Betting on Peru: Why the Mining Powerhouse Beckons Investors

• Peru is a major global producer of metals like copper, gold, silver, zinc and lead. It has significant mineral reserves and geology favorable for mining.
• The mining sector accounts for over 8% of Peru's GDP. Mineral exports represent almost 64% of total exports.
• There is an estimated $53.7 billion in mining projects in the pipeline, with 72% focused on copper mines.
• Peru offers a competitive environment for mining investment including an open regulatory framework, skilled workforce and low operating costs.
• Political and social risks like community opposition remain key challenges for the industry. Companies need a social license to operate.

Peru's Mining and Metals Investment Guide provides an overview of the country's mining sector and opportunities for investors. Peru is one of the world's leading producers of metals like copper, gold, silver, zinc and lead and has major mineral reserves yet to be fully explored and developed. The mining industry is a pivotal driver of Peru's economy and central to its growth prospects. This makes the country an attractive destination for mining investment.

Importance of Mining in Peru

Mining has historically been one of Peru's most significant economic activities. Today, the sector accounts for 8.5% of national GDP. Mineral exports represent almost 64% of total exports, underlining the industry's importance. Peru is the second-largest global copper producer and a major producer of gold, silver, zinc, iron and lead. It holds 9% of the world's copper reserves, 6% of its gold and 18% of its silver, according to estimates.

While only a fraction of the country has been explored for minerals, Peru is considered one of the most mineralized nations. It offers excellent geological potential for investors. Substantial foreign direct investment has flowed into Peruvian mining over the past 20 years as global miners have committed to developing world-class modern mines. Major firms like Anglo American, Freeport-McMoRan, Rio Tinto and Barrick Gold now operate in Peru.

Peru produced around 2.4 million tons of copper in 2022 and 97 million grams of gold. Zinc output reached 1.4 million tons, while silver production hit 3 million kilograms. Iron ore production was 13 million tons. The steady growth in output reflects the expansion of Peru's mining industry.

Mining has played an integral role in Peru's economy for centuries. Since the colonial era, the industry has been a pillar of the country's economic development. Today, mining remains central to Peru's growth and standing in the global economy:

• Mining accounts for around 8.5% of Peru's annual GDP, underlining its macroeconomic significance. It is the largest individual contributor to GDP by industry.
• Mineral exports represent almost 64% of Peru's total exports. This underscores mining's primacy as a foreign exchange earner. Metals like copper, gold, silver and zinc drive export revenues.
• Peru ranks among the top global producers for key metals like copper, silver, zinc, lead, tin, molybdenum and more. Its mineral output is critical to international metals supply.
• The country possesses 9% of the world's copper reserves, 6% of its gold reserves and 18% of its silver reserves. Its mineral riches include major reserves of zinc, iron, lead and other metals.
• Mining directly employs around 242,000 workers in Peru. When indirect jobs are included, the industry accounts for 2 million jobs constituting 9% of national employment.
• In 2022, mining companies paid USD 6.6 billion to regional and local governments through royalties, levies and taxes. This income supports development in mining regions.
• Since the 1990s, Peru has attracted substantial foreign direct investment totaling more than USD 60 billion to expand its mining capacity.
• Major global miners like Anglo American, BHP, Rio Tinto, Barrick Gold, Freeport and Glencore operate large mines in Peru, often integrated with smelters and refineries.

Peru's Competitive Advantages

Does Peru stand Out for mining investors? Beyond its exceptional mineral potential, Peru offers multiple competitive advantages that make it highly attractive for mining investment:

Skilled, Cost-Effective Workforce

• Peru has developed expertise in geosciences, mining engineering, construction, equipment operation and other critical fields. This provides an experienced labor pool.
• Labor costs are affordable relative to other Latin American mining countries. Peru's minimal unionization contributes to competitive labor rates.
• Major local contractors have emerged, offering specialized services across the mining value chain at globally competitive pricing.

