EMIS Insights Industry Report

PERU MINING SECTOR 2019/2020

An EMIS Insights Industry Report

BCRP Central Reserve Bank of Peru

COCHILCO Chilean Copper Commission

GVA Gross Value Added

INEI National Institute of Statistics and Informatics

MINEM Ministry of Energy and Mines

Peruvian Agency for Environmental Assessment and OEFA Enforcement

PROINVERSION Private Investment Promotion Agency

SMV Superintendence of Securities Markets

SNMPE National Society of Mining, Oil and Energy

National Superintendence of Customs and Tax SUNAT Administration

USGS United States Geological Survey

Any redistribution of this information is strictly prohibited. Copyright © 2019 EMIS, all rights reserved. CONTENTS M&A Activity 2017 Activity M&A M&A Top Silver Molybdenum & Mine Competition Zinc Lead & Mine Competition MineCopper Gold & Competition Market Shares Highlights Timeline Peru Mining COMPETITIVE 03 LANDSCAPE Focus Employment Focus Main Investment Projects Foreign Direct Imports Exports External Trade PositioningGlobal Production Sector Competitiveness Main Sector Indicators IndicatorsMain Economic 02 Restraining Forces Driving Forces Subsector Sector Outlook Sector Snapshot Sector Overview Sector in 01EXECUTIVE SECTOR Point Point Point Numbers Numbers Deals Outlook – – Employment by Region Investment by Region Investment IN - 2018 FOCUS SUMMARY p.14 p.31 p.5 CONTENTS N N Main Events Highlights 07NON PointFocus PointFocus PointFocus M M Main Events Highlights MINERALS 06METALLIC AND FUEL Government Policy REGULATORY 05 ENVIRONMENT Shougang Minsur Nexa Compania Southern Peru Copper Corporation 04COMPANIES IN on-Metallic Min on e e tallic andF tallic andFuelMineral - Metallic MineralsReser Resources Peru SAA SA Hierro MinasDe Buenaventura SAA - – – – METALLICMINERALS u Zinc Zinc Copper Production ProductionGold el MineralsPr erals Product Peru SAA Production s R FOCUS ves e oduction serves i on p.40 p.66 p.55 p.51 PERU MINING SECTOR 2019/2020 An EMIS Insights Industry Report CONTENTS

01 EXECUTIVE SUMMARY

Sector in Numbers

nd 7.1% 2 19.6% CAGR Largest Global Mine Producer of Silver, Share of Global Metallic Minerals Copper & Zinc Silver Reserves Mining GVA 2013-2018

14th 2.43mn 1.47mn Position tonnes tonnes Fraser’s Investment Copper Mine Zinc Mine Attractiveness Production Production Index

USD 6.2% 201,547 3,934mn CAGR Number of Investment by Copper Mine Employees Foreign Mining Production Companies 2019-2026

Note: Data for 2018. Source: USGS, MINEM, INEI, Fraser Institute, BMI Research, BCRP

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Sector Overview

Peru is one of the leading global players in the production of metallic minerals. In 2018, the country ranked second in the world in terms of mine output of silver, copper and zinc, with global shares of 15.2%, 11.6% and 11.3%, respectively. Moreover, it was third-biggest lead producer (with a 6.6% share), and the fourth-largest molybdenum and tin producer (with shares of 9.3% and 6.0%). In the period 2013-2018, the sector was affected by volatility in international metal commodity prices, which limited revenue growth from mining exports to a 3.4% CAGR, while export volume rose at a significantly higher average annual rate of 4.5%, and domestic output’s performance was strongest of all – it increased at a CAGR of 6.4%.

Entry Modes The level of competition in the mining sector ranges from extreme concentration (with one or two relevant players) in the case of iron and tin; through a low level of competition in non-metallic minerals and a medium level in copper, silver and zinc; to a high level of competition in gold and lead. In 2018, domestic and foreign companies were very active in forming joint ventures for greenfield and brownfield projects, in order to secure adequate financing. A key example was the partnership between Chilean business conglomerate Copec and domestic miner Minsur for the joint development of the Mina Justa greenfield copper project, signed in April 2018. In the case of brownfield investment, in June 2018, US miner Newmont and its Peruvian partner Buenaventura sold a 5% stake in their Yanacocha gold mine to Japan’s Sumitomo in a USD 48mn deal, as the latter is particularly interested in co-developing Yanacocha Sulfuros, a mixed copper-gold project.

Segment Opportunities Peru enjoys competitive advantages in the production of several metallic minerals, thanks to abundant proven and probable reserves and low labour costs. In 2018, the country had the world’s largest silver reserves (110,000 tonnes of fine silver or 19.6% of global reserves); its third-biggest reserves of copper (83mn tonnes, 10.0%), zinc (21mn tonnes, 9.1%), and molybdenum (2.4mn tonnes, 14.1%); and its fifth-biggest lead reserves (6mn tonnes of fine lead, or a 7.2% share). In the case of non-metallic minerals, Peru’s reserves are rather limited and production is mainly focused on supplying domestic demand. In 2018, huge lithium resources, amounting to around 4.71mn tonnes, were discovered on the Macusani plateau (Puno). However, as noted below, regulatory issues mean that their exploitation is still a matter of dispute.

Government Policy Given the importance of the mining sector for Peru’s economy, the government is generally reckoned to look favourably on most mining segments. However, the lack of a regulatory framework for the handling and transportation of radioactive material has the potential to stop – or at least significantly postpone – the development of Peru’s large lithium-uranium resources, discovered in 2018 on the Macusani plateau in Puno region.

Source: MINEM, INEI, USGS, UN Comtrade, El Comercio, Diario Gestion

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Sector Snapshot Peru Mining Sector

PRODUCTION

Production Value: Production Volume: USD 36,164mn 75.8mn tonnes Metallic and Fuel Metallic and Fuel Minerals: 31,122 USD mn Minerals: 14.0mn tonnes Non-Metallic Minerals: Non-Metallic Minerals: EXPORTS 5,042 USD mn 61.8mn tonnes USD 28,823mn* Export Value 19.2mn tonnes* Export Volume

DOMESTIC MARKET**

Copper Ore: USD 14,925mn USD 7,588mn Gold Ore: USD 8,239mn Domestic Market Value Zinc & Lead Ore: USD 4,093mn 44.4mn tonnes Others: USD 1,566mn Domestic Market Volume

IMPORTS** USD 160.95mn KEY PLAYERS REVENUES Import Value 1. Minera Cerro Verde: USD 3,054mn 0.57mn tonnes 2. Southern Peru Copper: USD 2,572mn Import Volume 3. Buenaventura: USD 1,167 mn 4. Nexa Peru: USD 828mn 5. Volcan: USD 775mn Coal: USD 62.0mn Copper Ore: USD 36.9mn Others: USD 62.0mn Npte: Data for 2018. * Data excludes coal exports. ** Note: Data corresponds to 2017.

Source: MINEM, USGS, UN Comtrade, SMV, Company Data

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Sector Snapshot Peru Mining Sector

In 2018, the production of Peru’s mining sector amounted to USD 36.2bn (4.5% up y/y) and 75.8mn tonnes of minerals (25.6% up y/y). The majority of domestic production was destined for foreign markets, consolidating the country’s position as a leading global supplier of several metallic mineral products, including copper, silver, zinc, tin, lead and gold. In 2018, mining exports stood at USD 28.8bn (6.0% up y/y), accounting for 79.7% of domestic production value, with the bulk of external sales comprising copper ores and concentrates (USD 14.9bn), gold ores and concentrates (USD 8.2bn), and zinc & lead ores and concentrates (USD 4.1bn).

In 2018, the mining sector employed 201,547 people, of whom 32.9% were employed directly by mining companies, and the rest by contractors. In 2018, Arequipa was the leading region in terms of mining employment (with a 15% share), thanks the variety of minerals explored and extracted there. In that year, Arequipa was the biggest copper and molybdenum producer, the third-largest gold producer, the fifth-biggest lead producer, the sixth-largest silver producer and the seventh-biggest zinc producer among the 25 regions of the country. Junin region ranked second in terms of employment, with a 9.5% share, due to its role as Peru’s leading producer of non-metallic minerals (mostly calcium carbonates). In addition, Junin was the largest silver producer, the second-biggest zinc producer, the third-biggest lead producer, and the fifth-largest producer of copper.

In 2018, the companies operating in Peru’s mining sector made investments worth USD 4.95bn (up 0.5% y/y). Of these, 79.5% came from foreign companies with mining operations in the country, with the remaining 20.5% coming from domestic players. Plant equipment accounted for the bulk of funds, with a share of 28.5% in total investments, followed by infrastructure works (21.9%), preparation of terrain (15.4%), mining equipment (13.3%), and exploration (8.3%), while the remaining 12.6% was used for various other purposes. In 2018, Southern Peru Copper Corporation (SPCC), a subsidiary of Grupo Mexico, was the largest investor, with USD 614.8mn, followed by Anglo American Quellaveco SA, a joint venture between British miner Anglo American Plc and Japan’s Mitsubishi, with USD 510.0mn.

In 2017, the last year for which data is available, mining sector imports in value terms were negligible compared to exports, reaching just USD 160.9mn, as Peru is self-sufficient in most minerals. The main import product for the year was coal (USD 62.0mn or 38.5%), which is mostly used for electric power generation. According to EMIS Insights estimates, the domestic metallic and non-metallic minerals market had a size of USD 7.6bn in value terms and 44.3mn tonnes in volume in 2017 .Two minerals had a combined share of 61.9% of the domestic market in terms of value: calcium carbonates (37.1%) and zinc (24.8%). Zinc is used for the production of galvanised steel and copper-zinc alloys (by Peruvian companies Tecnofil SA, Corporacion Aceros Arequipa SA and Empresa Siderurgica del Peru SAA). Calcium carbonates are used as key inputs for the Peruvian copper, gold & iron ore mining and processing industries.

Source: MINEM, BCRP, INEI, UN Comtrade

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Sector Outlook

Comments Both the short-term and the medium-term outlooks for the mining sector are largely positive, as the main metallic minerals exploited in Peru are expected to register positive growth in production volume over the years 2019-2028. In the shorter term, from 2019 to 2021, the output increase will be mostly due to improvement in production at already existing operations, due to better ore-grades, cost optimisations and other factors. The main existing operations to drive growth during that period include the Lagunas Norte and Santa Maria mines in the case of gold, the Antamima mine in that of zinc, and San Gabriel in that of tin. In addition, a particularly strong pipeline of projects is set to be the main expansion factor in the 2022-2023 period, as 13 mining projects currently under development, with a combined investment value of USD 17.6bn, are all expected to start operations during that short period. The top five projects set to start commercial production in 2022-2023 are mostly concentrated in the copper, gold, molybdenum and iron segments. They include: British miner Anglo American’s Quellaveco copper project (USD 5.3bn); Mexican-controlled miner SPCC’s Los Canchas copper-molybdenum project (USD 2.8bn); Chinese miner Jinzhao’s Pampa del Pongo iron ore project (USD 2.2bn); Yanacocha’s copper-gold Yanacocha Sulfuros project (USD 2.1bn); and Canadian miner Teck’s Zafranal copper-gold project (USD 1.1bn). On the other hand, Peru in increasingly likely to add new segments to its mining production profile, like lithium and uranium, as recent exploratory efforts in the Macusani plateau, Puno region, have yielded impressive results, although special legislation is needed before these new resources can be exploited.

Main Indicators Forecast

2019f 2020f 2021f 2022f 2023f

Copper Mine Production, y/y change, % 5.0 6.0 8.0 6.0 5.0

Gold Mine Production, y/y change, % 1.5 1.5 1.0 1.0 1.5

Lead Mine Production, y/y change, % 2.0 3.0 3.0 3.0 3.0

Silver Mine Production, y/y change, % 2.0 2.0 3.0 2.0 2.5

Tin Mine Production, y/y change, % 5.0 15.0 1.5 1.0 1.0

Zinc Mine Production, y/y change, % 3.0 2.0 3.0 4.0 3.5

Source: BMI Research – Peru Mining Q2 2019 report, MINEM, Company Data

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Subsector Outlook

Copper, Gold and Silver According to BMI Research, copper production is set to expand strongly over the next few years, rising at a CAGR of 4.5% between 2019 and 2028. The main driver of this will be a strong project pipeline, mostly explained by the very aggressive expansion plans of SPCC, the Mexican-controlled copper giant. SPCC has three large copper projects in development (Tia Maria, Los Chancas and Michiquillay), all expected to be operational in 2025 or earlier: their combined cost is predicted to be USD 6.7bn and their combined output 475,000 tonnes of fine copper per year. Medium-sized domestic miners will also contribute to copper output growth: for instance Minera Centauro and Anubia have one project each, with a combined output of around 40,000 tonnes per year of fine copper, which are both expected to start production in 2023. Gold production prospects are good and output is expected to increase in volume at a CAGR of 2.2% over the same period. However, gold output growth in the first part of the forecast period (2019-2022) will be relatively weak, as the majority of projects expected to enter into operation during that period – notably Barrick’s Lagunas Norte life extension project and Yanacocha’s Quecher Main – will add only limited net production. At the same time, gold output growth will accelerate from 2023 onwards, as several greenfield projects (for instance, Buenaventura’s San Gabriel and Teck’s Zafranal) are scheduled to enter in production. Finally, silver production is expected to expand at a CAGR of 2% over 2019-2028, driven by low production costs, but restrained by relatively weak international silver prices, which will prompt some players to close down mature operations. For example, in February 2019, the UK;s Hochschild Mining suspended operations indefinitely at its Arcata mine, located in Arequipa, mostly due to the price factor. Zinc, Lead, Tin Over 2019-2028, lead production is forecast to rise at a CAGR of 2.7%, according to BMI Research’s estimates, as two large polymetallic projects with significant lead resources are due to enter production in 2022 (i.e. Canada’s Bear Creek Mining Corani project, located in Puno region, and Korea Zinc Company’s Pachapaqui expansion project, located in Ancash region). At the same time, tin production is expected to increase at an average of 2.5% per year over the 2019-2028 period. The only relevant tin producer, Minsur SA – controlled by domestic business group Breca – is due to complete its B2 expansion project by the end of 2019. When operational, B2 will increase the annual fine tin production capacity of Minsur’s San Rafael mine by 5,000 tonnes (on top of the current 20,000 tonnes) during a nine-year period. However, there are as yet no other tin projects in the pipeline, although exploratory efforts by Canadian miner Tinka Resources at its Ayawilca deposits, in Pasco region, were completed in November 2018 with better than expected results, sparking interest about a potential tin-zinc mine project in the area. Finally, zinc production is expected to surge at a CAGR of 2.9% over the 2019-2028, as large active projects such as the Antamina mine, controlled by a consortium led by Glencore and BHP Billiton, is expected to face better ore-grade prospects in the short term. In the longer term, however, the zinc outlook is more uncertain: there is a large pipeline of mining projects with zinc as their main mineral product (e.g. Accha y Yanque, Canon Florida, El Padrino and Hilarion), with a combined investment value of USD 1.1bn, but none of them projects has a defined construction date.

