Peru Mining Industry – The Year in Review

With 2023 ending, it is a good time to reflect on what is happening in the main Latin American mining markets. Last week, we published our year end wrap up for Chile.  A year that had investors nervous over changes to the mining royalties, the mining code, and a possible new constitution for the country. All of which had an impact on the country’s reputation.

With those debates concluding this year, the bright spot for the Chilean mining industry was the continued push towards sustainability, particularly around water and energy. The questions that remain for the new year is whether the country can attract investment to its lithium industry and unlock its project pipeline.

This week we will discuss the Peruvian mining industry, a country that continues to hold on to its spot as the world’s No. 2 copper producer but is having trouble unlocking a large project pipeline.

Peru Project Pipeline

• Peru has a USD$53b project pipeline that has largely stalled due to community issues, political turmoil, protests, and a slow permitting process. Copper production is expected to finish around 2.7 million metric tons for 2023 and 2.8 million tons in 2024. 
• Peru did not have many mining projects enter construction during 2023.  Many projects were delayed. The government is actively looking to improve investment conditions. Brownfield projects are expected to advance in the immediate future, this is largely due to the ease of permitting compared to greenfield projects.   
• With a renewed interest by the government, there was several permitting approvals in 2023 which were symbolic and important for the Peruvian mining industry.
• Teck received environmental approval in May 2023 for its USD$1.5b dollar Zafranal project. Construction permits were granted for the US$1.36bn Toromocho expansion projectlast July. Hochschild’s US$1.32bn Inmaculada Optimization project recieved environmental permits last August.
• Southern Copper has all the permits it needs for its USD$1.4b Tía María copper project but it has been unable to advance due to community opposition. The latest news is that they are making progress with the communities and believe an agreement could be reached in 2024. Another positive sign. 
• You can check out the project pipeline here that we previously published.

What to Expect for 2024?

• Industry leaders are expecting an investment of around USD$3.5b in 2024. This is considered low. The last major greenfield project to be built, Anglo’s Quellaveco project, had a price tag of US$5.3 billion when it entered operation in September 2022.
•  We expect that several projects will advance through permitting in 2024 which will be assisted by the governments renewed focus on reactivating the project pipeline to boost investment in the country.
• We expect some investment decisions for new greenfield projects in 2024 could be announced but it will largely depend on investor sentiment and how Peru fares over the next 12 months from a political and community standpoint. Brownfield projects will drive investment in the short term.

ESG 

• Luke Balleny, director for the The Copper Mark, spoke during the Perumin mining event, that certification processes are underway at several mines but is still lagging behind its neighbour Chile.
• The Copper Mark uses independent third-party evaluations to certify responsible copper, molybdenum, nickel, and zinc production. Chile already has 12 mines certified and another 10 projects that will receive next year,
• In Peru, only Cerro Verde and Condestable Mining Company (CMC) are accredited so far. Currently, Southern Copper has several of its projects going through the process, but the director stated that he hopes more will present their applications which has lagged Chile.

What to Expect for 2024?

• We expect there will be several more Peruvian mines that receive the Copper Mark in 2024. There is a considerable push to reduce water usage and to use renewable energy in mining operations. Although behind Chile, sustainability is a big topic in Peru that will get more attention in the next year. 
• We expect there to be more announcements from companies who are looking to reduce fresh water in their operations as water scarcity in certain districts of Peru become more prevalent.
• There will be demand for technologies to manage water usage and increase the recycling of water in the mining process. Desalination could be an important topic in the next year. 

Community Relations

• In 2023, there was less community protests or at least those that created stoppages then in previous years. The government announced decrees this year that controled blockades in some of the most important mining districts but it is unknown how long this will last
• The main drivers of social conflict in Peru are the lack of perceived benefits that the community receives where the mines are built, concerns over water usage, and informal mining.
• Some miners such as Las Bambas and Tia Maria have been able to recently enter into agreements with local communities who have had well publicized disputes. This is an encouraging sign for the local industry, but it is unknown if these agreements can be sustained in the medium to long term. 

What to Expect for 2024?

• We expect that community relations problems will continue into 2024. Similar to this year, social opposition will not cause the widespread stoppage of operations but it will affect certain companies at different points during the year.
• Experts agree that although there is a relatively calm period in comparison to other years, there is still structural problems that need to be solved which means that there is still considerable risk due to social conflict with local communities.

Permitting Problems 

• The number of permits required to carry out greenfield projects continues to be one of the greatest limitations for the Peruvian mining sector.
• Zafranal’s CEO Mario Baeza told the Perumin Mining Convention that it took them more then 7 years to go through their process which was only awarded earlier this year.
• “It’s good that people understand what it means to obtain that permit. There are more than 36,000 pages of documents, more than 8,000GB of stored memory, more than 28 consulting companies participated, and 1,510 queries and observations were made during the process. That is what it takes to prepare and evaluate the environmental impact study. Finally, the study entered the review agency [Senace] in December 2021and was approved in May 2023” Baeza said.
• The government wants to implement a digital one-stop shop to unblock mining projects. It has started with the exploration industry, with recent announcement of a new decree that looks to simplify the environmental certification procedures and water use permits required for mining exploration. This allows exploration companies to simultaneously process the environmental study and the authorization of water use, reducing the overall time.

What to Expect for 2024?

• We expect the government to continoue focus on improving permitting times. The effects will not be immediate but there will be more announcements over the next few months with improvements to the permitting process. The government is focused on unlocking the project pipeline and permitting is one area that they can control. 
• The newest decree which simplifies environmental certification and water usage will help encourage exploration. We expect strong exploration investment in 2024 which will be helped by the new changes that simplify permitting.

Conclusion

There is much to be optimistic about the Peruvian mining industry, but the country continues to face challenges that cannot be ignored. On one hand, there is a large project pipeline with some very mature projects that could lift production on a national scale should they be built. On the other, the project pipeline is not moving due to permitting times, social conflict, and questions about political stability.

The government has made it a priority to improve some of the deficiencies that are holding back the project pipeline. The most important is improving the permitting times which requires streamlining many of the processes and hiring additional staff to review projects. Social conflict will remain an issue going forward and unfortunately it is not any closer to be solved. The government is walking a tightrope between supporting the industry and trying to appease local communities.

The Peruvian mining industry is going through a transformation. Technology and automation are increasingly critical components of maintaining productivity and competitiveness for Peruvian operations. There are some specific challenges that are unique to Peru, but they also provide opportunities for suppliers who can assist local mines with overcoming them.

Brownfield projects are the focus for 2024 but expect new project announcements towards the end of the year if the government can project stability, improve permitting times, and help miners reach agreements with communities.

Ax Legal is an advisory firm that works with foreign companies in Latin America. Our team of legal and commercial advisors have a distinguished track record of helping foreign technology and services companies to grow and operate in Latin America. Over the years, we have worked with starts up, mid-size businesses, and publicly listed companies. The one common factor that connects our clients is that they are leaders in their field, providing innovative technologies and services to the industrial sectors.

To better understand how we can support you in the Region, please contact Cody Mcfarlane at cmm@ax.legal