Access to Established Mining Districts

• Major mining zones have been established in Peru with access to roads, ports, water, power and supplies. New projects can leverage this ecosystem.
• For example, the Las Bambas copper belt has seen clusters of mines develop with shared infrastructure, suppliers and skilled labor. Similar mining hubs are emerging elsewhere.

Reliable, Low-Cost Power

• Peru has harnessed its hydroelectric resources and natural gas reserves to build extensive generation capacity. This delivers affordable, renewable electricity.
• Mines can access hydroelectric power from Peru's national grid at prices below $0.05/kWh through long-term contracts – among the lowest globally.

Ideal Geography and Infrastructure

• Peru's coastal location provides ready access to Asian markets for mineral exports including key consumers China, Japan and South Korea.
• High quality ports on the Pacific Ocean and continued infrastructure improvements facilitate efficient logistics for exports.

Clear Legal Framework and Policy Stability

• Peru's legal regime provides certainty around mineral tenure and development while respecting property rights and contracts.
• Successive governments have maintained consistent market-friendly policies, signed trade agreements, and encouraged foreign mining investment.
• Fiscal stability deals allow miners to secure a fixed tax regime over 10-15 years. This provides assurance against unilateral policy changes.

Peru offers mining investors not just rich mineral deposits but also critical advantages related to labor, power, infrastructure, established mining clusters and supportive policies. These enhance Peru's competitiveness for developing projects.

Mining Project Pipeline

Peru possesses a strong pipeline of mining projects in various stages of development representing over $53 billion in potential investment. Based on data from Peru's Ministry of Energy and Mines, here are key details:

• The ministry has identified a portfolio of 47 major mining projects involving a total capital investment of $53.7 billion. This underscores the vast scale of opportunities available.
• Around 76% of the projects are greenfield mines rather than expansions of existing operations. This points to Peru's potential for new mineral districts to be opened up.
• Copper projects comprise the lion's share at 72% of proposed investments or $38.5 billion allocated to copper mines. Gold projects represent 13% or $6.9 billion.
• Iron ore projects make up 10% of the pipeline or $5.4 billion in investment planned. Other projects include zinc, silver, phosphate and lithium mines.
• Geographically, projects are concentrated in the mining regions of Cajamarca (34%), Apurimac (19%) and Arequipa (11%). But opportunities exist across Peru.
• In 2022, mining investments totaled $5.2 billion in Peru, demonstrating ongoing confidence. Quellaveco, Anglo American's new copper mine, was the largest project.
• Construction will commence on major mines like Mina Justa copper in 2023, while Zafranal, San Gabriel, Yanacocha Sulfuros and Corani are scheduled for 2024.
• Beyond the defined portfolio, substantial greenfield deposits and prospects remain to be explored and developed across Peru's extensive mineral belts.

In summary, Peru possesses a robust multi-billion dollar pipeline of committed mining projects in addition to its vast geological potential for new discoveries. This underscores exceptional opportunities for investment in both the short and long term.

Competitive Advantages

Peru offers a favorable environment for mining investment. It has put in place a clear legal framework that protects property rights and provides assurances for investors. Obtaining mining concessions is relatively straightforward, provided legal requirements are met. The country also has world-class mineral deposits, relatively low operating costs and an experienced workforce. Energy and basic infrastructure have improved, aided by private participation. Investors can benefit from fiscal stability deals that provide long-term certainty over the tax regime.

Peru's stable macroeconomic policy has supported growth while controlling inflation and government debt levels. It has a strong investment-grade sovereign credit rating. The economy recovered strongly from the pandemic with 13.6% GDP growth in 2021 and expanded a further 2.9% in 2022 based on higher exports. Economic growth of around 3% is projected for 2023. Successive governments have courted foreign mining investment as a priority, signing trade pacts to open export markets. Peru has free trade agreements with China, the United States, the European Union and others. It offers national treatment for foreign investors, who can repatriate profits freely.