Source: BMI Research, EMIS Insights, BNamericas, Diario Correo, El Comercio

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Driving Forces

Despite the sharp fluctuations in mineral prices between 2013 and 2018, the production volume of Peruvian minerals registered robust growth, supported by a strong pipeline of projects for the copper, zinc, gold and molybdenum segments. Peru’s strong competitive advantages include abundant reserves of metallic minerals and – at least until recently – relatively low labour costs and favourable government policy, and these attracted a total investment of USD 40.2bn by mining companies during the years 2013-2018. Of this total, 79% came from companies controlled by foreign capital. The continued positive trend of metallic minerals prices during 2018, and the rebound of the global oil and gas industry, have further increased the attractiveness of the sector, and offer significant opportunities, particularly for the copper and molybdenum segments.

External The main external driver for Peru’s mining sector in 2018 was the continued recovery of international metal prices. Copper, gold and zinc – Peru’s three most significant metallic minerals in terms of 2018 production value – all registered moderate price increases during the year, while the price of molybdenum (the fifth most significant), surged by a staggering 45.5% y/y, propelled by strong demand from the global oil and gas industry. On the other hand, labour productivity continues to be a growth factor: in 2013-2018, the number of employed people in the domestic mining sector rose on average 1.9% per year, while mining production volume expanded at a strong CAGR of 6.4%. Finally, the El Nino Costero – or “Coastal Nino” – climate phenomenon, which had caused disruptions to mining operations in northern Peru in 2016 and 2017, was absent in 2018, which allowed the swift recovery of operations such as Miski Mayo’s phosphate rock mine, based in the Piura region.

Internal In 2018, iron ore production expanded significantly, by 8.3% y/y, mostly driven by the performance of Minera Shouxin Peru. The mine, which entered in its second year of operations in 2018, continued to ramp up production and tripled its total iron output in comparison to 2017. In terms of mineral reserves, in 2018, the main exploration efforts were mostly concentrated in precious metals (i.e. gold and silver). For this reason, these minerals registered the largest increases in reserves in 2018 – 18.3% y/y in the case of silver, 13.0% y/y in that of gold. Of the top ten investors in exploration work during 2018, four were pure gold mining operations (Minera Poderosa, Consorcio Minero Horizonte, Minera Coimolache, and Minera Aurifera Retamas), while five of the other six were polymetallic miners with either gold or silver as part of the product portfolio. Finally, in terms of production capacity, several major expansion projects – such as SPCC’s Toquepala copper mine and Shougang Hierro Peru’s Marcona iron ore mine – have been recently been completed and are now in their trial phase. This will result in significant increases in the output of both minerals in the first half of 2019.

Source: MINEM, USGS, BNamericas

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Restraining Forces

Various factors act as restraints on the sector’s development. The government, previously a purely positive agent, has recently become a negative force due to the rising regulatory burden associated with mining activities. Moreover, in 2018 and early 2019, a number of labour conflicts at large mining operations have intensified – especially conflicts with workers employed indirectly, through mining contractors. In addition, the performance of some segments, including lead, silver and gold, has been affected by steep declines in ore grades at some of the largest projects, while newly discovered reserves of lithium, a mineral much in demand on the global market, are not immediately exploitable because they have been discovered mixed with deposits of uranium, a radioactive mineral for which Peru at present lacks mining legislation.

External Recent developments in government policy are acting as a restraint on the performance of the mining sector. Several industry experts, including Pablo de la Flor – CEO of the National Society of Mining, Oil and Energy (SNMPE) – and Renzo Rossini, president of BCRP, stated publicly in 2018 that the regulatory burden on Peru’s mining sector had increased substantially in recent years, and was starting to become an issue for investment projects, especially in respect of exploration. Moreover, in 2018 and early 2019, the Peruvian Agency for Environmental Assessment and Enforcement (OEFA) tightened its monitoring of mining operations, particularly of gold, silver and iron miners, ordering the permanent closure or temporary stoppage of several operations. Furthermore, the relatively poor handling by the government of the road blockade that affected the Las Bambas mine in early 2019 has raised concerns, as the conflict was indirectly triggered by a series of Ministry of Transport resolutions on cargo transportation rules for certain roads connecting the mine to ports. Las Bambas’ most recent standoff with indigenous communities, which began in mid-2018, swiftly escalated and peaked in early 2019, with a direct impact on the mine’s operations.

Internal During 2018, Peru’s volume output of key metallic minerals, such as copper, lead, silver and gold, declined as a result of internal factors. On the one hand, copper production, despite a solid portfolio of projects steadily entering operation, registered its first y/y decline in volume since 2011, largely as a result of geotechnical problems at the Las Bambas mine. Wall instabilities identified at the mine restricted access to certain parts of the pit, thus causing a 14.93% y/y contraction in output. Similarly, gold production at two large gold mines in Peru (Barrick’s Misquichilca and Buenaventura’s Orcopampa), declined abruptly during the year due to deteriorating grades. In the cases of lead and silver, the main restraining factor was also declining grades, with the issue largely associated with Minera Antamina’s operational switch to more zinc-rich deposits, to the detriment of lead and silver.

Source: SNMPE, BCRP, MINEM, Diario Gestion

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02 SECTOR IN FOCUS

Main Economic Indicators

2013 2014 2015 2016 2017 2018

Total Population, mn, year-end 30.5 30.8 31.2 31.5 31.8 32.2

GDP, current prices, PEN bn 544 571 604 648 687 730

GDP, constant prices, y/y change, % 5.9 2.4 3.3 4.0 2.5 4.0

GDP per Capita, current prices, USD 6,404 6,253 5,734 6,058 6,650 6,733

Consumer Price Index, year-end, y/y change, % 3.1 3.2 4.1 3.3 1.5 2.5

Monetary Policy Rate, year-end, % 4.0 3.5 3.8 4.3 3.3 2.8

Exchange Rate USD/PEN, year-end 2.8 3.0 3.4 3.4 3.2 3.4

Mining Sector Trade Balance, USD mn 23,632.1 20,348.4 18,918.4 21,682.1 27,024.8 n/a

Mining Sector Exports, USD mn 23,806.1 20,571.1 18,975.7 21,787.6 27,185.8 28,823.5*

Mining Sector Exports, % of total 55.9 53.5 57.1 60.5 61.5 n/a

Mining Sector Imports, USD mn 174.1 222.8 57.4 105.5 160.9 n/a

Mining Sector Imports, % of total 0.4 0.5 0.2 0.3 0.4 n/a

Investment by Foreign Companies in Mining Sector, USD mn 7,673.3 7,273.4 6,275.7 3,088.2 3,564.9 3,934.1

Share of Foreign Companies in Total Mining Investment, % 78.9 82.0 83.4 72.6 72.4 79.5

* Note: Data for 2018 excludes coal exports Source: INEI, BCRP, World Bank, OANDA, UN Comtrade, MINEM, CEIC

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Main Sector Indicators

2013 2014 2015 2016 2017 2018

Metallic Minerals Mining Gross Value Added, constant prices, PEN mn 35.5 34.7 40.2 48.7 50.8 50.1

Metallic Minerals Mining Gross Value Added, constant prices, % change 4.3 -2.2 15.7 21.2 4.5 -1.5

Metallic Minerals Mining Gross Value Added, share of GDP 7.8 7.4 8.3 9.7 9.9 9.4

Total Investment in Mining, USD mn 9,723.8 8,872.8 7,525.3 4,252.2 4,921.4 4,947.4

Copper 2P Reserves, thou tonnes 70,000 68,000 82,000 81,000 81,000 83,000

Gold 2P Reserves, tonnes 1,900 2,100 2,800 2,400 2,300 2,600

Zinc 2P Reserves, thou tonnes 24,000 29,000 25,000 25,000 28,000 21,000

Silver 2P Reserves, thou tonnes 87 99 120 120 93 110

Lead 2P Reserves, thou tonnes 7,500 7,000 6,700 6,300 6,000 6,000

Tin 2P Reserves, thou tonnes 91 80 130 100 105 110

Metallic and Fuel Minerals Prodution, thou tonnes 9,908 10,436 11,055 11,986 13,384 14,002

Non-Metallic Minerals Prodution, thou tonnes 45,875 51,282 55,615 47,387 47,013 61,839

Mining Production, thou tonnes 55,783 61,718 66,669 59,373 60,397 75,841

Number of Employees in Mining Sector, year-end 183,251 174,213 183,952 171,981 189,962 201,547

Share of Contractors in Total Mining Employment, % 55.5 53.5 59.4 56.1 65.4 67.1

Source: BCRP, INEI, MINEM, USGS

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Sector Competitiveness

Comments Investment Attractiveness Index*

The Fraser Institute’s Survey of Mining Companies is an annual publication on the investment 81.6 attractiveness of the mining industry in different 75.4 73.5 74.3 69.9 69.3 countries. In 2018, Peru ranked 14th out of 83 jurisdictions, emerging as the second most 57.9 56.0 51.8 50.7 51.1 52.0 attractive country for investors in the mining sector in Latin America, only behind Chile, which ranked 6th. In 2018, Peru ranked particularly well in terms of the Best Practices Mineral Potential Index (8th of 83), due to its abundant metallic minerals resources and reserves. However, it was only a mid-ranking country in terms of the Policy 2013 2014 2015 2016 2017 2018 Perception Index (37th of 83). Peru Average Latin America

Best Practices Mineral Potential Index* Policy Perception Index*

82.81 79.7 80.36 76.09 77.78 72.90 68.4 69.5 69.0 70.90 65.3 66.8 58.3 60.75 54.2 54.0 54.49 53.1 53.2 50.96 52.65 50.63 47.8 48.99

2013 2014 2015 2016 2017 2018 2013 2014 2015 2016 2017 2018

Peru Average Latin America Peru Average Latin America

* Higher index corresponds to improved competitiveness

Source: Fraser Institute, BNamericas

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Production

Comments Metallic Minerals Production, thou tonnes

Peru’s total mining output volume grew by 25.6% y/y in 2018, to 75.8mn tonnes. The main 13,785.6 contributors to the rise among metallic minerals 13,082.4 were iron and tin, whose output rose by 8.3% y/y 11,717.6 10,802.8 10,207.0 and 4.6% y/y, respectively. In the case of iron ore, 9,719.5 the surge in 2018 was driven by the solid performance of the country’s main iron producer, Chinese miner Shougang Hierro Peru SAA, and also by a big surge in the output of Minera Shouxin Peru SA, as it entered its second year of operations. However, the largest contribution to total mining output volume growth was made by limestone, whose production rose by no less than 50.6% y/y, to 30.5mn tonnes. 2013 2014 2015 2016 2017 2018

Non-Metallic Minerals Production, thou Coal Production, thou tonnes tonnes

61,839 301 55,615 269 51,282 252 45,875 47,387 47,013 229 217 189

2013 2014 2015 2016 2017 2018 2013 2014 2015 2016 2017 2018

Source: MINEM, Diario Gestion, BNAmericas

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Global Positioning

Peru in Global Ranking of Mining Comments Production, 2018 In 2018, Peru managed to improve its ranking in Share in Global global metallic minerals production slightly, Product Global Ranking, 2018 Production, 2018, % compared to the previous year. In 2018, Peru was the world’s third-largest lead mine producer, rising one position and increasing its share in

Silver 2 15.4 global output from 6.5% in 2017 to 6.6% in 2018, largely thanks to a sharp decline in US lead output. In the case of tin, Peru ranked fourth, also a rise of one place, but its market share dropped Copper 2 11.6 slightly from 6.1% to 6.0% y/y, as the ranking improvement also resulted from a major tin output decline in another major producer, Brazil.

Zinc 2 11.3 However, in the case of all the other major metallic minerals that are produced in the country, Peru kept its ranking – while, in most cases, losing market share. In 2018, Peru’s silver Lead 3 6.6 output was the second-largest in the world, with a share of 15.4% of global output (down from 17.2% in 2017). In copper, Peru also ranked second, but its share of global output dropped from 12.4% in Molybdenum 4 9.3 2017 to 11.6% in 2018. As to molybdenum, Peru maintained its position (fourth globally), but its market share fell from 9.7% in 2017 to 9.3% in 2018. In the case of gold, Peru kept its global Tin 4 6.0 ranking (sixth) but market share, which dropped from 4.8% in 2017 to 4.4% in 2018).

The exception was zinc, in which Peru kept its Gold 6 4.4 second place, but slightly improved its market share from 11.2% in 2017 to 11.3% in 2018.

