Peru will achieve a record of 4.7 million MT of copper in 2023, but mining revenue sinks 40%

Peru will close 2023 with an annual production of 2.7 million metric tons (MT) of copper, its historical peak for a metal that ended the year above US$3.84 per pound, but that will not be enough to maintain its place as the second largest global supplier nor replicate its previous collection levels.

Official data from the Ministry of Energy and Mines (Minem) confirm that the accumulated production of the red metal between January and November 2023 reached 2 million 499,635 MT, after recording an interannual progress of 10.9% to 253,582 MT only in the eleventh month of the year. It is 14% more than the 2 million 193,352 MT accumulated in the first 11 months of 2022and nothing suggests that in December the story will be different.

Representatives of Antamina, Las Bambas, Antapaccay and Quellaveco, some of the most important operations in the sector, confirmed to La República that their production in the last month of the year maintained the peaks of previous performance—largely due to low social conflict. Therefore, an average of between 250,000 and 300,000 MT would be recorded again, thus fulfilling the initial forecasts of the sector. Also the port of Matarani, an obligatory passage outside Cerro Verde, The BambasAntapaccay and Hudbay, once again registered its average of 400,000 MT of copper concentrates shipped in December, confirmed the general manager of Tisur, Mauricio Núñez del Prado.

“And there was no significant drop in electricity consumption in the month of December either,” highlighted César Butrón, president of the COES. In Peru, this indicator is strongly tied to mining production, which is undoubtedly heading for a new record in 2023.

Collection in crisis

However, this happy record has not had the expected impact on collections. Official data from Sunat show a -40% drop in mining contributions compared to the previous year, “due to lower regularization and lower payments on account due to the use of lower coefficients and use of favorable balances generated by the 2022 fiscal year in this year.” sector,” indicated the collecting agency.

This is the worst year-on-year drop in mining revenue since -48% in 2009, year of the great international recession (in 2015 the drop was also around -40%). But now it is Peru that is in recession, and this new decline explains, in part, the -12% drop in total revenue in 2023.

Jorge Manco, professor at UNMSM, explains that the tax refund is part of the tax benefits that the mining sector has had since 1992 with the principle of “not exporting taxes.” In this case, the miners can request 18% of the VAT of goods and services necessary for export. For this reason, the bulk of refunds are made up of VAT paid to the local market.

“Regularizations are also part of whether a lower or higher income tax has been paid, in addition to considering the benefit of carrying forward losses that allows the company to accelerate the deduction of investments at levels of 20% annually,” Manco clarifies.

In detail, mining contributed S/12,650 million to the national treasury in 2023, compared to S/19,766 million in 2022. On the other hand, the return of taxes for the companies of the sector reached its highest level since 2017 and reached S/5,967 million, 19.5% more than what was returned in 2022.

With this, in addition, it lost its first place as the economic sector that generates the most taxes for the country and was left behind wholesale trade, financial intermediation and the bulk of non-primary industry, which includes the food and beverage and textile subsectors, among others.

Víctor Gobitz, president of the National Society of Mining, Petroleum and Energy (SNMPE), associates this fall with the general decline in the prices of metals in 2023: more copper was sold in volume, but its value fell -12%. On the other hand, the peak in returns would be due to the Quellaveco factor, which was completed at the beginning of that year.

Although the sector’s revenue is subject to fluctuations in commodity prices in the global market, the president of Antamina recognizes that the best way to counteract these scenarios is by promoting formal mining, which should develop new “clusters.” in the north and south”, in addition to capturing the investments that leave Chile due to its new royalty.

Congo surpasses Peru

There is also no good news internationally, since Congo will irreparably surpass Peru as the second copper supplier from 2024. Official data from the central bank of that country show that its accumulated production until October was 2 million 369,873 MT, with an increasing monthly yield that exceeds, as in Peru, 250,000 MT.

Cochilco of Chile, a country that expects annual levels of 5.63 million MT, already announced this week that the forecast for Congo in 2023 is 2.96 million MT, above Peruvian forecasts.

In any case, the dean of the Lima Departmental Council of the College of Engineers of Peru, Roque Benavides, assures that Peru continues to be a better place than the Congo for global copper projects, an industry—unlike gold—100% formal and that guarantees decentralization and jobs.

The also president of Minas Buenaventura recognizes, in this sense, that 2024 will be a year of break for the country’s extractive policies.

“There are differences in the cost structure. On average, we have between 100 and 120 km distance between production centers and ports; in Congo it reaches 2,000 km. Here, what we have to talk about is competitiveness,” Benavides says.

X-ray: Peru loses its place on the global copper board

The portfolio of mining investment In Peru it amounts to 46 projects for more than US$53,130 million. Of that total, 25 are essentially copper. In Cajamarca alone there are six large projects for US$18,427 million.

In November, green Hill was positioned as the main producer of the red metal with a 17.3% share, followed by Antamina and Southern Perú, in second and third place, with 15.8% and 13.6%, respectively.

Recently, Minister Óscar Vera announced that MMG, operator of Las Bambas, is interested in carrying out the El Galeno project in Cajamarca, currently in the hands of Lumina Copper. However, both MMG and Lumina have China Minmetals as their parent company.

The IMF projects that The demand for lithium and copper will multiply by 6 and 1.5, respectively, by 2030. This last prediction is supported by the International Energy Agency (IEA).

A battery pack for an electric car needs about 8 kg of lithium, 35 kg of nickel and 14 kg of cobalt. Charging stations require substantial amounts of copper.

China is the main buyer of copper not only in Peru, but in the world. Between January and October 2023, 36% of Peru’s mining shipments were copper; Of that total, 72% went to the Asian giant. Japan (5.6%) and South Korea (4.2%) were very far behind.

The main mine driving copper production in the Congo since 2021 is Kamoa-Kakula, operated by Ivanhoe Mines. The underground field produced 393,551 MT last year.

In Peru there are no large mining projects on the horizon. He BCRP projects a drop in investment in this sector in the order of -14.1% in 2024. The only new projects this year are Yumpag (US$81 million), Corani (US$603 million) and Romina (US$150 million).

Reactions

Roque Benavides, dean of CIP Lima

“We have had an impact on the rise of many inputs for the industry, in addition to global inflation and oil prices. This cost structure is the one to consider.”

Jorge Manco Zaconetti, UNMSM researcher

“Refunds have been part of the sector’s profits since 1992.. Thus, with the large mines inaugurated in 2015, in 2016 the mining revenue was much lower than the taxes returned.”

Víctor Gobitz, president of SNMPE

“There are portfolios in Cajamarca and the Arequipa-Apurímac-Cusco trapezoid. Shared infrastructure clusters are needed there, since going to the coast means overcoming distances of 300 km, different from Chile.”

The autopilot policy

Approach. José de Echave, economist CooperAcción

When talking about Chile’s royalty, it is said that before they did not have a royalty, unlike Peru, and now they do. You have to compare things seriously. In the period of former minister Francke – when Contreras was vice minister – the IMF was asked to advise Minem to see if there was room to increase taxes linked to the mining. The result? That there was the possibility of some adjustments without losing competitiveness. If that was the reality in 2021, today the margin is greater, since at that time Chile did not have a royalty.

While other countries like Mexico and Colombia make reforms, we continue to manage tax policy on autopilot: income increases when there is a boom in mining, but if it falls, we return to reality. In tax pressure, in 2000 we were behind the Latam average by 3 points, today we are 7 below. We are falling further and further behind and Peru (15%) should aspire, at least, to be on average for the region (22%), not to mention the OECD countries (+30%).