Issue 76
Mining in Peru – Country of Opportunities
This is a transcription of the welcome address delivered by Eva Arias Sologuren at the LBMA Conference in Lima, on 10 November 2014.
When I was thinking about what to talk about this morning, I was thinking about talking about this ‘super cycle’ and the prices. Then, I realised that we already have the experts here today and tomorrow to cover that. So, I decided it was better to talk about mining in my country.
As you know, Peru is a mining country and has a varied geography, biodiversity and natural resources. We have world-class geology as well as a very rich cultural diversity. And one of the results of that is our gastronomy, for example.
Today and for the past 15 years, our economy has remained very stable. We have a GDP that has been growing year by year and inflation is at a very low rate. Investment has also been increasing every year and, more importantly, poverty has been reduced dramatically from 2004. We went from nearly 60% to less than24% last year. So we would like to keep this going in this way.
Inflation forecasts
Peru has always been a mining country. Before the Incas, our people knew how to work gold, silver and copper, and they knew their metallurgy. This continued in all our history up until today as can be seen in our world-class modern operations. This drives our country to be a really big player in several minerals. We have polymetallic producers and, as you can see in the projection, in copper and silver we are second in Latin America, and in the rest of minerals we produce, we are first.
We also have a great amount of the world reserves, 10% in copper and zinc, 17% in silver. So we really have great potential as a mining country. Mining GDP has a direct effect on the national GDP as you see in the graph. The mining industry also contributes to tax revenue. It’s a very important source of tax revenue; last year, it was 15% of the total corporate income tax in the country. Fifty-five per cent of our exports come from mining, and 23% of the private investment comes also from mining. It is a very big player in our country.
| Country | 2014 | 2015 |
|---|---|---|
| Peru | 3 | 2 |
| Columbia | 3.3 | 2.9 |
| Ecuador | 3.6 | 3.2 |
| Mexico | 3.9 | 3.5 |
| Chile | 4.2 | 3.7 |
| Paraguay | 5 | 4.5 |
| Brazil | 6.3 | 5.9 |
| Bolivia | 7.1 | 6.2 |
| Uruguay | 8.4 | 7.5 |
| Argentina | 29.3 | 27.7 |
| Venezuela | 68.5 | 57.5 |
Net International Reserves
I would like to stress two points. One is employment. Last year, we had 208,000 employees in mining, and for each worker that we have, nine other jobs are created in other sectors. The other point is domestic procurement. Mining buys 14% of the Peruvian manufacturing industry gross value added. So, it drives and dynamises the economy a lot.
But mining is not only about exporting minerals or paying taxes. We are going to have at the end of the year, the UN climate change conference in Peru and the mining industry has been working on climate change mitigation and adaptation projects. These works are in reservoirs and water recirculation, irrigation technology, canals and reforestation, and there is a lot of work in conserving the biodiversity that we have in the country.
Mining Investment
We do this without neglecting our social responsibility, which includes programmes for the promotion of productive development and for the improvement of the education and health of the communities surrounding the operations. Looking at the future, Peru has a lot of potential. Over 30% of the land is available for mining and only 1.2% of our territory is used in exploration and exploitation. So there is a lot that can be done in the country in mining.
Investment Portfolio
We have an investment portfolio of over US$61 billion and that means over 50 projects in different metals. Nearly 64% of those are in copper, 13% are in gold and 12% are in iron. And in the upper part of the slide, you can see how the mining investments have been doing in the past years. They are growing and growing. However, this year has not been a good year. We expect it to be broadly similar to 2012. We have a few projects that are being constructed now and that explains this amount of investment.
We are the third-largest copper producer in the world. Copper is mined mainly in the south and in Ancash, which is in the north of Peru. And production has been growing, as you can see. This year, it is also going to grow and next year as well. We have expansion plans as well as new projects and exploration activities. This represents nearly US$40 billion in investments in copper. Even if this is a precious metals conference, I cannot leave copper out because it’s the main metal that we export.
In gold, we are the fifth-largest producer. This metal is mined mainly in the northern part of Peru, in Cajamarca and La Libertad. And in this case, our mine production has not increased since 2005. It’s going down. We hope that with new projects, this trend can be turned around in the next few years.
In silver, production is going well and we have this metal as a by-product in many mines. This is a very important product. We are the third-largest producer in the world.
Mining Production
As we all know, we are now in a very uncertain and volatile world where many economies have not been doing well. They are not growing as they used to do some years ago. And the prices are also going down. We can see that in the case of gold between October 2011 and October this year, price dropped 26%, and in the same period, it fell 46% in the case of silver.
Furthermore, costs are high. They have been getting higher year by year. You can see in the upper part of the slide that in South America, the estimated average mining project cost overrun has been 64% in the last few years and, in the lower part, you can see that the cost of copper has also been going up. But in the blue line in the lower part of the graph, we have Peru, which has very competitive costs, mainly because of our electricity costs. This is very important for being competitive in the world. The cost of gold has also been increasing year by year in different parts of the world.
Our economy can deal with the uncertainty and volatility that we are having in the world these days, because we have very solid macro- economic fundamentals: our international reserves have been growing and are high in comparison to other countries in Latin America. And inflation in our country, which is the lowest in the region, is expected to remain in our Central Bank’s target range in the next couple of years. Our exchange rate is also not as volatile as that of other countries, so we are in a better shape.
Looking at the future, we have geological wealth, our costs are competitive even in this context, but we have a lot to do. As mining companies, we need to increase productivity in our operations. After such a long super cycle of good prices, we sometimes forget about what productivity means.
As a country, we need to strengthen our institutions. We need to ensure that our social environment is favourable to the development of productive activities. We need to simplify our administrative procedures. We need to accelerate the construction and improvement of transport and services infrastructure. We need to have a more formal economy, especially in our sector, where eradicating the illegal extraction of minerals is an important challenge.
As I mentioned, Peru is a country of opportunities. We have a mining investment portfolio of over US$61 billion and, if we all work together, we are going to add value to these resources.
Eva Arias Sologuren, President, Sociedad Nacional de Mineria Petroleo & Energia
Eva belongs to the third generation of a mining family. She graduated as an architect at the National University of Engineering, later studied various courses on business management at ESAN (Perú).
Currently, she is President of the National Society of Mining, Petroleum and Energy, being the first woman in 117 years to preside over this institution; President of the American Society of Mining (SIM), Director of the Confederation of Private Business Institutions (CONFIEP) , Member of the Business Advisory Council of the International Freedom Foundation, Executive Chairman of the Board of Compania Minera Poderosa SA, Alternate Director in Company Minera San Ignacio de Morococha SA and President of the Board of Asociación Pataz, which is a non - profit organization.
Throughout her career she has received several awards, the most recent are: “Entrepreneur of the Year 2013”, granted by the Chamber of Commerce of La Libertad; the distinction “Habich Torch” from the National University of Engineering (2013); Wayra of the Incas by the Association of Professional Engineers of Peru, Chapter Metallurgy and Engineering (2013). Lately, the National University of Engineering awarded her the honorary tittle “Doctor Honoris Causa” (2014).