Source: MINEM, USGS

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External Trade

Comments Over the years 2013-2017, mining exports expanded at an average annual rate of 3.4% in value terms, while imports contracted by 1.9% on average per year over the same period. As mineral imports in Peru are very small, the sector’s trade surplus widened at virtually the same rate as exports, rising at a 3.4% CAGR, to USD 27.0bn in 2017. With the major exception of zinc, which registered a cumulative 51.7% increase in international prices from 2013 to 2017, the majority of international prices for minerals produced in Peru were either stable or significantly lower in 2017 than in 2013. Therefore, the surge in export revenues was largely due to increased volumes, which rose at a CAGR of 4.5%, reaching 16.6mn tonnes in 2017, while import volumes actually contracted by a cumulative 46.8% to around 573,000 tonnes. Copper exports performed best in terms of volume, rising at a CAGR of 16.8% over 2013-2017, to 2.61mn tonnes in 2017, supported by a strong pipeline of copper mining projects that came into operation during the period. Moreover, molybdenum was the second-best performing mineral in terms of export volume, with a 8.1% CAGR, associated with the entrance into operation of several copper-molybdenum projects such as Minera Las Bambas and Minera Chinalco. In the case of imports, a significant decline in purchases of foreign coal (which fell by a cumulative 46.8%) was the key reason for decreasing mineral import volumes – coal being the main mineral import in volume terms. However, this percentage decline may be somewhat misleading, since 2013 coal imports were unusually high.

External Trade in Mining Products, Share of Mining Products in Total USD mn Exports/Imports

27,186 60.5% 61.5% 57.1%

23,806 55.9% 53.5% 21,788 20,571 18,976

27,025 23,632 21,682 20,348 18,918 174 223 105 161 57 0.4% 0.5% 0.2% 0.3% 0.4% 2013 2014 2015 2016 2017 2013 2014 2015 2016 2017

Ex ports Imports Trade Balance Ex ports Imports

Source: MINEM, UN Comtrade, Company Data

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Exports

Comments Mining Products Exports*

In 2018, mining exports rose by 6.0% y/y in value terms, due to a combination of higher prices for 27,186 28,823 some minerals and/or higher volumes for others. 23,806

The best performing minerals in terms of export 21,788 value were molybdenum (68.5% y/y), iron (13.9% 20,571 18,976 y/y), copper (8.4% y/y) and zinc (7.9% y/y), with the last two increases entirely due to price factors. 24.78% 14.82% In terms of volume, however, the best performing 6.02% segment by far was iron, with a robust 28.7% y/y -7.76% -13.42% -13.59% increase, followed by zinc (12.4% y/y), molybdenum (up 7.6%) and gold (up 2.6%). All 2013 2014 2015 2016 2017 2018 other minerals registered contractions in export Ex port Value, USD mn, FOB y/y change volume during 2018, with one of the worst performers being lead (-8.3% y/y), restrained by output decline at Minera Antamina. Most Exported Minerals in Value Terms, Top 10 Mining Export Destinations in 2018 Value Terms, 2017

Copper 51.8% China 52.9% Gold 28.6% South Korea 10.2% Japan Zinc 8.9% 8.7% Spain 3.9% Lead 5.3% Br azil 3.7% Molybdenum 2.1% India 3.0%

Iron 1.7% Germany 3.0% Philippines 2.1% Tin 1.2% Canada 2.0% Silv er 0.4% Bulgaria 1.7% Others 0.0% Others 8.8%

* Note: Data for 2018 excludes coal exports Source: MINEM, UN Comtrade

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Imports

Comments Mining Products Imports

In 2017, the bulk of mining imports consisted of 223 coal (USD 62mn or 38.5%), brought in because domestic coal production was insufficient to 174 161 cover the needs of Peru’s electricity generation 83.8% sector. However, the gap was smaller than in 72.5% 52.6% 2016, so coal import volume fell 24.4% y/y to 105 510,207 tonnes. 28.0%

On the other hand, in 2017, 48.6% of mining 57 imports in value terms consisted of precious metal ores (i.e. gold and silver) and copper ores, -74.2% as Peru has a relatively small but active non- ferrous metal refining industry, which demands 2013 2014 2015 2016 2017 small quantities of specific ores not available on Import Value, USD mn, CIF y/y change the domestic market.

Top 10 Import Products in Value Terms, Top 10 Import Source Countries in Value 2017 Terms,* 2017

Coal 38.5% Mexico 50.3% Pr ecious Metals 34.6% Ar gentina 17.2% Copper Ores 23.0% Ec uador 7.8%

Chromium 1.3% Br azil 7.0% Chile 4.3% Aluminium 1.2% Japan 2.9% Niobium, tantalum, vanadium or zirconium 0.5% Bolivia (Plurinational State of) 2.3% Molybdenum 0.3% South Africa 1.7% Titanium 0.2% Turkey 1.5% Manganes e 0.2% China 0.9%

Other ores and concentrates. 0.1% Others 4.3%

* Metallic and non-metallic minerals, excluding coal.

Source: UN Comtrade, MINEM

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Foreign Direct Investment

Comments According to EMIS Insights estimates based on MINEM data, foreign investment in Peru’s mining sector increased 10.4% y/y in 2018 to USD 3.94bn – a much better performance than investment in the sector by domestic companies, which fell 25.3% y/y to USD 1.01bn. As a result, foreign companies’ share in total sectoral investment (USD 4.95bn) rebounded from 72.4% in 2017 to 79.5% in 2018. Investment by foreign companies in 2018 was led by SPCC and Anglo American Quellaveco SA, with respective shares of 12.4% and 10.3% in total mining investment. SPCC (Southern Peru Copper Corporation, Sucursal del Peru) is controlled by Mexican industrial conglomerate Grupo Mexico and its core investment in 2018 was in the completion of the Toquepala mine expansion project, which, when completed in Q4 2018, increased the mine’s production capacity by 100,000 tonnes of fine copper and 3,100 tonnes of fine molybdenum per year. SPCC also invested in preliminary studies in other copper and molybdenum projects that it plans to develop in the next few years, including Los Chancas (total cost USD 2.8bn, expected to begin construction in 2021), Michiquillay (USD 2.5bn, 2022), and Tia Maria (USD 1.4bn, 2019). On the other hand, Anglo American Quellaveco SA, a joint venture between British miner Anglo American PLC (60%), and Japan’s Mitsubishi Corporation (40%), started the construction of its behemoth Quellaveco copper and molybdenum project in 2018. Quellaveco, located in the Torata district of Moquegua region, is set to become one of the largest mining operations in Peru, with a production capacity of 300,000 tonnes per year of fine copper and 6,000 tonnes per year of molybdenum, once it reaches operational status in 2022. As of November 2018, according to a MINEM study on the country’s mining investment portfolio for that month, Quellaveco was the largest mining project (in terms of total cost) either in construction or in early development stages in Peru, with a CAPEX of USD 5.3bn, 8.9% the entire mining investment portfolio (valued at USD 59.1bn as of October 2018).

Investment by Foreign Companies in Share of Foreign Companies in Total Mining Sector, USD mn Mining Investment

83.4% 82.0% 7,673.3 7,273.4 78.9% 79.5% 6,275.7

3,564.9 3,934.1 3,088.2 72.6% 72.4%

2013 2014 2015 2016 2017 2018 2013 2014 2015 2016 2017 2018

Source: MINEM

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Main Investment Projects

Total Mining Investment Portfolio by Total Mining Investment Portfolio by Region, October 2018, USD MN Country of Origin, October 2018, USD MN

Cajamarca 18,200 United Kingdom 11,930 Apurimac 10,133 Moquegua 6,386 China 10,155 Ar equipa 5,357 Canada 9,038 Piur a 3,799 Junin 2,330 Mexico 8,955 Cusco 2,226 United States 7,500 Ancash 2,167 Puno 1,763 Peru 4,362 ICA 1,600 Australia 3,078 Lambayeque 1,600 Br azil Tacna 1,255 1,870 La Libertad 750 Japan 1,290 Huancavelica 706 Switz er land 840 Pasc o 400 Huanuco 250 South Korea 117 Amaz onas 214

Total Mining Investment Portfolio by Total Mining Investment Portfolio by Type, October 2018 Project Stage, October 2018

Feasability Greenfield 24.7% 88.6%

Construction 17.1%

Brownfield 11.4% Detail Engineering 8.3% Pre- Feasability 49.8%

Source: MINEM

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Main Investment Projects (cont'd)

Total Mining Investment Portfolio by Total Mining Investment Portfolio by Type of Mine, October 2018, USD mn Environmental Impact Assessment (EIA) Stage, USD mn EIA Approved Open Pit + 25,112 Open Pit Underground 49,650 5,196

EIA Under Review 6,355 Underground 2,289 EIA Not Presented Undisclosed 27,667 2,000

Total Mining Investment Portfolio by Total Mining Investment Portfolio by Start Main Mineral Product, October 2018, USD of Construction,* USD mn mn

6,412 Copper 42,196 5,457 Gold 6,858

Iron 5,100

Phosphate 2,149 3,441 2,980 Zinc 1,146

Uranium/Lithium 800

Silv er 685

Tin 200 2019 2020 2021 2022

* Excludes projects without a preliminary start date for the construction phase. Source: MINEM

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Main Investment Projects (cont'd)

Main Investment Projects in Peru’s Mining Sector to Start Construction in 2019 or Later*

Mining Country of Value, District Start End Company Estimated Production Project Origin USD mn (Region) Year Year

Copper, molybdenum. Estimated output 130,000 Southern Peru Copper Tapapyrihua Los Chancas Mexico tonnes of fine copper and 2,800 2021 2023 Corporation (Apurimac) 7,500 tonnes of fine molybdenum per year.

Copper. Estimated output Southern Peru Copper La Encanada Michiquillay Mexico 225,000 tonnes of fine copper 2,500 2022 2025 Corporation (Cajamarca) per year.

Iron. Estimated output of Pampa de Bella Union Jinzhao Mining Peru China 28.19mn tonnes of iron per 2,200 2020 2023 Pongo (Arequipa) year.

Copper, gold. Estimated output of 6.5mn ounces of Yanachocha United States, Cajamarca Minera Yanacocha fine gold per year, 1.2bn 2,100 2020 2023 Sulphurs Peru, Japan (Cajamarca) pounds of fine copper per year.

Copper, molybdenum, silver. Estimated output 337,8mn pounds of fine copper per Chalhuahuacho Haquira Minera Antares Canada 1,860 2021 2024 year, 6.7mn pounds of fine (Apurimac) molybdenum per year, and 1.19mn ounces of silver per year.

Copper. Estimated output of Southern Peru Copper Cocachacra Tia Maria Mexico 120,000 tonnes of fine copper 1,400 2019 2022 Corporation (Arequipa) per year.

Copper, gold. Estimated output of 25,000 ounces of Huancarqui Zafranal Minera Zafranal Canada, Japan fine gold per year, 75,000 1,157 2020 2023 (Arequipa) tonnes of fine copper per year.

Phosphate. Estimated output Fosfatos Fosfatos del Pacifico Peru, Japan 2.5mn tonnes of phosphate 831 Illescas (Piura) 2021 2024 Pacifico per year.

Gold. Estimated output of Lagunas Norte Quiruvilca (La Barrick Misquichilca Canada 100,000 ounces of fine gold 640 2019 2021 Optimization Libertad) per year.

* Excludes projects without a preliminary start date for the construction phase. Source: BNAmericas, Rumbo Minero, MINEM

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Main Investment Projects (cont'd)

Main Investment Projects in Peru’s Mining Sector To Start Construction in 2019 or Later *

Mining Country of Value, District Start End Company Estimated Production Project Origin USD mn (Region) Year Year

Copper. Estimated output of Coroccohuayco Minera Antapaccay Switzerland 105,000 tonnes of fine copper 590 Espinar (Cusco) 2019 2022 per year.

Copper, lead, zinc. Estimated output of 190,000 tonnes per Corani Bear Creak Mining Canada 585 Corani (Puno) 2019 2022 year combined for all three metals Copper, molybdenum, silver. Estimated output of 40,000 tonnes of fine copper per Conchucos Magistral Nexa Resources Peru Brazil year, 3,000 tonnes of fine 480 2022 2023 (Ancash) molybdenum per year, and 600,000 ounces of silver per year.

Gold. Estimated output Compania de Minas San Gabriel Peru 150,000 ounces of fine gold 431 Ichuna (Moquegua) 2021 2023 Buenaventura per year.

Copper. Estimated output Simon Bolivar Quicay 2 Minera Centauro Peru 17,280 tonnes of fine copper 400 2021 2023 (Pasco) per year.

Copper, zinc, silver, lead. Estimated output of 1.56mn ounces of Pachapaqui ICM Pachapaqui South Korea silver, 12,400 tonnes of lead, 117 Aquia (Ancash) 2019 2022 Expansion 3,850 tonnes of copper and 29,750 tonnes of zinc per year.

Gold. Estimated output of Santa Maria Minera Poderosa United States, Peru 36,000 ounces of fine gold 110 Pataz (La Libertad) 2019 2020 Expansion per year.

Copper. Estimated output of Curahuasi Anubia Anubia Peru 20,000 tonnes of fine copper 90 2021 2023 (Apurimac) per year.

* Excludes projects without a preliminary start date for the construction phase. Source: BNAmericas, Rumbo Minero, MINEM

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FOCUS POINT

Mining Investment by Region, 2018, USD mn

348.6 (7.0%) Cajamarca 252.5 (5.1%)

La Libertad 334.9 (6.8%)

Ancash

229.6 (4.6%) 176.8 (3.6%) Cusco

Pasco

220.1 (4.4%) 164.1 (3.3%) Apurimac Lima

387.8 (7.8%) Junin 678.3 818.2 (16.5%) (13.7%) Ica Moquegua 457.2 (9.2%) Arequipa 488.6 (9.9%) 390.9 (7.9%) Tacna Others

Source: MINEM

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Employment

Comments Over the years 2013-2018, the number of jobs in Peru’s mining sector expanded at a CAGR of 1.9%, outperforming the annual average of 1.5% growth in total employment. Over the period, the share of people engaged in the mining sector by contractors grew sharply, from 55.5% in 2013 to 67.1% in 2018. The strong employment growth registered in 2018 resulted from the completion of some large projects, including SPCC’s Toquepala mine expansion and Minera El Brocal’s concentration plant upgrade. In 2018 and early 2019, several large mining sector players were affected by strikes that led to production and/or export disruptions. Between October 22 and November 6, 2018, iron miner Shougang Hierro Peru was forced to halt iron exports, as around 800 unionised company workers, mostly operating in logistics, went on strike asking for wage increases. At the same time, between January 11 and January 30, 2019, domestic miner Buenaventura’s Uchucchacua mine was forced to halt mining operations completely due to a strike by contractor workers, in protest at lay-offs announced in early January. No negotiations took place between strikers and Buenaventura, as the Peruvian Ministry of Labour declared the strike illegal, and the strikers eventually ended the conflict unilaterally. However, the strike significantly affected the mine’s production targets for Q1 2019, according to Buonaventura’s estimates. Finally, between March 19 and April 12, 2019, production at the Yauricocha mine of Canandian miner Sierra Metals was completely suspended, as unionised workers went on strike in support of contractor workers who had recently been laid off. After negotiations, the strike was ended; however, no contractor workers were reinstated.

