Latin Finance - April 2008 - 19

peruvian mining government’s social efforts are the obvious weak link in today’s Peru.” Wealth Trickling Down Part of the government’s plan is transferring more cash back to mining communities through a tax scheme known as the canon. The legislation requires 50% of taxes paid by miners be returned to departments where mines are located. This year the government will transfer around $2 billion. The García government also created in late 2006 a system for “voluntary” contributions that mining companies will pay annually through 2011. Payments are equal to 3% of after-tax profits. Last year they were close to $180 million and the full amount over the four-year period should be close to $800 million, according to the ministry. One plan that did not work was actually using the canon to make direct cash payments to residents. This was modeled on Alaska’s policy of transferring oil earnings – around $1,000 annually – to residents. Congress did not like the idea and voted down the bill late last year. Congress also struck down a plan that would have designated 20 mining projects as in Peru’s national interest, allowing the energy and mines ministry to speed up permitting processes. The list included several controversial projects, such as the Chinese-owned Rio Blanco in northern Piura. Residents in districts near the project voted overwhelmingly against mining. The referendum was non-binding and the government blames “communist agitators” from anti-mining nongovernmental organizations for stirring up trouble. Iván Salas, an advisor on mining to Cajamarca congressman Werner Cabrera, says the government is mistaken in viewing the problem as only economic. Many communities oppose mining because they feel cheated by the government. “Communities want longterm, sustainable development, which mining does not provide,” says Salas. terms of attractiveness in the past year. The survey included the opinions of nearly 400 mining executive worldwide. Besides a “miner-friendly attitude,” Peru boasts a competitive tax burden, easier rules regarding land ownership and a long tradition of mining, says Hallgarten’s Turner. Carlos Penny, who operates his own small Lima-based investment service, Pennynvest, sees Peru’s immense resources and mining tradition as a principal attraction. “Investment will continue, because of the country’s mineral wealth. There are some social problems, but companies are beginning to resolve these with community development projects. I think we will witness a major change in attitude in the near future,” says Penny. Growth since regulations were changed in the early 1990s is striking. Investment between 1992 and 2007 topped $24 billion, according to the national mining, petroleum and energy society, well above that in any other sector. Mineral exports were $17.3 billion last year, some 60% of Peru’s total exports and up from $3.2 billion at the start of the decade. Peru is now the world’s top producer of silver and number two in copper, surpassing the US last year with production at 1.2 million fine metric tons, according to the US Geological Society (USGS). The USGS also puts Peru second for zinc production, third in tin, fourth in lead and fifth in gold. And President García believes the country will continue climbing the ladder. “We have only scratched the surface, so to speak, in mining. There are experts who believe that only 5% of our mineral wealth has been identified,” he tells LatinFinance in a recent interview. “Copper is and will remain the number one target in Peru,” says Turner. He adds that gold, as well as other non-ferrous metals, iron – and even uranium – are other hot commodities in Peru. The central highland department of Apurímac, one of the poorest in the country with poverty close to 80%, houses iron ore deposits that could be among the largest in South America, according to Penny. One deposit, held by Australia’s Strike Resources, is estimated to rival Bolivia’s Mutún iron ore deposit. Strike estimates that the deposit holds 780 million metric tons of high-grade ore. Strike has another claim in nearby Cusco. It calculates that this deposit holds 500 million metric tons of ore. Peru has only one iron ore mine, located on the southern coast. The mine, owned by China’s Shougang, has 1.6 billion tons of proven reserves, according to the ministry. The company plans to invest $500 million through 2011 to increase production by 20 million tons annually. The USGS lists Peru as the 17th largest iron producer for 2007. Uranium Promise A new possibility is uranium, thanks to increasing demand and relatively high prices. Peru does not produce the mineral, but there are nearly 10 foreign companies, primarily from Canada, prospecting in the central and southern highlands. Most progress has been made by Canada’s Vena Resources, which has test drilled in Macusani, in the southern highlands of Puno department. Peru’s privatization agency, ProInversion, plans to promote uranium deposits and the energy and mines ministry, with the help of Canadian technical assistance, is drawing up norms for uranium mining. Legislation is expected before the end of the second quarter of 2008. Some sources, including the country’s nuclear research institute, estimate that Peru could produce around $1 billion in uranium. Congresswoman Susana Vilca from Puno has proposed a bill that would make promotion of uranium mining a national priority. The ministry says there is still no conclusive data on potential reserves, but expects results from exploration this year. “We do not have uranium projects in our investment portfolio, says minister Valdivia. “We are only in the initial stage.” LF Taking on Chile García predicts that Peru could surpass neighboring Chile as the world’s top copper producer in the next five years if new projects and planned expansions of existing mines come on line as forecast. The country’s geological institute reports that there were 8,159 requests for new mining concessions last year, up nearly 20% versus 2006. The amount of land involved topped 3.6 million hectares. More than 17 million hectares have been requested this decade. Cash Overcomes Resistance This opposition does not seem to deter investors. According to Canada’s Fraser Institute, which publishes an annual international ranking on mining, Peru jumped from the 52nd to the 28th spot in 2008 April LATINFINANCE 19

Latin Finance - April 2008

Table of Contents for the Digital Edition of Latin Finance - April 2008