Copper: new record prices do not guarantee more investment

This week, the international price of copper, Peru’s main export metal, broke the barrier of US$4.50 per pound, and returned to historical levels that it had not reached since 2022. However, this scenario does not guarantee greater investments local level, due to factors outside the activity itself that cloud its development and prospection.

Discounting the price factor, the year started badly for the sector. Peru lost its second place as a global copper supplier in 2023, after being displaced by Congo. Even so, it remains above the level of exports, and has a pending portfolio with which it could double its production and threaten Chile’s global primacy. And here comes the other big problem, investments.

A week ago, the risk rating agency S&P Global Ratings lowered Peru’s grade to BBB-, the minimum scale before considering our economy outside of any investment range. But this time political uncertainty was the protagonist of the degradation, and not social upheaval, as in previous years.

For Eduardo Recoba, chief economist for Latin America and Spain at iFOREX LATAM, it is not very useful to record an international upward price cycle, with gold that is above US$2,300 per ounce, or copper that is above US $4.40 a pound, “when you don’t have projects, that is, solid mining investments that are underway.”

In that sense, he stressed that what does “draw the field” are projects in the engineering stage, with EIA advancing, or in the process of social license. “As long as there is not that, prices will follow the path they have to follow,” she questioned.

The crown jewels

Currently, Peru’s copper portfolio is made up of 48 mining owners. Only projects associated with the red metal occupy 40% of the exploration portfolio, with an investment that exceeds US$254 million. But, if we talk about investment itself, the amounts reach US$39,795 million at this time, four fifths of all pending mining capacity, which amounts to US$54,556 million, including gold extraction, for example. Copper is king.

The Ministry of Energy and Mines (Minem) has set the high bar to move forward with the Conga projects, in Cajamarca, and Tía María, in Arequipa. Both operations are key for the sector, but not because of the supply they can add to the country’s mineral supply, but rather because of the message of openness to the investments they entail.

His Economy and Finance counterpart, José Arista, has assured that the talks in Arequipa are very advanced and only require the final support of the population of Valle del Tambo. Southern’s investment, which must build a dam as soon as it resumes operations, amounts to more than US$1.4 billion, even larger than the first stage of the Chancay megaport.

However, for Carlos Herrera Descalzi, former head of Minem, the conflicts around both projects have gone on for too long, and he questions that their unblocking “cannot be done by putting the spotlight on them.” Recently, Premier Gustavo Adrianzén also arrived in Arequipa to say that the Southern mine must be of “common interest for the communities.”

“Geologically, Peru is very rich and has infrastructure and a mining culture recognized throughout the world. But, without political stability, it is difficult for investments to return,” acknowledges the specialist.

Herrera explains that, if Peru loses its grade, it will no longer invest in more global extractive projects, “unless the profitability is higher.” Otherwise, they could turn towards Chile or Colombia.

“In the mining sector, many times they do not finance projects with debt, but with their own capital. Peru’s problem is that it needs to generate more profitability, it is not that transnationals are going to be denied capital in the international market, but that the capital itself will demand a higher return if it loses its investment grade,” he clarifies.

And it will continue to rise

For Goldman Sachs, the price of a ton of copper will average US$12,000 at the end of 2024, despite previously not giving it more than US$10,000. In 2025, it expects it to shoot above US$15,000, the highest ratios in its entire history.

Not in vain Anglo American, which operates Quellaveco in Moquegua, recently rejected the offer of US$38.8 billion for all of its shares offered by its rival BHP, considering that the economic proposal was “opportunistic” and “significantly diluted the value of its shares.” papers in the stock market.” Now, the fight for the purchase is led by Glencore, which operates the Antapaccay mine in our country.

For Miguel Cardozo, CEO of Alturas Minerals Corp, the contributions of S/16,089 generated by mining in 2023 (-31.8% than in 2022) will not generate enough “appetite” among copper investors this year due to bureaucratic obstacles that , he acknowledges, Minem tries to overcome.

The specialist points out that the high prices of the red metal will still be present for the next seven or eight years, a quite auspicious situation for the local market if we take into account that the price of electricity in Peru is competitive for the region.

“Permits should take six months, but they take four years. It is a problem when negative administrative silence is applied: the authority does not respond, no matter how much time passes, and approval is never given,” he points out.

Minem advances in unlocking future investments

Recently, Minem announced that mines will be able to exceed their daily installed capacity by 10% without requiring new permits.

New changes have also been established in the EIA process, to expedite cases in which an opinion provider (ANA, Serfor, etc.) is late in issuing their technical opinion.

China receives 73% of Peru’s copper shipments, in addition to being the parent company of some of the main operations, such as Las Bambas (MMG) and Toromocho (Chinalco). The US barely concentrates 3%.

The MEF expects that high copper prices, as well as the recovery of other sectors, such as fishing, will allow GDP development to reach 3.1% in 2024.

Fiscal deterioration despite high prices

Approach. Epifanio Baca, Citizen Proposal Group

Faced with this favorable context for our minerals, there are no large-scale projects on the way, and it is clear to me that this strong political crisis, added to the tremendous disapproval of the Executive and Legislative, sends a signal of distrust for investors. These investments would have to be moving at a greater speed.

It is unfortunate that, having such a good international context for minerals, investments actually move very little, and I do not think that will change substantially.

With the price of gold above US$2,000, the activity is super profitable, and that explains the brutal growth of informal mining throughout the country. Copper is above US$4, a price at which miners are making extraordinary profits without the slightest doubt. The approach made by Pedro Francke from the MEF was quite reasonable, because it was not an additional tax, but rather an adjustment to the special tax on mining and/or royalties. With this, they were not even going to get more than half a point of GDP as income, but it was a measure for them to share a little of the extraordinary profits they were having. This was rejected.

Today the path is reversed. Congress is expanding tax exemptions as they did for exporters, such as their contribution to social security. Ángel Manero (head of Midagri) has said that he is going to propose exemptions for agro-exporters. That is to say, despite the situation of good prices, everything points to the deterioration of tax revenues.