Number of Employees in Mining Sector Share of Contractors in Total Mining Employment

1.17% 1.16% 1.15% 65.4% 67.1% 59.4% 55.5% 53.5% 56.1% 1.10% 201.5 190.0 183.3 184.0 1.06% 174.2 172.0

2013 2014 2015 2016 2017 2018

Number of Employees in the Mining Sector, thou 2013 2014 2015 2016 2017 2018 Share of the Mining Sector in Total Employment

Source: MINEM, CEIC, IMF, Diario Gestion, El Comercio, America Economia

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FOCUS POINT

Mining Employment by Region, 2018, year-end persons

16,787 (8.2%) Cajamarca 16,915 (8.2%)

La Libertad 13,156 (6.4%) 9,701 (4.7%) Ancash Cusco

14,374 (7.0%) 12,255 (6.0%)

Pasco Apurimac

6,097 (3.0%) 16,079 (7.8%) Puno Lima

19,487 (9.5%) Junin 11,501 12,950 (3.5%) (5.6%) Ica Moquegua 7,141 (16.5%) 6,417 (3.1%) Ayacucho Tacna 30,753 (15.0%) 11,593 (5.6%) Others Arequipa

Source: MINEM

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03 COMPETITIVE LANDSCAPE

Timeline of 1953 Market Players Foundation of Compania de Minas Buenaventura SAA. In 2017, this will be one of the largest 100% domestically Peru Mining Sector owned mining companies in Peru.

1953 Development Milestones 1960 Market Players US-based Southern Peru Copper Corporation, one of the Peru’s first iron mine starts operations in Marcona earliest major foreign investors to enter the Peruvian mining district, Ica region. sector, begins commercial operations at the Toquepala copper mine, Tacna region.

1968 DevelopmentMarket Players Milestones The Ministry of Energy and Mines is established. 2001 Market Players The country’s leading polymetallic mine project, Minera Antamina, starts commercial operations. 2007 Market Players US-based Freeport McMoRan acquires Minera Cerro Verde, a leading copper mine. 2011 Development Milestones Market Players Changes in the regulations on taxation of mining operations: •Law 29,788 amends the calculation of mining royalties; •Law 29,789 creates the special mining tax; •Law 29,790 introduces the special levy on mining. 2014 MarketDevelopment Players Milestones

The Environmental Evaluation Online System Market Players (SEAL) is created. 2016 Minera Las Bambas, a major copper project controlled by the Chinese consortium MMG, starts operations. 2017 Development Milestones Creation of the Integral Registry of Mining Formalization (REINFO) and the Environmental Management Instrument for the Formalization of Small Miners (IGAFOM). Their 2018 Market Players goal is rapid formalisation of illegal miners, who are Large lithium resources discovered on the mostly active in the gold segment. Macusani plateau (Puno region), by Canadian miner Plateau Energy.

2018 Market Players Mexican miner SPCC completes the expansion of its Toquepala mine, creating capacity for production of an 2019 Development Milestones additional 100,000 tonnes of fine copper and 3,100 tonnes of fine molybdenum per year at the mine. Chinese-controlled iron-ore miner Shougang Hierro Peru starts commercial production at its Marcona mine; it is expected to double its iron concentrates output for 2019, compared to 2018.

Source: MINEM, Company Data

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Highlights

Overview The level of competition in Peru’s mining sector varies with segment. It ranges from a monopolistic market structure in the iron and tin segments; through low competition in molybdenum and a medium level of competition in copper, silver and zinc; to a high degree of competition in gold and lead. Most players are active in multiple segments, since Peru has an abundance of polymetallic deposits (especially zinc, lead and silver combinations). A key characteristic of the gold segment is the existence of a large group of small companies and individual miners engaged in illegal mining.

Market Structure The role of foreign capital in the Peruvian mining sector is generally large, as foreign companies play a dominant role in the production of copper, being responsible for 73.2% of its total output in 2018, as well as for 55.0% of molybdenum production and for 48.2% of zinc. At the same time, in the silver, gold and lead segments, the share of foreign companies is lower, at 35.4%, 18.6% and 26.2%, respectively, in 2018. In the case of gold, this is due to the significant presence of several medium- sized domestically owned companies specialising almost exclusively in gold-mining (e.g. Consorcio Minero Horizonte SA, Minera Aurifera Retamas SA, and Compania Minera Comoilache SA).

Main Players The leader in both the copper and molybdenum segments in 2018 was Minera Cerro Verde, a joint venture between US-based miner Freeport-McMoRan, Japan’s Sumitomo Metal Mining Company, and domestic miner Buenaventura. In 2018, Minera Cerro Verde accounted for 20.3% of total copper production and for 45% of total molybdenum output. Minera Antamina SA, a joint venture between Switzerland’s Glencore and its Australian peer BHP Billiton, is another key player in the sector. In 2018, Antamina was the leading zinc producer (32.3% of total domestic output), ranking second in silver and copper (13.1% and 18.9% respectively), and third in molybdenum (16.5%).

Market Entries In 2018, a favourite method of entry by foreign newcomers to Peru’s mining sector has been via joint ventures with already established players in the domestic market. In April 2018, Chilean business conglomerate Copec partnered with domestic miner Minsur in order for both companies to jointly develop the Mina Justa copper project, with Copec acquiring a 40% stake in Mina Justa in a USD 168.5mn deal. In a case of brownfield investment, in June 2018, US miner Newmont and its Peruvian partner Buenaventura sold a 5% stake in their Yanacocha gold mine to Japan’s Sumitomo in a USD 48mn deal, as the latter is particularly interested in co-developing Yanacocha Sulfuros, a mixed copper-gold project.

Source: Mining, El Comercio, America Economia

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Market Shares

Top 10 Mining Companies in Peru by Net Revenues, 2018

Net Revenues, 2018, Share of Sector Ranking Company Country of Origin Mining Segment USD bn Revenues

Soc Mra Cerro Verde 1 United States, Peru 3,054.0 8.4% Copper, Molybdenum SAA

Southern Peru Copper 2 Mexico 2,572.2 7.1% Copper, Molybdenum Corporation

Compania De Minas Gold, Silver, Lead, Zinc, 3 Peru 1,167.4 3.2% Buenaventura SAA Copper

Nexa Resources Peru 4 Brazil 827.5 2.3% Copper, Lead, Zinc, Silver SAA

Volcan Compania Minera 5 Switzerland, Peru 775.1 2.1% Copper, Lead, Zinc, Silver SAA

6 Minsur SA Peru 693.8 1.9% Tin, Gold

Shougang Hierro Peru 7 China 421.3 1.2% Iron SAA

Compañía Minera 8 United States, Peru 357.9 1.0% Gold Poderosa SA

Sociedad Minera El 9 Peru 332.3 0.9% Copper, Lead, Zinc, Silver Brocal SAA

Sociedad Minera Corona 10 Canada 168.7 0.5% Copper, Lead, Zinc, Silver SA

Others 25,793.6 71.3%

Total Mining Sector 36,163.8 100.0%

Source: SMV, Company Data

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Copper & Gold Mine Competition

Comments The copper segment features a medium level of competition, being marked by the presence of private companies of both Peruvian and foreign origin. In 2018, the ten largest copper mines in Peru had a combined share of 95.5% in total copper mine output. Of these ten, only one was under the control of a 100% domestic company, namely, Buenaventura’s Minera El Brocal, which accounted for 1.9% of total production. In addition, there were eight mining operations entirely controlled by foreign capital (with a combined share of 73.2% share in total production). The remaining company is also the largest player in the segment, Minera Cerro Verde, which is of mixed Peruvian and foreign ownership and was responsible for 20.3% of the segment’s production in 2018. The gold mining segment consists partly of a large number of medium-sized legal private companies, but also of a multitude of individual miners engaged in illegal gold mining. In 2018, the ten largest gold mining operations in Peru had a combined share of 53.2% in total gold mine production. Of these, four were controlled by domestic capital (the largest being Compania Buenaventura), and accounted for 17.3% of total production. In addition, there were four mining operations controlled by foreign capital (with an 18.6% share in total production), and two operations of mixed Peruvian and foreign ownership, with a combined share of 17.3%, the largest being Minera Yanacocha, jointly run by the US miner Newmont, domestic company Buenaventura and Japan’s Sumitomo.

Top 10 Mines by Copper Production, Top 10 Mines by Gold Production, kg of thou tonnes of fine content, 2018 fine content, 2018

Soc Mra Cerro Verde SAA 494 Minera Yanacocha SRL 16,005

Compania Minera Antamina SA 460 Minera Barrick Misquichilca SA 10,329

Minera Las B ambas S A 385 Compania Minera Poderosa SA 8,670

Southern Per u Copper Corpor ation 331 Compania De Minas… 7,372

Minera Chinalco Peru SA 208 Compania Minera Ares SAC 6,566

Compania Minera Antapaccay SA 205 Minera Aurifera Retamas SA 6,261

Hudbay Peru SAC 122 Consorcio Minero Horizonte SA 5,690

Sociedad Miner a El Brocal SAA 47 Compania Minera Coimolache SA 5,385

Nexa Resources Peru SAA 40 Gold Fields La Cima SA 4,909

Gold Fields La Cima SA 33 La Arena SA 4,764

Source: MINEM, Company Data, EMIS Insights

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Zinc & Lead Mine Competition

Comments The zinc segment is fragmented and marked by the presence of private companies of both Peruvian and foreign origin. Its level of competition can be assessed as “medium”. In 2018, the ten largest zinc mining operations in Peru had a combined share of 75.7% in total zinc mine production. Of these, four were controlled by Peruvian capital (the largest being Minera El Brocal), and accounted together for 11.4% of total production. In addition, there were four mining operations controlled by foreign capital, with a 48.2% share in total production (the largest being Minera Antamina, jointly owned by Swiss giant Glencore and its Australian peer BHP Billiton). There were two zinc mining operations of mixed foreign-domestic ownership, namely Volcan Compania Minera and Empresa Administradora Chungar, both owned by Glencore and the Peruvian Letts family, with a combined 16.1% share of output. In the case of lead, multiple medium-sized private companies (both Peruvian and foreign), with no single player accounting for as much as 10% in total annual production, configure a high level of competition. In 2018, the ten largest lead mining operations in Peru had a 66.8% combined share in domestic output. Of these, three were controlled by Peruvian capital (the largest being Compania Buenaventura), accounting for 24.6% of total production. In addition, there were five mining operations controlled by foreign capital, which together accounted for 26.2% of total production, three of these five companies being subsidiaries of Brazilian miner Nexa Resources. Finally, there were two mixed-ownership companies (Volcan Compania Minera and Empresa Administradora Chungar) with a combined 15.9% share.

Top 10 Mines by Zinc Production, thou Top 10 Mines by Lead Production, thou tonnes, 2018 tonnes, 2018

Compania Minera Antamina SA 476 Compania De Minas… 27.3

Volc an Compania Minera SAA 151 Empr es a Administrador a… 25.0

Nexa Resources Peru SAA 136 Sociedad Miner a El Brocal SAA 24.1

Empr es a Administrador a… 86 Volc an Compania Minera SAA 21.1

Nexa Resources El Porvenir SAC 60 Compania Minera Raura SA 19.7

Sociedad Miner a El Brocal SAA 48 Nexa Resources El Porvenir SAC 18.5

Compania Minera Raura SA 47 Nexa Resources Atacocha SAA 16.1 Nexa Resources Peru SAA 14.8 Sociedad Miner a Cor ona SA 38 Sociedad Miner a Cor ona SA 13.3 Compania De Minas… 38 Minera Bateas S AC 13.1 Compania Minera Casapalca SA 36

Source: MINEM, Company Data, EMIS Insights

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Silver & Molybdenum Competition

Comments The silver segment is fragmented, marked by the presence of private companies of both Peruvian and foreign origin, being characterised with a medium level of competition. In 2018, the ten largest silver mining operations in Peru had a 66.6% combined share in total silver mine production. Of these, three were controlled by Peruvian capital (the largest player being Compania Buenaventura), and accounted together for 21.3% of total production. In addition, there were five mining operations controlled by foreign capital, with a 35.4% share in total production (the largest being Minera Antamina, a joint venture between Glencore and BHP Billiton), and two mining operations of mixed foreign-domestic ownership, including Volcan Compania Minera and Empresa Administradora Chungar, with a combined 9.9% share.

In the case of molybdenum, the segment is highly concentrated, with just six companies accounting for Peru’s entire output of molybdenum in 2018. Of these, five – with a combined share of 55% of total production – were controlled by foreign capital (the largest being Southern Peru Copper Corporation, a subsidiary of the US-based Americas Mining Corporation). In addition, there was one operation of mixed Peruvian and foreign ownership, Minera Cerro Verde, which was the largest molybdenum miner in Peru, accounting for 45% of the segment’s production.

