Industry players in Peru seek simplified procedures to support large mining project pipeline

After a period of relative stagnation that ended with a pickup in metals prices in 2016, investment in mining is growing, with nine projects to begin construction in 2018. Efforts to streamline procedures and a strong performance in international rankings will likely help support the image and competitiveness of the sector as works move ahead.

Project Portfolio

The nine new projects breaking ground will amount to an investment of $11.5bn, according to the Ministry of Energy and Mines (Ministerio de Energía y Minas, MINEM), with $2.2bn to be spent on the works in 2018 alone as construction gets under way. The projects include the enlargement of the Pachapaqui and Toromocho mines, which produce zinc and copper, respectively, the construction of the Ariana, Corani, Mina Justa, Pampa de Pongo, Quecher Main and Quellaveco mines for various metals, and a plant to process tin tailings to extend the life of the San Rafael mine.

In addition to these nine projects moving into the building phase in 2018, three others are expected to be completed. Investment in 2019 will then rise by 35% to $2.9bn, when five more projects are anticipated to begin construction. According to MINEM in late April 2018, over 35% of funds for the entire mining pipeline will be invested in projects between 2018 and 2022, equalling $20.8bn.

Indeed, the total project portfolio overseen by MINEM includes 49 mining works that sum $58.5bn in global investment. Of these projects in various stages of development, 36 are open-pit mines, seven have solely underground operations, three are set to engage in both types of digging and one is the aforementioned treatment plant for tin tailings. As of April 2018, two of the 49 projects were mines that had not yet been classified.

The majority of works will focus on extracting copper: 26 projects aim to mine the mineral for a combined investment of $40.2, or 68.7% of MINEM’s entire portfolio. Gold will be drawn from nine mines and iron from three, with investments of $7.1bn and $6.7bn, respectively. The remaining 11 projects will extract a range of phosphates, zinc, silver, uranium and tin, and together cost $4.6bn.

Process Simplificatio

With the large amount of works to be developed in the sector, stakeholders such as business leaders in the National Mining, Petroleum and Energy Society (Sociedad Nacional de Minería, Petróleo y Energía, SNMPE) are urging for process simplification to ensure that the majority come to fruition in a timely manner. “There are several requirements that turn the process into a web of permits and permissions in order to carry out any type of investment,” Ángel Murillo, deputy manager of the mining sector at the SNMPE, told OBG.

According to Murillo, a plant expansion must go through multiple steps including prior consultation, informative workshops, and a number of study and permit approvals involving entities at various levels of government. This process is complex, can take years and has the potential to discourage new investments. “At present, the process up until the construction stage can take about six years,” he added. “Authorities need to develop initiatives that facilitate and streamline new mining projects.”

Investment Promotion

In related efforts, the SNMPE is also requesting that the government urgently craft new promotional measures to support the struggling hydrocarbons industry. According to the organisation, of the 44 hydrocarbons exploration and production contracts currently in force in the country, 20 are in force majeure, with activities partially or fully suspended. This, the SNMPE states, is the result of the significant fall in investment in the industry since 2014, which caused oil production to decline by 40% between 2010 and 2017.

As a result, a new Organic Law on Hydrocarbons was being debated by the Energy and Mines Commission of Congress in April 2018, with the existing law in place since 1993. Regulatory changes under consideration that have been implemented by other countries include tax exemptions, smaller royalty payments, longer contracts, flexible qualification terms and relaxed mandatory exploration programmes. In Mexico, Brazil and Colombia, for example, companies are allowed to withdraw from projects that are found to be too difficult to execute, a successful proposal by industry representatives.

The SNMPE, for its part, is calling for competitive and variable government royalties in line with prices and production volumes, as opposed to the fixed-royalty system currently in place. The organisation also requested 40-year terms for exploitation contracts, up from 30 years at present.

International Rankings

Despite calls for reform and ongoing debate about how the country’s extractive industries can become more competitive, the Peruvian sector remains an appealing investment destination. For example, in 2017 Peru was ranked the 19th-most attractive mining destination in the world out of 91 countries by the Fraser Institute in its Annual Survey of Mining Companies, which scores countries according to their geological suitability for mining, investment environment and government regulations. This was a significant jump from 28th position in 2016, when 104 countries were studied. Peru is now considered the second-best country in Latin America for mining investment after Chile, which ranked 8th. Regionally, Peru was followed most closely by Mexico (44th), Suriname (61st), Colombia (64th) and Brazil (65th). Nine regions of Argentina were scored independently and ranged from 42nd place to 89th.

Breaking down the factors analysed by the Fraser Institute, Peru ranked 14th in the “best practices mineral potential” index and 19th in the “investment attractiveness” index, a positive move of three and nine positions, respectively, on the 2016 scores. At the same time, the country moved up 11 places to 43rd in terms of policy perception. Peru was 43rd in the taxation regime category and 44th for the mining legal framework. Furthermore, of the top-five copper producers in the world, Peru was the only country that increased output in 2017.

The current administration looks likely to continue on its pursuit of making mining a decisive sector in the local economy. Efforts to accomplish this will include further improvement to the country’s mining practices and investor incentives to overtake its neighbour and primary competitor in the region. As ranked by the Fraser Institute, Chile is now the eighth-most attractive destination to invest in for mining activity globally, and the top country in Latin America. This represents a considerable jump from the 39th position obtained by Peru’s southern neighbour in 2016. One of the categories in which Chile’s greatest progress was registered was in the “best practices mineral potential” index, where it rose from 49th in 2016 to 7th in 2017. The country also advanced considerably in investment attractiveness, moving from 39th to 8th position.

Moving Up

On another global stage, Peru participated in Canada’s Explorer Convention in 2017. At the event, the country was recognised for the work it had done in moving towards better industry regulation. “The Explorer Convention was held at the international level in Canada during the first week of March 2017. Peru was present with an important private delegation, led by our authorities,” Walter Sánchez, deputy director of the mining promotion division at MINEM, told OBG. “There was a very good perception of the mining situation in Peru due to the improvement of metals prices and the new simplified regulations for exploration. This suggests that projects that are about to conclude with preliminary processes in 2018 will be able to begin construction.”

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The Report: Peru 2018

Mining chapter from The Report: Peru 2018

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