerous practice that leads not only to extensive environmental damage and deforestation, but to criminal activities associated with them.

Exploration trends

For the mining industry, the last few years have been challenging, particularly for those companies in the junior space seeking to raise capital to fund exploration ventures. Considering mining´s cyclical nature, it is understandable that economic instabilities and lower commodity prices were major contributing factors to considerable declines in capital spending around the world.