Top 10 Mines by Silver Production, Ranking of Mines by Molybdenum tonnes, 2018 Production, tonnes, 2018

Compania De Minas Buenaventura SAA 653 Sociedad Miner a Cer ro Ver de SAA 12,609 Compania Minera Antamina SA 544 Southern Per u Copper Corpor ation Compania Minera Ares SAC 516 7,258 Sucursal Del Peru Volc an Compania Minera SAA 244 Compania Minera Antamina SA 4,628 Compania Minera Chungar SAC 168

Minera Chinalco Peru SA 154 Minera Las B ambas S A 1,961 Southern Peru Copper Corporation Sucursal… 137

Nexa Resources Peru SAA 123 Hudbay Peru SAC 904

Sociedad Miner a El Brocal SAA 121 Minera Chinalco Peru SA 672 Compania Minera Casapalca SA 112

Source: MINEM, Company Data, EMIS Insights

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Top M&A Deals

Top 10 M&A Deals in Peru’s Mining Sector,* 2017-2018

Country of Deal Value, Stake, Date Target Company Deal Type Buyer Buyer USD mn %

Volcan Compania Minera Minority stake Glencore Plc Switzerland Nov 2017 SAA 732.7 (Official) 15.6

Quellaveco copper Minority stake Mitsubishi Corp Japan Jul 2018 project 500.0 (Official) 21.9

Oct 2017 Nexa Resources SA IPO Undisclosed investor(s) 496.0 (Official) 23.3

Michiquillay copper Southern Copper Corp Acquisition United States Feb 2018 project (SCC) 400.0 (Official) 100.0

Mina Justa copper Minority stake Empresas Copec SA Chile Apr 2018 project 200.0 (Official) 40.0

La Oroya metallurgical Company employees; Jun 2018 complex and Cobriza Acquisition Samsel Group; Shunxing China 139.0 (Official) 100.0 copper mine International Group

Ashmore Group Plc; Stracon GyM SA Acquisition United Kingdom Mar 2018 Company manager(s) 76.8 (Official) 87.6

Jan 2017 Fortuna Silver Mines Inc Minority stake Buyer(s) unknown 74.8 (Official) 7.0

Minaspampa and Mar 2018 Rosario de Belen gold Acquisition VI Mining PLC United Kingdom 64.9 (Official) 100.0 and silver projects

Jun 2018 Minera Yanacocha SRL Minority stake Sumitomo Corp Japan 48.0 (Official) 5.0

* NAICS codes: 212 Source: EMIS DealWatch

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M&A Activity, 2017-2018

Number and Value of Deals in Peru’s Number of Deals by Deal Value, USD Mining Sector

8 100.1- 500mn; 5 15.6% 4 4 4 4 3

0-50mn; 50.1-100mn; 1,251 9.4%

610 71.9% 543 0 389 92 16 14 0 500.1-1000; Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 3.1% 2017 2018

Value of Deals , USD mn Number of Deals

Number of Deals by Deal Type Number of Deals by Region of Investor EMEA 15.6%

Acquisition North Asia 9.4% 43.8% America 31.3%

Peru 3.1%

International 3.1%

South Undisclosed Minority America 31.3% Stake IPO 3.1% 3.1% Purchase 53.1% Oceania 3.1%

* NAICS codes: 212

Source: EMIS DealWatch

PERU MINING SECTOR 2019/2020 39 An EMIS Insights Industry Report PERU MINING SECTOR 2019/2020 An EMIS Insights Industry Report CONTENTS

04 COMPANIES IN FOCUS

Southern Peru Copper Corporation

Highlights Income Statement, Individual, USD mn

Southern Peru Copper Corporation, Sucursal del 44.4% Peru (SPCC), founded in 1954, is the Peruvian 41.8% branch of US mining company Southern Copper 34.0% Corporation. In 1999, the Mexican industrial conglomerate Grupo Mexico acquired a majority stake in Southern Copper Corporation. As a result,

SPCC has been a subsidiary of Grupo Mexico since 1,143 2,572 938 then. As of December 2018, Grupo Mexico controls 2,244 1,794 610 570

88.9% of SPCC’s capital, through its subsidiary 532

Americas Mining Corporation. 272

SPCC is engaged in mining, milling and flotation of copper ore, and production of copper and 2016 2017 2018 molybdenum concentrates, anode copper and Net Revenues EBITDA Net Profit EBITDA Margin copper cathodes. The company also produces molybdenum concentrates, refined silver and refined copper. As of December 2018, the Balance Sheet, Individual, USD mn company employed 4,850 people, of whom around 75% were unionised.

SPCC operates the Cuajone and Toquepala copper mines. Cuajone is located in Torata district, Moquegua region, while Toquepala is situated in Ilabaya district, Tacna region. As of December 6,211 5,656 5,281 5,047

2018, the Cuajone mine had 2P reserves of 1.77bn 4,837 4,359 tonnes of mineral with an average copper grade of 0.503% and an average molybdenum grade of

0.018%. Meanwhile, Toquepala had 2P reserves of 7 - 111 171 2.06bn tonnes of mineral with an average copper - - 2016 2017 2018 grade of 0.54% and an average molybdenum grade of 0.031%. Total Assets Shareholders' Equity Net Debt

The company is listed on the Lima Stock Exchange. Its market capitalisation amounted to PEN 1.09bn at the end of March 2019.

Source: Company Data, SMV

PERU MINING SECTOR 2019/2020 41 An EMIS Insights Industry Report 04 COMPANIES IN FOCUS CONTENTS

Southern Peru Copper Corporation (cont’d)

Highlights Copper Mine Production, thou tonnes

As of December 2018, the area under concession 331 at the Cuajone mine stood at 22,474 ha. The Cuajone complex has a concentrator plant with a processing capacity of 90,000 tonnes of minerals 322 per day, and in 2018 its capacity use reached 319 91.3%. Meanwhile, the Toquepala mine has a 313 concession area of 24,141 ha. The Toquepala 308 complex has two concentrator plants with a 306 processing capacity of 60,000 tonnes of minerals per day each (“Concentradora 1” and “Concentradora 2”). Concentradora 1 achieved an impressive capacity use of 99.9% in 2018, whereas Concentradora 2, which began operations in Q4 2018, reached an average daily 2013 2014 2015 2016 2017 2018 capacity use of 50.9%, during the short period of the year in which it was operational. In the Toquepala complex the company also operates an Silver Mine Production, tonnes SX-EW copper refining plant, with a capacity of

56,000 tonnes per year of refined copper. In 2018, 137 the SX-EW plant produced 26,500 tonnes of fine 130 114 117 copper, a 47.4% capacity use. 110 102 SPCC also has a metal processing complex in Ilo city, Moquega region. There, the company has a copper smelting plant with an output capacity of 1.22mn tonnes per year of concentrate feed, two sulphuric acid plants with a combined production capacity of 1.05mn tonnes per year, a copper refining plant with a production capacity of 280,000 tonnes per year, and a precious metals refinery with a production capacity of 320 tonnes 2013 2014 2015 2016 2017 2018 per year. All the plants of the Ilo complex registered full capacity use during 2018.

Source: Company Data, SMV, MINEM

PERU MINING SECTOR 2019/2020 42 An EMIS Insights Industry Report 04 COMPANIES IN FOCUS CONTENTS

Cia de Minas Buenaventura SAA

Highlights Income Statement, Consolidated, USD mn

Compania de Minas Buenaventura SAA, founded in 1953, is the largest publicly traded precious 30.4% metals company in Peru, specialising in the 25.1% 25.3% mining, processing, development and exploration of gold, silver, copper, zinc and other metals. It 1,274 1,167 1,069 325 319

operates as a subsidiary of the domestic 295 Buenaventura group, which controlled 12.9% of its 64 shares as of December 2018. The company directly owns and operates several mines in Peru 12 - (Orcopampa, Uchucchacua, Mallay, Julcani, Tamboyano). Moreover, Buenaventura is the 328 - controlling shareholder of Minera la Zanja SRL 2016 2017 2018 (with a 53.1% stake), Compania Minera Net Revenues EBITDA Comoilache SA (40.1%) and Sociedad Minera el Net Profit EBITDA Margin Brocal SAA (61.32%) – all stakes as of end-2018. Buenaventura also has non-controlling stakes in two important Peruvian companies, namely: Balance Sheet, Consolidated, USD mn precious metals producer Minera Yanacocha, in which it owns a 43.65% stake and partners US- based gold producer Newmont Mining Corp and 1.74 1.61 1.06 Japan’s Sumitomo; and domestic copper producer Sociedad Minera Cerro Verde (19.6% stake). In 2018, the company employed 7,651 workers at its

wholly owned mines, a y/y drop of 25.2%, mostly 4,333 4,266 4,217 resulting from an aggressive restructuring plan 3,064 3,047 3,030 adopted during the year at the Tambomayo, 567 515 Uchucchacua and Orcopampa mines, aimed at 313 achieving operational synergies and lower labour costs. Buenaventura also indirectly employed 2016 2017 2018 Total Assets Shareholders' Equity 8,027 in subsidiaries where it has a controlling Net Debt Net Debt/EBITDA stake, up 14.6% y/y, as one of El Brocal’s copper concentrate plants increased its processing capacity from 300 to 470 tonnes of mineral per hour in the course of 2018.

Source: Company Data, SMV

PERU MINING SECTOR 2019/2020 43 An EMIS Insights Industry Report 04 COMPANIES IN FOCUS CONTENTS

Cia de Minas Buenaventura SAA (cont’d)

Highlights Gold Mine Production,* tonnes The company had two fully-owned mining projects at a pre-feasibility stage as of December 7.67 7.37 2018 – San Gabriel and Trapiche. The San Gabriel 7.06 6.91 project, in General Sanchez Cerro province, 6.17 5.91 Moquegua region, had total mineral resources (measured, inferred and indicated) of 13mn tonnes of mineral at the end of 2017, with ore grades of 0.17 ounces/tonne of gold, 0.23 ounces/tonne of silver, and a 0.06% copper grade. The company expects to continue conducting field trials in order to assess more precisely the availability of mineral resources at San Gabriel, with the goal of concluding the pre-feasibility stage in the second half of 2019. The Trapiche 2013 2014 2015 2016 2017 2018 project, located in Antabamba province, Apurimac region, had measured and indicated resources of 863,000 tonnes of mineral at the end of 2017, Silver Mine Production,* tonnes with a copper ore grade of 0.37%. Moreover, Trapiche had inferred mineral resources of 44,400 724 680 tonnes of mineral, with an estimated copper 653 grade of 0.30%. Finally, the company is 517 considering the construction of a SX-EW plant for 482 478 exploiting separate mineral resources suitable for hydrometallurgy at Trapiche mine. These latter resources are estimated at 290,416 tonnes of mineral with a copper grade of 0.51%, of which 72% can be recovered for the production of refined copper through the SX-EW process. The company expects to start the environmental impact authorisation process by the end of 2019. 2013 2014 2015 2016 2017 2018 Buenaventura is listed on the Lima Stock Exchange. Its market capitalisation stood at PEN 15.4bn at the end of March 2019. * Direct production by wholly-owned mines (excluding subsidiaries and partnerships) Source: Company Data, SMV, MINEM

PERU MINING SECTOR 2019/2020 44 An EMIS Insights Industry Report 04 COMPANIES IN FOCUS CONTENTS

Nexa Resources Peru SAA

Highlights Income Statement, Consolidated, USD mn

Nexa Resources Peru SAA, formerly known as 44.5% Compania Minera Milpo, was founded in 1949 by 39.7% Peruvian entrepreneurs, and is one of the five 34.1% largest producers of zinc, copper, lead and silver in Peru. Since August 2010, the company has been a subsidiary of the Brazilian industrial conglomerate Votorantim. In 2017, Votorantim 912 828 established a subsidiary under the name of “Nexa 715 Resources Holding”, in order to operate its non- ferrous mining operations based in Brazil and 405 283 283 224

Peru. As of December 2018, Nexa Resources 142 142

Holding controlled 80.06% of Nexa Resources 2016 2017 2018 Peru SAA’s shares, the remainder being free-float. Net Revenues EBITDA Nexa Resources Peru SAA operates three active Net Profit EBITDA Margin mines in Peru – Cerro Lindo, El Porvenir, and Atacocha. As of December 2018, the Cerro Lindo mining unit had 49.09mn tonnes of 2P mineral Balance Sheet, Consolidated, USD mn reserves with an average grade of 1.75% zinc, 0.20% lead, and 0.67% copper, and 21.1 grams/tonne of silver. El Porvenir mining unit had 17.49mn tonnes of minerals with an average grade of 3.72% zinc, 0.93% lead, and 0.21% copper, 1,618 1,600 and 54.5 grams/tonne of silver. The Atacocha 1,489 770 730 mining unit had 3.79mn tonnes of mineral with an 628 average grade of 4.08% zinc, 1.71% lead, and 0.26% copper, and 80.3 grams/tonne of silver. 182 - 336 - 406 At the end of 2018, Nexa Resources Peru SAA had - 1,894 employees (up from the 2016 total of 1,727). 2016 2017 2018

Of these, 1,780 were permanent employees and Total Assets Shareholders' Equity Net Debt 114 temporary workers. The company is listed on the Lima Stock Exchange. Its market capitalisation stood at PEN 4.8bn at the end of March 2019.

Source: Company Data, SMV

PERU MINING SECTOR 2019/2020 45 An EMIS Insights Industry Report 04 COMPANIES IN FOCUS CONTENTS

Nexa Resources Peru SAA (cont’d)

Highlights Zinc Mine Production, thou tonnes

The Cerro Lindo mining operation is a 228 polymetallic underground mine located in Chavin 225 district, Ica region (240km from Lima), producing zinc, copper and lead concentrates. It has a 184 181 163 concentrator plant with a daily processing capacity of 21,000 tonnes. In 2018, Cerro Lindo 136 registered a 14% y/y output contraction, due to a rapid decline of ore grades. The El Porvenir mining operation is a polymetallic underground mine located in San Francisco de Asis district, Pasco region, 190km from Lima, producing zinc, copper and lead concentrates. Its concentrator plant, with a processing capacity of 6,500 tonnes/day, reported a 20% y/y expansion of 2013 2014 2015 2016 2017 2018 output in 2018, thanks to improving ore grades and higher capacity utilisation. The Atacocha mining operation is a polymetallic underground Lead Mine Production, thou tonnes mine located in San Francisco de Asis district, Pasco region, 15km from Cerro de Pasco, and 30 30 produces zinc, copper and lead concentrates. Its concentrator plant (processing capacity 4,500 tonnes/day) registered 4% y/y decline in total output in 2018, due to declining lead ore grades, 18 18 17 partially offset by a solid rise in the production of 15 zinc and copper. As of December 2018, Nexa Resources Peru SAA had a portfolio of six greenfield mining projects in pre-feasibility or earlier stages. Five of these are based in Peru, including the polymetallic (zinc, lead, silver) projects Hilarion & El Padrino, Florida Canyon and 2013 2014 2015 2016 2017 2018 Shalipayco; and the copper projects Pukaqaqa and Magistral. The company also has one project in Brazil (Aripuana), with zinc, lead, copper, silver and gold reserves.

