Mining in Peru The country emerges from the low cycle as the world’s second largest copper producer TABLE OF CONTENTS Rethinking the Future.......................................p54 This report was researched and prepared by Production Overview.........................................p57 Global Business Reports (www.gbreports.com) for Interview with Gonzalo Tamayo, Engineering & Mining Journal. Peru’s minister of Energy and Mines....................p58 The Junior Segment: Picking Up.......................p63 Editorial researched and written by Alfonso Tejerina, Engineering and Construction............................p69 Imara Salas, Alice Pascoletti and Laura Brangwin. Equipment and Services....................................p75 For more details, please contact [email protected]. Cover photo courtesy of Ferreyros. A REPORT BY GBR FOR E&MJ AUGUST 2017 MINING IN PERU Rethinking the Future As the industry becomes more dynamic globally, new strategies are required to avoid fresh growing pains Las Bambas is expected to yield between 420,000 and 460,000 mt Cu this year. Photo courtesy of Las Bambas - MMG. With decent gold and silver prices and a Peru is already one of the most competi- extend the mine life. Also, we have 7 million very positive upward trend in base metal tive mining producers worldwide. Reason- metric tons (mt) of oxides that are not includ- prices over the last months, miners world- able labor costs and a favorable exchange ed in our mining plan today. Before the end wide seem to have more confidence in the rate during 2016 played their part, but man- of the year we could have a feasibility study near-term future. In Peru, leaders surveyed agers locally also implemented a number of for a leaching process facility,” said Rivera. confirm activity has been picking up and that strategies to make the most of their existing Such efforts are replicated across the operators, after a great deal of cost-cutting operations. underground segment as well. Hochschild and efficiency-searching, are finally in a Luis Rivera, executive vice-president for Mining, a precious metals producer, current- healthier position to make the investments Gold Fields in the Americas region, described ly has all-in sustaining costs of $11.5 per in capital equipment, exploration and other how the company achieved significant sav- ounce of silver equivalent, as compared to fields that had been deferred over the previ- ings at their Cerro Corona gold-copper mine $22/oz five years ago. Meanwhile Southern ous three years. in Cajamarca during 2016. The measures Peaks Mining has reduced the production The down-cycle was a long, difficult jour- implemented included the use of additives to cost at Condestable, a medium-sized cop- ney. This experience should ensure that, diminish fuel consumption, a more produc- per operation, from $42.9/mt processed in while companies finally look for growth and tive blasting process, the implementation of 2013 to $25/mt today. new brownfield or greenfield projects, they the dispatch system for more efficient haul- Adolfo Vera, president and CEO of South- do not neglect to focus on maintaining low age, the installation of a gravimetric circuit ern Peaks, explained that the company has production costs. According to Víctor Gobitz, for higher gold recovery and an increased always been comfortable hedging some of president of the Peruvian Institute of Mining copper recovery rate through the use of their production to minimize the risk of short- Engineers (IIMP) and CEO of Buenaventura: better reagents. “In 2017, we are trying to term market fluctuations, but emphasized “The mining industry is a price-taker. We improve our mine wall conditions to access that they have also introduced significant cannot assign different attributes to what we deeper mineralization with higher grades. longer-term changes to the operation since produce to sell it at a higher price, like the This, coupled with our better cost position, they acquired the asset from Trafigura in automotive industry does, for instance.” would allow us to expand our reserves and 2013: “We have migrated towards massive methods that are less labor intensive. 70% of our production is achieved through sub- level stoping, as opposed to 30% before [...] A paradigm shift is to see Condestable as a poly-metallic mine and no longer as a copper mine. In the past, we have always focused on the copper head grade, but now we ana- lyze the copper-equivalent grade,” Vera said. Shortage of new projects According to estimations from the Minis- try of Energy and Mines and Peru’s Central Reserve Bank, total mining investments fell by nearly half year-on-year, from $7.5 bil- Víctor Gobitz, president, IIMP; CEO, lion in 2015 to less than $4 billion in 2016. Buenaventura. Luis Rivera, executive VP Americas, Gold Fields. Gonzalo Tamayo, Peru’s Minister of Energy 54 E&MJ • AUGUST 2017 www.e-mj.com MINING IN PERU and Mines, anticipated even lower levels of “With the exception of Quellaveco, most capital investment in the short term: “It is