FACTS & FIGURES — Peru’s growing mining sector

The mining sector of Peru now represents 11% of the country’s gross national product and more than 40% of legal exports; directly and indirectly, it supports some 10% of the population.

It is virtually certain that the privatizations — together with exploration for, and development of, new projects — will substantially increase the sector’s importance.

Formal and informal investment commitments in privatized projects total some US$3.6 billion to the year 2000, with likely investment in other projects — including expansions and announced new projects (SPCC, Yanacocha, Izquaycru, La Corona) — adding another US$500 million.

Assuming that another 50% will be developed, total investment during the next six years is likely to reach at least US$6 billion, or US$1 billion each year on average.

Most of the growth of mineral production and exports will be for gold and copper. Gold production is growing by almost 20% annually and is likely to reach a value of about US$500 million in 1994.

A considerable share of this output will be “informal” production exported “unofficially” to other countries, assuming no change is made to present legislation imposing an 18% tax (IGV) on local sales. Government and industry expect that by 2000, gold output could reach 100 tons, which, at US$400 per oz., would have an approximate value of US$1.3 billion.

Copper production will increase substantially towards the end of this century because most of the large operating mines and prospects being privatized are copper projects (Quellaveco, Cerro Verde, Tintaya, La Granja, Michiquillay, and some Centromin units), which will be supplemented by other new sources (SPCC expansion, gold-copper production from La Corona, expansion of smaller mines, etc.).

The combination of privatizations, the return of Peruvian capital and the influx of foreign capital will have a profound impact on Peru’s mining sector. All large projects will again be in foreign hands, with some of them having local minority participation. Most of the investment will be foreign equity and debt from internal cash flow or funds raised on foreign stock markets.

The traditional Peruvian “medium” mining companies, many of which form part of economic and family groups and mainly operate underground mines turning out silver, lead, zinc and/or copper, will receive little of this new investment if they fail to associate themselves with foreign investors. So far, few of the several thousand small mines (in the hands of individuals or partnerships) have not benefited substantially from the “mining boom” created by the economic, social and investment policies of the present government.

Like the larger firms, most have debts with commercial banks, government agencies, suppliers, workers and many others. But several also have personal obligations towards friends and family members. They continue to request government assistance, especially finance, as they are used to this type of funding for what often turned out to be uneconomic projects. The problem for these miners, as I see them, is not primarily financing, as they claim, but their lack of understanding of the sudden changes in the industry and the objectives of foreign investors; unrealistic expectations of immediate high down payments for little known and often small properties; virtual disregard for the need of accurate and complete information, often bordering on deceit; and frequent uncertainties over title rights because of the poor organization of the former concession system.

There is certainly an opportunity for the leadership of small miners’ associations to help their members to understand the new realities and adjust accordingly.

Peru’s mining industry is just recovering from two decades of failed policies, lost opportunities and virtual isolation from many international developments in technology, finance and management. If current policies of liberalization, privatization and political, economic and social stability continue, the mining industry’s contribution to the national economy will grow substantially by the end of this century.

— The author is helping Pacific International Trade Fair organize TECNOMIN ’95, a mining show scheduled for April 15-23, 1995, in Lima, Peru.