Source: Company Data, SMV, MINEM

PERU MINING SECTOR 2019/2020 46 An EMIS Insights Industry Report 04 COMPANIES IN FOCUS CONTENTS

Minsur SA

Highlights Income Statement, Consolidated, USD mn

The origins of Minsur SA go back to the early 35.6% decades of the 20th century, when the Anglo- 33.2% 33.7% French Lampa Mining Company was founded in Puno region (1907). In 1966, Lampa Mining Company was renamed as Minsur SA and, in 1977, the latter was acquired by the Breca Group, a

Peruvian conglomerate. As of December 2018, the 694 672 Breca Group was Minsur’s controlling 617 shareholder. Minsur has two fully-owned mining 108 88 79

operations in Peru: San Rafael, in Antauta district 247 226 205 (Puno region), which produces tin; and

Pucamarca, in Palca district (Tacna region), which 2016 2017 2018 produces gold and silver. Moreover, Minsur is Net Revenues EBITDA developing the Mina Justa copper mine project Net Profit EBITDA Margin (Ica region), whose construction was 14.4% complete as of December 2018. Furthermore, Minsur is currently conducting three exploration Balance Sheet, Consolidated, USD mn projects. Two of these are Santo Domingo and Nazareth (both located in Melgar province, Puno 1.80 department), whose main resource is tin. The 1.66 1.00 third is Mina Marta, located in Huancavelica region, its main products being copper and gold. Finally, Minsur also has one active operation outside Peru: a tin mine (Pitinga), in the 2,808 2,301 Amazonas state of Brazil. In terms of 2P reserves, 2,162 1,538 445

as of December 2018, the San Rafael mining unit 376 1,211 1,196 had 8.04mn tonnes of mineral with an average 204 ore grade of 1.74% tin. The Pucamarca unit had 33.9mn tonnes of mineral with an average ore 2016 2017 2018 Total Assets Shareholders' Equity grade of 0.51 grams of gold per tonne. In terms of Net Debt Net Debt/EBITDA total mineral resource, Nazareth had 8.9mn tonnes of mineral with an average ore grade of 1.38% tin, 0.59% copper, 0.57% zinc and 0.15% lead.

Source: Company Data, SMV

PERU MINING SECTOR 2019/2020 47 An EMIS Insights Industry Report 04 COMPANIES IN FOCUS CONTENTS

Minsur SA (cont’d)

Highlights Tin Mine Production, thou tonnes

As of December 2018, Minsur expected that the construction phase of the B2 mining project, 24.0 which will require a total investment of around 23.1 USD 200mn, should be completed by the end of 19.5 2019. B2 involves the recovery of fine tin from 18.8 18.6 17.8 tailings accumulated over the decades at its San Rafael mine in Puno region, with 2P reserves of 7.6mn tonnes of mineral with an average ore grade of 1.03% tin. When operational, B2 will increase the production capacity of the San Rafael mine by 5,000 tonnes per year of fine tin (from the current 20,000 tonnes) during a 9-year period. 2013 2014 2015 2016 2017 2018 In April 2018 Minsur announced that it had reached an agreement with Chilean business conglomerate Copec, in which the two companies Gold Mine Production, tonnes will jointly develop the Mina Justa copper project. As a result, Copec acquired a 40% stake in 3.4 3.3 Cumbres Andinas, the Minsur subsidiary in charge 3.3 of developing the project, in a USD 168.5mn deal. In August 2018, Cumbres Andinas secured a 3.2 critical USD 900mn from a consortium of 15 international banks, which was the final step for 3.1 greenlighting the project. In September 2018, 3.0 Mina Justa entered its construction phase, with a final budged of USD 1,600mn, and the goal of entering the operational phase by late 2020. Mina Justa’s output, once operational, is expected to reach 102,000 tonnes of fine copper per year. 2013 2014 2015 2016 2017 2018 Minsur is listed on the Lima Stock Exchange. Its market capitalisation stood at PEN 1.68bn at the end of March 2019.

Source: Company Data, SMV, MINEM, America Economia, El Comercio, Portal Minero

PERU MINING SECTOR 2019/2020 48 An EMIS Insights Industry Report 04 COMPANIES IN FOCUS CONTENTS

Shougang Hierro Peru SAA

Highlights Income Statement, Individual, USD mn

Shougang Hierro Peru SAA traces its origins to 55.4% Empresa Minera del Hierro de Peru, founded in 49.6% 1975. The latter was constituted after the 42.6% government’s nationalisation of the Marcona Mining Company, which had begun producing iron in the 1950s. 461 In 1992, the Chinese mining group Shougang 421 366 Corporation acquired Empresa Minera del Hierro 255 del Peru from the Peruvian state. As of December 209 2018, the company was operating as a wholly- 156 owned subsidiary of the Chinese iron and steel 62 128 70 maker Shougang Corporation, which controls 2016 2017 2018 98.52% of the company’s shares. Net Revenues EBITDA Net Profit EBITDA Margin Shougang Hierro Peru operates an iron ore deposit with a total area of 150 km2, located in San Juan de Marcona, Ica region, 500 km south of Balance Sheet, Individual, USD mn Lima. This deposit had proved and probable reserves of 2.2bn tonnes of mineral with average 2.47 grades ranging from 52% to 54%, as of December 1.01 2018. 0.70

As of end-2018, Shougang Hierro Peru employed 2,097 people, compared to 1,861 in 2017. Of these,

35 were temporary workers (unchanged from 1,915 1,758 2017), 897 permanent mine workers (935 in 2017), 516 1,200 322 316 259 717 permanent plant workers (513 in 2017), and 215 110 448 office workers (378 in 2017). 2016 2017 2018 Shougang Hierro Peru has been listed on the Total Assets Shareholders' Equity Lima Stock Exchange since 1999. Its market Net Debt Net Debt/EBITDA capitalisation at end-March 2019 was PEN 2.2bn.

Source: SMV, Company Data

PERU MINING SECTOR 2019/2020 49 An EMIS Insights Industry Report 04 COMPANIES IN FOCUS CONTENTS

Shougang Hierro Peru SAA (cont’d)

Highlights Iron Ore Mine Production, thou tonnes

Shougang Hierro Peru also has a beneficiation 9,097 centre, located in San Nicolas Bay, next to the 8,668

Pacific Ocean, which specialises in the production 7,663 of several iron products. The company also has its 7,193 7,321 6,681 own port in San Nicolas Bay, which can host ships with a capacity of up to 220,000 tonnes.

In July 2018, Shougang completed the expansion of its operations at the Marcona iron mine. The project, which cost a total of USD 1.1bn, consisted in the development of new pits, a doubling of the production capacity of the beneficiation centre, and the construction of a water desalination plant. Shougang also devoted a separate section 2013 2014 2015 2016 2017 2018 of the beneficiation centre to trial production, in order to adjust the quality of the product to client needs, with only a minor impact on production. Iron Ore Exports, USD mn As a result, the 4.9% y/y increase in iron output registered by Shougang in 2018 resulted mainly from better production in its old facilities.

In March 2019, the Marcona expansion project Sinter 26% finally entered its full production stage. In that regard, Raul Vera de La Torre, CEO of Shougang Hierro Peru, revealed – in a February 2019 interview with the Rumbo Minero online portal – that the total iron ore output planned for the Marcona mine in 2019 was 17mn tonnes of iron Filter Cake 72% ore, an 86.9% y/y increase against 2018. Of this Lump 2% total, 8.8mn tonnes will come from the old facilities, while the remaining 8.2mn tonnes will be produced in the facilities associated with the expansion project.

Source: MINEM, SMV, Company Data, America Economia, Rumbo Minero

PERU MINING SECTOR 2019/2020 50 An EMIS Insights Industry Report PERU MINING SECTOR 2019/2020 An EMIS Insights Industry Report CONTENTS

05 REGULATORY ENVIRONMENT

Government Policy

Las Bambas Road Blockade August 2018 marked the start of a series of conflicts between the Las Bambas copper mine and indigenous farmers from the Fuerabamba community. Las Bambas is one of the largest copper mines in Peru – and indeed in the whole world – and is controled by the Chinese company MMG, The conflict, which was initially small-scale and low intensity, with only minor effects on the mine’s operations, progressively worsened over the following months. In early 2019, the issue escalated into a major dispute, involving violence, government intervention and severe disruption of mining operations, causing significant complications for the Peruvian mining sector as a whole.

In the past, there had been several sporadic disputes between local communities and the Las Bambas mine during the late construction phase of the project (2014-2015) and its early production phase (2016), mostly related to environmental and property rights issues, with no major effect on mining operations. In fact, the majority of conflicts were resolved in an August 2017 agreement signed between the mine operator, local communities and the government, in which the communities pledged not to initiate new conflicts, while the company agreed to financially compensate the families most affected by mine operations. However, on August 22, 2018, this peace process was completely shattered, as a group of people from the Fuerabamba community decided to entrench themselves on the Yavi Yavi section of national road PE-3SY. The road had been created in May 2018, following a decision by the Ministry of Transport (Ministeral Resolution Nº 372-2018-MTC/01.02), by merging of several regional roads (namely AP-115, CU-138, CU-119, CU-135, CU-127 and CU-126). Fuerabamba representatives argued that this road reclassification was extremely detrimental to them, as it allowed the unrestricted movement of minerals and machinery from Las Bambas mine via these roads. Following this, the Peruvian government declared a state of emergency on the affected road, and intervened – on several occasions and in some cases violently – to open up the road, while trying at the same time to reach a solution acceptable to all parties by mediation. Nonetheless, on February 4, 2019, the Fuerabamba indigenous farmers were able to establish a more permanent blockade on a 12-km stretch of the PE-3SY road at Yavi Yavi. This time, the situation escalated even further, as Gregorio Rojas, leader of the blockaders, was arrested in mid-March 2019. Then, in March 27, MMG decided on a partial halt to mining operations due to supply shortages, the difficulty of rotating the workforce, and challenges to the transport of copper ores to the port of Matarani – all stemming from the long blockade (50 days by then) and the inadequacy of alternative roads. In April 14, the road blockade was lifted (after 68 days) and mining operations went back to normal, following an agreement between the Fuerabamba community, MMG and the government, in which the protesters were offered jobs at the Las Bambas mine and other types of financial compensation. However, on April 21, 2019, Fuerabamba farmers warned that they could re-establish the blockade in the future, if some provisions of the agreement were not fulfilled (specifically the dropping of criminal charges against some farmers who had participated in the blockade).

Source: El Comercio, Peru21, Mining.com, Diario Gestion, Reuters, Ministry of Transport.

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Government Policy (cont’d)

Mining Sector Regulatory Burden One of the key topics discussed at the 13th Silver and Gold Mining Symposium, held in Lima in May 2018, was the excessive regulatory burden in the Peruvian mining sector. The event was organised by the non-profit National Society of Mining, Oil and Energy (SNMPE), whose CEO Pablo De La Flor, declared that this regulatory burden had increased substantially in recent years, becoming a serious obstacle for new investment. The main issue, according to De La Flor, was not related to the introduction of stricter regulations, but rather to extremely long approval procedures. Renzo Rossini, president of the Central Reserve Bank of Peru (BCRP), referred to the same problem, underlining that it could seriously harm future mining investment. He noted that the number of norms regulating the mining sector had increased from just 12 in 2001 to 265 in 2018. Rossini proposed a few changes that, according to him, could help mitigate the problem. These were, first, the creation of an Executive Mining Board, including representatives of both government and business, to discuss regulatory changes in a transparent way; second, the implementation of a Single Window for Procedures, in order to expedite these processes; and third, the simplification of the regulatory steps for conducting mining exploration activities.

OEFA’s Policy Towards the Mining Sector During 2018 and early 2019, the Peruvian Agency for Environmental Assessment and Enforcement (OEFA) was very active in its scrutiny of ongoing mining operations, especially in the gold and iron segments. (OEFA, subordinated to the Ministry of Environment, is in charge of surveillance of all economic sectors with high environmental impact, like mining, energy, fishery and manufacturing.) In May 2018, OEFA ordered Peruvian miner Aruntani SAC to permanently close down all mining operations in its Jessica pit at the Arasi mine, located in the Ocuviri district of Puno region, following Aruntani’s failure to properly address high levels of cyanide contamination in Jessica’s water drainage system (initially detected in February 2017). Moreover, in December 2018, OEFA ordered South African- controlled gold miner Gold Fields La Cima SA, with a single mining operation located in Cajamarca region, to implement major modifications to its tailing dam system, following a leak of toxic material into the Tingo river. Finally, in January 2019, OEFA forced Chinese-controlled iron miner Shougang Hierro Peru, to halt all production trials at its new beneficiation centre in the Marcona mine. The measure was adopted after strong winds had carried iron ore concentrate dust from the mine to the nearby San Nicolas bay. In this case, Shougang quickly addressed the issue by installing a water curtain system. Thus, the company was able to resume trials and finally start commercial production at the new plant in early March 2019.