In summary, Peru offers multiple competitive advantages that make it an attractive mining jurisdiction for global investors:

• Favorable geology: Peru possesses abundant reserves of high-grade copper, gold, silver, zinc and other metals. It is considered one of the most mineralized countries on Earth. Less than 1% of its land has been explored for minerals, underscoring major upside potential.
• Clear legal framework: Peru has enacted a mining-friendly legal regime that protects property rights and provides assurances for investors. The process of obtaining concessions is relatively straightforward.
• Skilled workforce: Peru has developed a knowledgeable workforce experienced in mining engineering, geology, construction and other disciplines critical to the industry.
• Low costs: Peru is one of the lowest-cost mining jurisdictions globally thanks to advantages like ample local labor, extensive infrastructure and proximity to Asian markets.
• Economic and political stability: Peru has sustained two decades of broad continuity in pro-market economic policies. Successive governments have encouraged foreign mining investment.
• Fiscal incentives: Peru offers fiscal stability deals providing long-term certainty over the tax regime. Other incentives include VAT refunds and accelerated depreciation.

Political and Social Risks

Despite its mineral riches and pro-investment policies, Peru has seen mining projects delayed and disrupted by local community opposition and social protests. Tensions have emerged over environmental impacts, water usage and the distribution of benefits.

High-profile copper projects like Tía María and Conga were suspended over concerns raised by indigenous populations. This underscores the need for miners to secure a "social license" to operate through effective community engagement. Companies need to communicate how communities can share in mining wealth.

Peru's recurring political instability is another risk factor to consider. The fractured party system has made governance challenging. While the overall policy framework supporting mining has remained intact through various administrations, abrupt policy shifts and tax hikes are possible with a new government. Continued progress in reducing poverty and inequality is important for social stability.

In addition to its mineral potential, Peru offers a stable investment environment that encourages mining development:

• Peru has sustained over two decades of friendly policies towards foreign investment, free trade and market-oriented economic principles.
• Successive administrations have maintained this openness regardless of political party, giving consistency to the policy framework.
• The legal regime provides certainty around mineral tenure and development rights while also upholding contracts and property rights.
• Administrative procedures for obtaining permits are clear relative to regional peers, despite bureaucracy still being an issue.
• Peru offers fiscal stability deals to provide assurances that the tax regime and other policies will remain unchanged for 10-15 years. This reduces uncertainty.
• It has signed free trade pacts with China, the United States, Europe, Japan and others to ease access to key mineral export markets.
• Prudent fiscal and monetary policies have controlled public debt and inflation levels, recently earning Peru an investment-grade sovereign credit rating.
• The economy has recovered strongly from the pandemic with 13.6% GDP growth in 2021 and around 3% expansion forecast for 2022-2023, supporting mining demand.
• Peru's currency has remained relatively stable against the US dollar reducing volatility for investors. The central bank has intervened to avoid major currency swings.
• There are no restrictions on repatriation of profits, international capital flows or currency exchange for mining firms.

The Investment Thesis for Peru's Mining Sector

For investors, Peru offers world-class geology, extensive mineral reserves and a strong pipeline of development projects, predominantly focused on copper. Its proven mineral endowment provides a solid foundation for long-term sector growth. Peru's mining-friendly legal framework provides security of tenure while its skilled workforce and competitiveness as a low-cost jurisdiction remain key advantages.

Successive governments have encouraged foreign mining investment which has helped transform Peru into a top global producer of metals like copper, gold and silver. While Peru has made economic strides, reducing poverty and strengthening state institutions are still works in progress. Investors must build relations with communities impacted by mines and manage political risks including around taxation. Top miners appear willing to make this commitment to access Peru's mineral riches.

Peru's vast geological potential, mineral reserves, stable investment regime and low costs make it an attractive global mining jurisdiction. Significant opportunity remains to explore its mineral deposits and develop new mines to supply rising metal demand. With copper the focal point, political backing and project pipeline provide a platform for sector growth. While social and political risks remain, Peru's fundamentals support bullish investment in its mining and metals industry over the long-term.