projects are in the range below $1 billion. absolutely normal that expenditure levels de- It is going to be a challenge to promote this crease after world-class projects such as Las new generation of projects,” he said. Bambas, Toromocho and the Cerro Verde It seems clear that Peru will receive new expansion,” he said. greenfield investments over the next years, The $1.2 billion expansion of Southern but for that to happen, the authorities need Copper’s Toquepala operation and Shou- to make sure all the conditions are met for gang’s expansion at the Marcona iron ore investors to spend money in Peru rather operation are currently the largest projects than in other jurisdictions. Competition is under implementation, but since social is- tough and countries like Ecuador and Ar- sues put a stop to emblematic projects such gentina are taking decisive steps towards as Conga and Tía María, the general election developing their mining industries. Compa- and a fairly depressed copper outlook did not nies with assets in Peru, like Fortuna Silver Luis Marchese, president, SNMPE; country help the industry push for new ventures. manager, Anglo American. and First Quantum, for instance, have al- Yet, winds of change can already be ready acquired assets in Argentina. felt. According to Minister Tamayo: “Metal price earlier this year, providing a better On the regulatory side, Peru is consid- prices are improving and we expect com- picture for new project developers. Also, ered to be fairly competitive and it has cer- panies to take positive decisions this year the fact that industry association SNMPE is tainly proven to be a friendly investment with regard to new projects, like Pampa de chaired by Anglo American’s country man- destination for the last quarter of a century Pongo, Corani and Mina Justa, which should ager is a sign that the company will sooner - a track-record that Argentina, with tax re- translate into higher investment levels from or later move ahead with the Quellaveco tention on exports and currency exchange 2018 onwards. We also expect a decision on copper project, after years of back and limitations only abolished recently, cannot Quellaveco mid-2018.” forth, while other large players in the coun- match yet. If anything, with the develop- Several factors, internal and external, try like Southern Copper also anticipate ment of the industry over the boom years, explain this optimism. The election of Pe- significant expenditures to expand the Cua- Peru has suffered from an overregulation dro Pablo Kuczynski last year, a business- jone operation as well as the Ilo smelter effort. Marchese of SNMPE referred to the friendly President, came hand in hand with and refinery. Luis Marchese, president of fact that, over the last 10 to 12 years, the the production constraints at Escondida in SNMPE, hopes that industry investments amount of permits required to move a proj- Chile and Grasberg in Indonesia. This ac- will outperform the $14 billion predicted by ect into production has quadrupled, from centuated the upward trend of the copper the government for its five-year mandate. 50 to 200 today. www.e-mj.com E&MJ • AUGUST 2017 55 Community relations Obtaining a social license has become an important risk factor that companies need to address from the beginning, and getting the go-ahead to build the mine and initiate pro- duction does not guarantee that the opera- tion will not be halted later on. Las Bambas, one of the country’s largest copper mines, reached commercial production last year, but had to find alternative routes to take its concentrate to the port of Matarani as the locals blocked the main road for months. This also had a domino effect over neigh- boring projects. First Quantum Minerals, for instance, decided to postpone resettlement Julia Torreblanca, VP corporate affairs, Cerro Verde. discussions with the communities in the Haquira project, a deposit hosting 6.5 mil- The model of the Mining Canon, whereby lion mt of copper, until the social context in a percentage of the income tax paid by the the Apurimac region calms down a bit. Ha- mines goes to the regional and local govern- quira would require around 1,000 people ments, has proven ineffective due to the in- to resettle. ability of the different institutions to execute Mike Parker, general manager for South development projects in a timely manner. American projects at First Quantum, ex- During the Alan García government, the Vol- plained the rationale behind this move: untary Contribution program was praised for “Apurimac is undergoing profound changes its capability to implement development proj- with the influence of Las Bambas and nearby ects, while other initiatives are currently being Constancia in Cusco to some extent. [...] That handled under the Works for Taxes program. situation does not bode well for a project like In some cases, companies have decided ours to try to talk about resettlement.” to invest in development projects of their The authorities should take these issues own, on top of the taxes due by law.