Source: OEFA, SNMPE, BCRP, America Economia, El Comercio, La Republica, Diario Gestion

PERU MINING SECTOR 2019/2020 53 An EMIS Insights Industry Report 05 REGULATORY ENVIRONMENT CONTENTS

Government Policy (cont’d)

Collected Mining Revenues by SUNAT Direct Mining Revenues by Type, PEN mn

Special Special Mining New Period Levy on Total 9,835 Mining Tax Royalties Royalties Mining

7,430 6,990 7,181 2014 372 121 529 535 1,557

4,307 4,349 10.8% 2015 208 199 352 344 1,103 9.4% 9.2% 8.6%

5.6% 5.4% 2016 236 206 520 102 1,063

2013 2014 2015 2016 2017 2018 2017 638 261 809 66 1,774

Collected Mining Revenues, PEN mn 2018 770 267 980 88 2,106 Share of the Revenues from Mining in Total Public Revenues

Transfers to the Regions of Mining Transfers to Regions by Recipient, 2018 Revenue,* PEN mn La Libertad Apurimac Cusco 7.8% 6.5% 5.7% Tacna 4.6%

Moquegua 4.5%

Arequipa Junin 3.8% 17.6%

Others 18.2% 4,846 4,468 3,598 3,303 2,995 2,611

Ancash 2013 2014 2015 2016 2017 2018 31.3%

* Includes revenues from mining royalties, mining canon, validity and penalty rights

Source: SUNAT, MINEM

PERU MINING SECTOR 2019/2020 54 An EMIS Insights Industry Report PERU MINING SECTOR 2019/2020 An EMIS Insights Industry Report CONTENTS

06 METALLIC AND FUEL MINERALS

Highlights

Overview In 2018, the metallic and fuel minerals segment in Peru, comprising the production of nine minerals, had a combined production volume of 14.0mn tonnes of fine content (up 4.6% y/y) with a value of USD 31.1bn (up 0.4% y/y), according to EMIS Insights estimates. In terms of production value, copper was the largest segment, with a 50.4% share, followed by gold (20.5%), zinc (13.8%), silver (7.4%), molybdenum (2.4%), iron (2.1%), lead (2.1%), tin (1.2%) and coal (0.1%). Over the 2013-2018 period, the production volume increased at a solid CAGR of 7.2%, driven by strong expansion of the outputs of copper (12.1%), molybdenum (9.3%), iron ore (7.4%) and coal (2.8%). However, production value expanded at a more modest annual average rate of 3.7% for the same period, due to the rising share in the total production mix of iron ore (a product whose value is low in relation to its weight).

Drivers and Constraints In 2018, iron production expanded significantly, by 8.3% y/y, mostly driven by the performance of Minera Shouxin Peru, as the latter began its second year of operations and managed to triple its total iron output, in comparison to 2017. However, in the same year there were significant declines in the production volumes of Peru’s other key metallic minerals, such as copper, lead, silver and gold. On the one hand, copper production registered its first y/y decline in volume since 2011, largely as a result of geotechnical problems at the Las Bambas mine. Similarly, the gold output of two key gold miners in Peru (i.e. Barrick’s Misquichilca and Buenaventura’s Orcopampa mines), declined abruptly during the year due to deteriorating grades. In the cases of lead and silver, the main restraining factor was also that of declining grades – largely to do with Minera Antamina’s operational switch to deposits richer in zinc, to the detriment of lead and silver.

Outlook In 2019-2023, output growth in the metallic minerals segment will be generally positive, mostly thanks to improving production in already existing operations, due to better grades, optimisations, small expansions and other factors – although this will be counterbalanced by the relatively weak pipeline of projects set to go operational before 2022. According to BMI Research’s estimates, the copper segment will account for most of such capacity as is due to come on stream in the earlier part of the forecast period (2019-2021): hence, the consultancy expects copper output growth to accelerate between 2019 and 2021, unlike other segments which will experience more or less stable growth during the same timeframe (i.e. gold, zinc, lead). The copper output surge in 2019-2021 will mostly derive from Aluminium Corporation of China’s Toromocho mine expansion project, the Minsur-Copec Mina Justa greenfield mining project, and the UK-based Southern Peaks Mining’s Ariana greenfield project.

Source: BMI Research, MINEM, USGS, Diario Gestion

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Main Events

§ In March 2019, Minera Yanacocha – a joint venture between US-based miner Newmont, the Peruvian-owned Compania de Minas Buenaventura and Japan’s Sumitomo – announced the completion of the construction phase of its Quecher Main project, in the Banos del Inca district of Cajamarca region, and the start of the first production trials. Quecher Main is a brownfield repositioning project for the Yanacocha mine, and once operational it will have an output of 200,000 ounces of gold per year. The start of commercial operations, however, was delayed from mid-2019 to late 2019, as the trial phase is to be longer than originally anticipated. Moreover, in September 2018, Isidro Oyola, the CEO of Minera Yanacocha, commented that Yanacocha Sulfuros, another brownfield repositioning project, was set to begin its construction phase in 2020, and its operational phase in 2023. With a total cost of USD 2.1bn, Yanacocha Sulfuros will be a milestone for the company, being its first mixed copper-gold project. Its annual output is expected to be 6.5mn ounces of gold and 1.2bn ounces of copper.

§ In a September 2018 interview with Reuters, Luis Rivera – vice-president of South African miner Gold Fields for Latin America – revealed that his company was evaluating an investment of up to USD 240mn in prolonging the operating life of Cerro Corona, a gold mine located 90 km north of the city of Cajamarca (in Cajamarca region). The mine is currently set to cease operations in 2023. Rivera, however, noted that there was a basic project of USD 140mn for prolonging activities at the site until 2030, which was close to completing its feasibility stage. He added that there was also another, more ambitious project, which could extend operations until 2040, though it would require additional funding of USD 100mn and the application of new mining techniques.

§ In August 2018, the polymetallic domestic miner Volcan Compania Minera, controlled by Swiss group Glencore and the Peruvian Letts family, announced that it was planning to invest USD 50mn in several exploration projects in the course of 2018. Of this total, USD 25mn was assigned to brownfield exploration initiatives with a view to potential extension of operations at the Yauli, Chungar, Alpamarca and Cerro de Pasco mines. The remaining USD 25mn had been allocated to greenfield projects still in the pre-feasibility stage, including Romina II, Carhuacayan, Zoraida and Palma.

§ In June 2018, Minera Chinalco, Peruvian mining subsidiary of the Aluminium Corporation of China, announced the start of construction work on the Toromocho mine expansion project. With a total cost of USD 1,355mn, this project will increase the output of the copper mine, which is located in the Morococha district of Junin region. It will create additional production capacity of 75,000 tonnes of fine copper per year, up from the original capacity of 200,000 tonnes. In April 2019, Xing Wang, vice president of Trade and Logistics for Chinalco, confirmed at the World Copper Conference, held in the Chilean capital of Santiago, that Toromocho’s expansion is on track to start its operational phase in 2020.

Source: Portal Minero, El Comercio, Diario Gestion, America Economia

PERU MINING SECTOR 2019/2020 57 An EMIS Insights Industry Report 06 METALLIC AND FUEL MINERALS CONTENTS

Metallic and Fuel Minerals Reserves

Comments Peru’s reserves of a number of metallic and fuel minerals are among the world’s biggest, which is one of the reasons to see the sector’s prospects as good. Regarding reserve growth, the largest cumulative increases for the 2013-2018 period were registered by gold (36.8%), followed by silver (26.4%), tin (20.9%) and copper (18.6%). Meanwhile, the proven reserves of several metallic minerals experienced double-digit cumulative declines over the period, including lead (whose reserves fell by 20.0%), and zinc (12.5%). In 2018, mining companies in Peru invested a total of USD 412.5bn in exploration activities – a 14.8% y/y drop. Exploration efforts during 2018 were mostly concentrated in precious metals (i.e. gold and silver), largely explaining why these minerals registered the highest increases in reserves over the year – silver reserves surged 18.3% y/y and gold reserves 13% y/y. Among the ten mining companies that invested most in exploration in 2018, four – with a combined share of 24% in exploration investment – were pure gold mining operations (Minera Poderosa, Consorcio Minero Horizonte, Minera Coimolache, and Minera Aurifera Retamas). Of the other six, five were polymetallic miners with either gold or silver as part of their product portfolios, and these five companies had a combined 25% share in such investment. The only company among the ten that was not active in precious metals exploration was Swiss-controlled Minera Antapaccay, an exclusively copper mining operation, with a 4.9% share in total investment in exploration for 2018.

Silver Reserves Zinc Reserves

120 120 28,000 110 29,000 99 93 25,000 24,000 25,000 87 21,000

33.3% 21.3% 18.3% 20.8% 13.7% 12.0% 0.0% 0.0% -13.8% -22.5% -27.5% -25.0%

2013 2014 2015 2016 2017 2018 2013 2014 2015 2016 2017 2018

Silver Reserves, thou tonnes y/y change Zinc Reserves, thou tonnes y/y change

Source: MINEM, USGS

PERU MINING SECTOR 2019/2020 58 An EMIS Insights Industry Report 06 METALLIC AND FUEL MINERALS CONTENTS

Metallic and Fuel Minerals Reserves (cont’d)

Copper Reserves Lead Reserves

81,000 82,000 81,000 83,000 7,500 7,000 6,700 6,300 6,000 70,000 68,000 6,000

20.6%

0.0% 2.5% 0.0% -2.9% -1.2% -4.3% -7.9% -5.1% -6.7% -6.0% -4.8%

2013 2014 2015 2016 2017 2018 2013 2014 2015 2016 2017 2018

Copper Reserves, thou tonnes y/y change Lead Reserves, thou tonnes y/y change

Gold Reserves Tin Reserves

2,800 130 2,600 2,400 2,300 105 110 62.5% 100 2,100 1,900 91 80

5.0% 4.8% 33.3% -12.1% -23.1% 10.5% 13.0%

-4.2% -13.6% -14.3% -70.6%

2013 2014 2015 2016 2017 2018 2013 2014 2015 2016 2017 2018

Gold Reserves, tonnes y/y change Tin Reserves, thou tonnes y/y change

Source: MINEM, USGS

PERU MINING SECTOR 2019/2020 59 An EMIS Insights Industry Report 06 METALLIC AND FUEL MINERALS CONTENTS

Metallic and Fuel Minerals Production

Comments Over the years 2013-2018, the output of the metallic and fuel mineral segment expanded at a strong CAGR of 7.2%. Copper, molybdenum and iron experienced the highest average annual growth, with output rising at respective CAGRs of 12.1%, 9.3% and 7.4% over the period. In 2018, however, copper output fell 0.4% y/y, ending a six-year run of steady growth, largely as a result of geotechnical problems in the Las Bambas copper mine (more precisely, a localised wall instability that restricted access to certain parts of the pit, thus causing a 14.93% y/y contraction in production volumes). At the same time, silver, lead and zinc registered more moderate growth, with theirs outputs increasing at CAGRs of 2.5%, 1.7% and 1.8%, respectively, between 2013 and 2018. (In Peru, these three metals are often found together in the same deposits.) In 2018, zinc output remained almost unchanged, rising 0.1% y/y, whereas both silver and lead suffered major contractions in output (down 5.8% y/y and 5.7 y/y, respectively), largely explained by Minera Antamina’s switch to ores richer in zinc but poorer in lead and silver during the year. The two metallic minerals that performed worst between 2013 and 2018 in terms of output were gold and tin, which reported average yearly declines of 1.8% and 4.7% respectively. In 2018, gold output shrank by 6.1% y/y, as two mature mines suffered steep falls in ore grades (i.e. Barrick’s Misquichilca and Buenaventura’s Orcopampa mines). At the same time, tin output rebounded 4.6% y/y due to improved ore grades in Minsur’s San Rafael mine.

Metallic and Fuel Minerals Production,* Metallic and Fuel Minerals Production thou tonnes Volume by Type, 2018

14,002 13,384 11,986 Copper 11,055 17.4% 10,436 9,908

Zinc 10.5%

Iron 68.1% Lead 2.1%

Others 1.9%

2013 2014 2015 2016 2017 2018

* Includes copper, molybdenum, gold, silver, zinc, lead, iron, tin and coal. Source: MINEM, USGS, Rumbo Minero

PERU MINING SECTOR 2019/2020 60 An EMIS Insights Industry Report 06 METALLIC AND FUEL MINERALS CONTENTS

Metallic and Fuel Minerals Production (cont’d)

Copper Mine Production vs Price Zinc Production vs Price

1,473 1,475 2,446 2,354 2,437 1,422

1,701 1,351 1,376 1,378 1,337 1,315 131.4 132.5 334.1 312.0 280.4 292.6 98.2 95.0 250.8 86.6 87.5 219.7

2013 2014 2015 2016 2017 2018 2013 2014 2015 2016 2017 2018

Copper Mine Production, thou tonnes of fine copper Zinc Production, thou tonnes of fine zinc COMEX* Refined Copper Prices, USD cents/lb. LME Zinc Price, USD cents/lb.

Gold Production vs Price Lead Production vs Price

316 314 156 307 153 152

289 147 277 143 1,409.7 140 266 105.1 97.2 95.1 101.7 84.8 1,265.6 1,250.7 1,257.8 1,268.6 81.1 1,159.0

2013 2014 2015 2016 2017 2018 2013 2014 2015 2016 2017 2018

Gold Production, tonnes of gold content Lead Production, thou tonnes of lead content LMB Gold Price, USD/oz t LME Lead Price, USD cents/lb.

