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Mining in Peru enters a crucial quarter for the Government

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The last quarter 2022 receives the mining sector with two pieces of news that, from different paths, reveal a scenario still lacking in predictability, but that does not falter in the face of the fluctuation in global mineral prices.

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On the one hand, the Quellaveco mining project (large scale), in Moquegua, expects to crown its US$5.3 billion investment in construction with the delivery of its operating license, already advanced and which should be received until this month of September. But, on the other hand, Newmont announces its decision to postpone its total investment of US$2.5 billion in Yanacocha Sulphides (medium-scale) until 2024, as a result of the “deterioration of the international economy”, among other factors.

A situation that could mark a breaking point just a few weeks after the MEF launched the Peru Impulse Plan, which seeks to unlock US$53.2 billion in mining projects for the sector with measures such as the extension, for five years, of the VAT refund to exploration, a benefit that expires in December and that requires a law to be extended with a fiscal cost of S/50 million per year, in addition to proposing that at least 9% of the canon, surcharge and mining royalty resources be allocated to the communities, an injection of S/518 million per year in public investment projects for their development, in a movement welcomed by the private sector.

“It is important to continue with those good initiatives to attract mining investment, such as those recently announced by the MEF, that aim to regain confidence to invest in Peru. That message seems positive to us because we are going to work with respect for the rule of law, legal certainty, and to have solid institutions,” says Diego Ortega, vice president of Corporate Affairs at Anglo American, responsible for Quellaveco.

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In detail, mining exports amounted to US$22,207 million during the first seven months of the year, an increase of 2.7% compared to the same period in 2021 (US$21,633 million), which is in line with a development of investments that amounted to to US$439 million, 4.9% more than in the comparison period (US$419 million). We are not in a hole.

Proof of this is that exploration, with its US$226 million invested between January and July alone, advanced 39.4% compared to the same period in 2021, also driven by copper prices that until July have led to the extraction of 1.2 tons , according to the Minem.

“Another important initiative that will improve people’s quality of life, especially in rural areas, it is the unlocking of public and private investment projects. It is now about being more efficient in spending royalties and fees, reaching the most remote communities by operation”, adds Anglo American.

However, the most obvious drag until July came from Las Bambas, which at the beginning of the year saw a new de-escalation in its exportable volume due to the conflict in the southern corridor. As is known, it was only on June 11, and after 50 days of taking over the roads, that the dialogue resumed in its area of ​​influence.

The copper route

The start-up of Peru’s portfolio of 48 projects would generate an estimated tax revenue of S/43,000 million between 2025 and 2035, while between 2030 and 2040 it could generate close to S/96,000 million, that is, more of double.

Along these lines, Víctor Gobitz, president of Antamina, a company responsible for 21.1% of copper production in July, welcomes initiatives by the Executive for this new stage, such as the creation of a stabilization fund for mining transfers, in an industry that it considers “intrinsically” affected by volatility.

Open pit. Quellaveco’s operating license is in the last phase of evaluation by the mining authority. Photo: Andean

“As a concept, this fund is very positive because closing gaps is not resolved overnight. To do industry, you need to plan with long-term funds. It is about creating public management capacities: in the face of an exceptional rise in metal prices, you transfer the resources to a fund to help you manage the territory’s development portfolio in an orderly manner”, he points out.

Even though copper fell from the US$4 per pound that it reached at the peak of the post-pandemic reactivation (a fall of around 25%), its price on the international market continues to be profitable for producing countries. Thus, copper represents 55% of Peru’s mining GDP, while gold accounts for 30%.

But fears of a global contraction have yet to dissipate, and this recovery in the production and export of Peruvian minerals is not enough, since there are no large new investments in sight and most only reflect extensions on already concessioned areas, says Carlos Herrera.

In the opinion of the former Minister of minethere is a better mood among businessmen after some of the initial government slogans were left behind, such as a tax reform and renegotiation of contracts, but there is still no more behind Quellaveco.

“I think that the political effect generated a lot of confusion at the beginning, and for this reason it was preferable to do nothing. After the first year of President Castillo, there are some things that are becoming clear, such as that there will not be a radical government, but that’s not enough and we still have time to sit down and talk”, assures the engineer.

Minem resumes the post to exploit lithium in Peru

Last August, the Minem installed a working group for the exploration and exploitation of lithium in Peru. You have until this month to clarify the route regarding the extraction of this resource that is now strategic for the world.

Lithium is a key material for the manufacture, for example, of electric vehicles. In the last year alone, the prices of this mineral have risen more than 300% in the international market, which has also triggered the cost of batteries for mobility.

The largest reserves in the world are in the so-called “Lithium Triangle”, which includes Bolivia, Chile and Argentina. It is said that Peru could complete the list.

The companies with the most requests for lithium are foreign: Teck (Canada), Vale (Brazil), Anglo American and Rio Tinto (England).

Informal mining is still there

Approach. José de Echave, economist

Talking about mining and the environmental issue in this sector requires addressing at least two components that have their own characteristics: large and medium formal mining and, on the other hand, informal and openly illegal mining.

The Ombudsman’s Office reminds us that the vast majority of socio-environmental conflicts are related to mining and over the last year we have had several examples: what happened in the south of Ayacucho and the complaints of the population due to the impacts on the headwaters of several mining basins, or the zinc concentrate spill in the Chillón river, in mid-June, involving the Volcan company. In addition to the health impacts due to heavy metal contamination that occur in towns such as Espinar and Cerro de Pasco.

But one cannot fail to mention the advance of informal and illegal mining, which is one of the sources of deforestation in the Amazon and contamination of water sources. This activity today has a greater influence on politics, which is expressed in regulations that have been approved with the support of both the Legislative and the Executive and that are a clear setback: the last day of 2021, despite the opposition of the Ministry of the Environment, President Castillo promulgated Law 31338, previously approved in Congress and which extends the formalization term until 2024. If the trend continues, the environmental and social impacts and the violence that accompanies this activity will continue to multiply.

The numbers

  • S/10 billion were delivered in transfers until August, according to the Minem.
  • 8.4% is the growth for mining that the BCR expects in 2023, with Quellaveco, Cuajone and Las Bambas as protagonists.
  • Puno has 662 mining applications in 2022, as a result of the interest in lithium that has made the region the most requested in the country, according to Ingemmet.

Infographic – The Republic

Source: Larepublica

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