* Commodity Exchange of New York

Source: MINEM, COCHILCO, USGS

PERU MINING SECTOR 2019/2020 61 An EMIS Insights Industry Report 06 METALLIC AND FUEL MINERALS CONTENTS

Metallic and Fuel Minerals Production (cont’d)

Molybdenum Production vs Price Iron Production vs Price

28,141 28,034 25,757 9,534 8,806 20,153 135.4 7,663 18,000 7,193 7,321 17,018 6,681 96.8 11.4 11.9 10.3 71.8 69.7 8.2 55.2 57.7 6.7 6.5

2013 2014 2015 2016 2017 2018 2013 2014 2015 2016 2017 2018

Molybdenum Production, tonnes of fine molybdenum Iron Production, thou tonnes of fine iron US Market Refined Molybdenum Prices, USD/lb. TSI Iron Prices, USD/tonne

Tin Production vs Price Silver Production vs Price

23,668 23,105 4,375 4,418 4,102 4,163 19,511 18,789 17,790 18,601 3,674 3,768

1,041.4 1,023.0 23.9 936.7 914.7 839.1 19.1 17.1 17.1 756.4 15.7 15.7

2013 2014 2015 2016 2017 2018 2013 2014 2015 2016 2017 2018

Tin Production, tonnes of fine tin Silver Production, tonnes of silver content LME Refined Tin Prices, USD cents/lb. London Fix Silver Price, USD/oz t

Source: MINEM, USGS

PERU MINING SECTOR 2019/2020 62 An EMIS Insights Industry Report 06 METALLIC AND FUEL MINERALS CONTENTS

FOCUS POINT

Gold Production by Region, 2018, kg

31,320 (22.0%) 5,872 (4.1%)

Cajamarca Cusco

2,606 (1.8%)

Apurimac 36,300 (25.4%)

La Libertad 10,077 (7.1%) 2,753 (1.9%) Madre de Dios Ancash

1,779 (1.2%) 11,200 Pasco (7.9%) 11,751 (8.2%) Puno

Ayacucho 3,341 22,022 (15.4%) (2.3%) Arequipa 3,621 (2.5%) Tacna Others

Source: MINEM

PERU MINING SECTOR 2019/2020 63 An EMIS Insights Industry Report 06 METALLIC AND FUEL MINERALS CONTENTS

FOCUS POINT

Copper Production by Region, 2018, tonnes

33,483 (1.4%) Cajamarca 327,593 (13.4%)

Cusco 467,630 (19.2%)

Ancash

59,018 (2.4%) 385,308 Pasco (15.8%)

Apurimac 33,187 (1.4%)

Lima

224,264 (9.2%) 162,795 Junin (6.7%) 59,900 (2.5%) Moquegua

Ica 496,868 (20.4%) 168,043 Arequipa (6.9%) 18,856 (0.8%) Tacna Others

Source: MINEM

PERU MINING SECTOR 2019/2020 64 An EMIS Insights Industry Report 06 METALLIC AND FUEL MINERALS CONTENTS

FOCUS POINT

Zinc Production by Region, 2018, tonnes

235,593 (16.0%) 534,613 (36.3%) Pasco Ancash

47,440 (3.2%) 284,574 (19.3%) Junin Huanuco 909 (0.1%)

Cusco 144,772 (9.8%)

Lima

13,628 (0.9%) 281 Huancavelica (0.0%)

Puno 138,435 (9.4%)

Ica 37,716 (2.6%) 36,712 (2.5%) Arequipa 14,818 (1.0%) Others Ayacucho

Source: MINEM

PERU MINING SECTOR 2019/2020 65 An EMIS Insights Industry Report PERU MINING SECTOR 2019/2020 An EMIS Insights Industry Report CONTENTS

07 NON-METALLIC MINERALS

Highlights

Overview In 2018, Peru’s non-metallic minerals segment in Peru, comprising the production of 25 minerals, had a combined production volume of 61.8mn tonnes of gross content (31.5% y/y growth) and a value of USD 5.04bn (a 39.1% y/y increase), according to EMIS Insights estimates. In terms of production value, calcium carbonates made up the largest segment, with a 81.1% share, followed by phosphate rocks (13.9%), silica ores (2.6%), boron compounds (0.8%) and diatomite (0.7%). Over 2013-2018, the production volume of non-metallic minerals expanded at a CAGR 6.2%, driven by solid growth both in minor segments such as andesite (9.7%) and feldspar (6.8%), and in major segments such as silica ores (6.1%) and calcium carbonates (14.4%). The production value of non-metallic minerals increased at a CAGR of 6.5% over the same period.

Drivers and Constraints In 2018, the main drivers of growth in the non-metallic minerals segment were phosphate rock and calcium carbonates mining. In the case of phosphate rock, segment leader Minera Miski Mayo registered a very solid 22% y/y growth, as the company recovered fully from the effects of the El Nino Costero weather phenomenon, which had disrupted production in 2017. Moreover, Minera Chinalco, the largest player in the calcium carbonates segment, more than doubled its production at the Tunshuruco mine during the year, from 8.4mn tonnes in 2017 to 17.3mn tonnes in 2018. However, the segment continues to be held back by some restraints. In the case of phosphate rocks, a relatively large number of mining projects are currently on hold due to weak demand for phosphate-based fertilisers, which is affecting phosphate prices.

Outlook According to a MINEM report for October 2018, Peru had at the end of that month a phosphate rock investment pipeline of four projects with a combined investment value of USD 2.1bn. However, only one of these four projects, Fosfatos del Pacifico, has an established schedule for its construction phase. The mine is set to enter that phase in 2021, ending it by 2024. Fosfatos del Pacifico’s greenfield mining operations will be located at the Bayovar 9 deposit (Piura region), with a planned production capacity of 2.5mn tonnes of phosphate rock per year. The remaining three projects, which still lack a defined timetable, are: the expansion of Misky Mayo’s mining operations, with a cost of USD 300mn and a planned output of 1.9mn tonnes per year; the greenfield Bayovar 12 mine, with a cost of USD 167.7mn and a planned output of around 500,000 tonnes per year; and the greenfield Fosfatos Mantaro project, which will cost USD 850mn and has a planned output of 1.5mn tonnes per year.

Source: Rumbo Minero, BNAmericas, MINEM

PERU MINING SECTOR 2019/2020 67 An EMIS Insights Industry Report 07 NON-METALLIC MINERALS CONTENTS

Main Events

Comments § In July 2018, Canadian miner Plateau Energy Metals, announced the discovery of large lithium and uranium resources in the Falchani rock deposit, located on the Macusani plateau, 4,500 metres above sea level in the Puno region. The company’s initial estimate was that the deposit contained between 2.2mn and 2.5mn tonnes of exploitable lithium resources and between 130mn and 132mn pounds of uranium. However, in March 2019, Plateau announced that further studies had determined that lithium resources in Falchani were much larger than originally thought, reaching 4.71mn tonnes. Moreover, the company remarked that this new figure made Falchani the world’s sixth-largest rock deposit of lithium. Plateau estimates that a total investment of USD 800mn is required to exploit these resources.

§ In July 2018, another Canadian firm, Fission 3.0, announced that it was also exploring two lithium- uranium deposits located in Macusani plateau, namely, Llama Norte and Llama Sur. Ross McElroy, operational manager of Fission 3.0, noted in an interview with the El Comercio newspaper that his company was conducting exploration in an area containing nine concessions with a combined size of 5,100 ha. McElroy revealed that, at the time of the interview (July 2018), these exploration efforts had yielded preliminary figures of 520 parts per million of lithium in the minerals surveyed.

§ In May 2019, Francisco Ismodes, minister of mines and energy, declared at a press conference hosted by the Peruvian Foreign Press Association (APEP) that the government was working to establish an adequate regulatory framework for the exploitation of the lithium-uranium resources found in 2018 on the Macusani plateau – a necessary step before commercial production could be authorised. The key hurdle, according to Ismodes, was setting rules for the handling and transport of radioactive material, which were currently lacking in Peru. In that regard, Ismodes noted that MINEM was being helped in this endeavour by both domestic and foreign institutions, including the Peruvian Institute for Nuclear Energy (IPEN) and the United States Agency for International Development (USAID). However, back in December 2018, Peruvian geologist Jaime Suares, CEO of the domestic mining exploration company Geoxminco, warned on the specialised online portal Gerens that, although the Falchani rock deposit exhibited a high concentration of lithium (around 2,000 parts per million), new extractive and metallurgical technologies would need to be developed from scratch in order to separate lithium from uranium. In that sense, Suarez emphasised that lithium production in Peru before 2022 was highly unlikely and, even thereafter, would be conditional on sustained high prices.

Source: Diario de Cuyo, Diario Gestion, El Comercio, Los Andes, El Peruano, Mineria en Linea, Gerens, La Republica

PERU MINING SECTOR 2019/2020 68 An EMIS Insights Industry Report 07 NON-METALLIC MINERALS CONTENTS

Non-Metallic Minerals Reserves

Comments Overall, Peru is not a key player on the global non-metallic minerals market. The country mostly specialises in the production of non-metallic minerals for domestic sale. However, there is potential for growth in a few areas. In 2018, Peru had the world’s sixth-largest reserves of boron compounds (a total of 4mn tonnes, 0.4% of global reserves), and the fourteenth-largest phosphate rock reserves (400mn tonnes or 0.6% of global reserves). According to an October 2018 report by MINEM, there were three concessioned but still unexploited phosphate rock deposits in Peru, all of them the subject of serious plans for exploitation in the near future, in the event that phosphate prices were to improve. Two of these – Bayovar 9 and Bayovar 12 – are close together in the Sechura province of Piura region. Bayovar 9 is concessioned to Fosfatos del Pacifico, a joint venture between domestic cement company Cementos Pacasmayo (70%) and Japan’s Mitsubishi (30%), and comprises 108.1mn tonnes of minerals with an average ore grade of 17.8% phosphorus pentoxide. Meanwhile, Bayovar 12 was given under concession to Juan Paulo Quay SAC, a joint venture between Canadian fertilisers manufacturer Crops Inc (70%), Ecuadorian miner Mamut Andino (18%), and Peruvian conglomerate Grupo Romero (12%), and consists of 102.2mn tonnes of minerals with an average ore grade of 13.1% phosphorus pentoxide. Finally, the Mantaro deposit, located in Junin region, was given under concession to British fertiliser manufacturer ITAFOS, and comprises 39.5mn tonnes of minerals with an average ore grade of 10% phosphorus pentoxide.

Reserves of Phosphate Rock Compounds Reserves of Boron Compounds Reserves

820,000 820,000 820,000 820,000 4,000 4,000 4,000 4,000 4,000 4,000

400,000 400,000 0.0% 0.0% 0.0% 0.0% 0.0%

-51.2% 2013 2014 2015 2016 2017 2018 2013 2014 2015 2016 2017 2018

Phosphate Rocks Reserves, thou tonnes y/y change Boron Compounds Reserves, thou tonnes

Source: MINEM, USGS

PERU MINING SECTOR 2019/2020 69 An EMIS Insights Industry Report 07 NON-METALLIC MINERALS CONTENTS

Non-Metallic Minerals Production

Comments Over the 2013-2018 period, Peru’s output of non-metallic minerals expanded at a solid CAGR of 6.2% in volume terms, thanks especially to the strong performances of calcium carbonates (14.4%), silica ores (6.1%), and sodium chloride (4.6%). At the same time, the output of other key non-metallic minerals performed poorly in the same period, with boron compounds, phosphate rocks, diatomite and clays shrinking by an average of 14.8%, 7.0%, 5.0% and 3.4% per year, respectively. In 2018, the aggregate production volume of non-metallic minerals expanded by 31.5% y/y to 61.8mn tonnes, with calcium carbonates as the major driving force (up 47.5% y/y). Minera Chinalco, the largest player in the calcium carbonates segment, more than doubled its production at the Tunshuruco mine during the year, from 8.4mn tonnes in 2017 to 17.3mn tonnes in 2018. Phosphate rock output also had a very good year, expanding 22.0% y/y in volume, as Minera Miski Mayo, the most important player in the phosphate rock segment, fully recovered from the effects of the early 2017 flooding, which halted production for several months during the year. In a May 2018 interview with online portal InfoMercado, Jose Luis Vega, communications manager of Minera Miski Mayo, emphasised that the company expected to rebound fully in terms of production volume in 2018, despite the unfavourable context of low international phosphate rock prices (which declined 7.7% y/y), mainly thanks to significant efforts to improve productivity and curtail production costs.

Non-Metallic Minerals Production,* Non-Metallic Minerals Production Volume thou tonnes by Type, 2018 Gypsum Sodium Clay 2.3% 0.5% 61,839 Chloride 55,615 2.4% 51,282 Silica Ores 45,875 47,387 47,013 3.4%

Phosphate Rocks 13.7% Others 40.4%

Calcium 2013 2014 2015 2016 2017 2018 Carbonate 37.4%

* Includes the top 25 non-metallic minerals of Peru

Source: MINEM, USGS, InfoMercado

PERU MINING SECTOR 2019/2020 70 An EMIS Insights Industry Report 07 NON-METALLIC MINERALS CONTENTS

Non-Metallic Minerals Production (cont’d)

Calcium Carbonate Production vs Price Phosphate Rocks Production vs Price

14,842 34,084

10,884 11,162 26,692 23,104 10,561 10,308 23,098 22,240 121.8 8,450 121.5 121.0 91.1 17,428 120.0 78.6 119.1 76.9 73.7 72.4 68.0 117.8

2013 2014 2015 2016 2017 2018 2013 2014 2015 2016 2017 2018

Calcium Carbonate Production, thou tonnes Phosphate Rocks Production, thou tonnes Quicklime Average Value, United States, USD/Tonne Phosphate Rock Mine Price, United States, USD/Tonne

Boron Compounds Production vs Price Clays Production vs Price

1,484 1,372 1,407 1,399 579 550.0 1,330 500.0 15.0 1,156 433.0 13.0 13.0 13.0 400.0 390.0 12.0 372.0 11.0

224 240

101 34 0

2013 2014 2015 2016 2017 2018 2013 2014 2015 2016 2017 2018

Boron Compounds Production, thou tonnes Clays Production, thou tonnes Boron Minerals Average Price, United States, USD/Tonne Common Clay Price, United States, USD/Tonne

Source: MINEM, USGS

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Non-Metallic Minerals Production (cont’d)

Silica Ores Production vs Price Diatomite Production vs Price

151 380 2,520 2,487 360 125 121 2,166 2,071 2,116 107 293 300 290 1,849 280 97 97 74.8

55.8 52.6 53.1 47.3 35.4

2013 2014 2015 2016 2017 2018 2013 2014 2015 2016 2017 2018

Silica Ores Production, thou tonnes Diatomite Production, thou tonnes Sand and Gravel Price, Industrial, United States, USD/Tonne Diatomite Price at Plant, United States, USD/Tonne

Sodium Chloride Production vs Price Talc Production vs Price

1,510 33 1,471 1,450 1,481 29 214 216 1,205 27 1,175 197 186 10.3 10.0 10.0 171 163 21 9.1 19 8.5 8.3

2013 2014 2015 2016 2017 2018 2013 2014 2015 2016 2017 2018

Sodium Chloride Production, thou tonnes Sodium Chloride Production, thou tonnes Salt in Br ine, United States, USD/Tonne Talc Price, Milled, United States, USD/Tonne

Source: MINEM, USGS

PERU MINING SECTOR 2019/2020 72 An EMIS Insights Industry Report PERU MINING SECTOR 2019/2020 An EMIS Insights Industry Report CONTENTS

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