THE MINERAL INDUSTRY OF PERU By Alfredo C. Gurmendi In 2002, Peru remained among the leading world producers 2000 to 2002, although at a slower pace. Foreign investors of such mineral commodities as arsenic (after China and Chile), continued to view Peru as an attractive Latin American bismuth (China and Mexico), copper (Chile, the United States, open market economy because the Government guarantees and Indonesia), lead (Australia, China, and the United States), property ownership, investments, free remittance of profits, rhenium (the United States), silver (Mexico), tin (China), and capital repatriation and provides equal treatment with and zinc (Australia and China) (Brooks, 2003; Carlin, 2003; domestic investors. The Government also slashed subsidies Edelstein, 2003; Hilliard, 2003; Jorgenson, 2003; Magyar, 2003; and tariffs, freed foreign exchange and interest rates, liberalized Plachy, 2003; Smith, 2003). international investment rules, simplified the tax code, In 2002, with a population of more than 28 million, Peru established concessions for construction and operation of public had a gross domestic product (GDP) of $57.4 billion1, or $132 infrastructure (airports, ports, roads, and telecommunications), billion in terms of purchasing power parity. Peru’s GDP growth and embarked on fiscal austerity and investment in social was quite substantial―4.5% compared with 0.2% in 2001. development and agriculture, which was to establish a friendly The annual inflation rate in 2002 was 1.52% compared with a relationship with the local communities and to maintain its negative 0.1% in 2001 (Ministerio de Energía y Minas, 2003a, role of that of regulator, promoter, and overseer (Ministerio de p. 22; Banco Central de Reserva del Perú, 2003§;2 U.S. Central Energía y Minas, 2002, p. 6, 24). Intelligence Agency, 2003§). The minerals and hydrocarbon According to the United Nations’ Economic Commission for industries contributed with 6.4% of Peru’s GDP compared with Latin America and the Caribbean, the decrease of foreign direct 6.1% in 2001 and 5.4% in 2000. Peru’s mining industry, which investment (FDI) in Latin America and the Caribbean, which has consistently been the country’s major foreign exchange began in 2000 and reflected changes in the world and regional generator, accounted for about 45% ($3.5 billion) of total export economies, was more prevalent in 2002. At the hemispherical revenues of $7.7 billion in 2002. In 2002, Peru’s trade balance level, such factors as slower economic growth, the apparent end recorded a surplus of about $207 million compared with a $267 of the privatization process, and the deep decline in acquisition million deficit in 2001 and the highest deficit of $616 million in of local assets; economic and political crises in Argentina, 1999. Peru’s trade grew by 5.5% compared with 1.4% in 2001 Uruguay, and Venezuela; and sluggish growth in demand in (Ministerio de Energía y Minas, 2003a, p. 20-22, 39; Banco the United States also affected these Caribbean and Latin Central de Reserva del Perú, 2003§). Metal exports in 2002 American economies. The global and regional conditions had (more than $3.7 billion) increased by about 17.2% compared a less adverse effect on FDI in the Mercado Común Andino with those of 2001 (almost $3.2 billion), although the prices (ANCOM) (Bolivia, Colombia, Ecuador, Peru, and Venezuela) for major mineral exports (in order of importance, copper, zinc, where the primary sector minerals (metals, industrial minerals, lead, silver, tin, and iron) remained at low levels, except gold, and fuel minerals) predominated, but instability in the Mercado which increased to $347 per troy ounce at the end of 2002 Común del Cone Sur (MERCOSUR) (Argentina, Brazil, from $276 per troy ounce at the end of 2001 (Banco Central Paraguay, and Uruguay and associate members Bolivia and de Reserva del Perú, 2003§). Peru’s foreign debt amounted to Chile) countries affected their attractiveness to transnational $28.3 billion, which was 2.5% higher than that of 2001 ($27.6 firms that implement open market investment strategies billion) and remained about the same level as that of 2000 (Economic Commission for Latin America and the Caribbean, ($28.4 billion), and its net international reserves increased to April 2003§) $9.6 billion from $8.6 billion in 2001 and from $8.2 billion After a decade of unprecedented growth (1990-2000), the in 2000 (Ministerio de Energía y Minas, 2003a, p. 18, 36-39; FDI inflows into the Caribbean and Latin America decreased Muñiz, 2003; Banco Central de Reserva del Perú, 2003§). to $56.2 billion in 2002 from $84.0 billion in 2001; South Peru has immense metal and oil and gas resources, which America’s FDI inflows declined sharply to $27.7 billion in 2002 offer investment opportunities. The privatization of state- from $39.6 billion in 2001; MERCOSUR plus Chile’s FDI owned firms and the formation of joint ventures and consortia inflows declined to $19.4 billion in 2002 from $30.7 billion in in the mining and fuels industries started off at a vigorous pace 2001. In the Andean community where higher risk investments between 1991 and 1993 and have continued in fiscal years in such minerals as diamond, gold, and hydrocarbons were more common, FDI was less impacted by the global downturn and with less severity than in the region, and the inflows declined to 1 Where necessary, values have been converted from Peruvian new soles (S/) to U.S. dollars (US$) at the rate of S/3.52=US$1.00. $7.2 billion in 2002 from $8.8 billion in 2001, or by about 18% 2 References that include a section mark (§) are found in the Internet (Economic Commission for Latin America and the Caribbean, References Cited section. April 2003§). THE MINERAL INDUSTRY OF PERU—2002 14.1 In fiscal year 2001-02, investments were being used to Government officials estimated that Centromín’s privatization modernize Peru’s industrial infrastructure. Future foreign could generate around $2.1 billion and that privatization investments in the minerals sector are projected to be about earnings could be increased to between $3 billion and $4 billion $17 billion, which is the largest committed capital to date, and on additional sales of Government assets, such as the Talara will contribute significantly to the future of Peru’s economic oil refinery and the Mantaro hydroelectric complex, possibly development (Ministerio de Energía y Minas, 2002, p. 10). between 2003 and 2005. One successful acquisition in 2002 According to the Comisión Nacional de Inversiones y was that of the Minera Pampa de Cobre S.A., which was Tecnologías Extranjeras (CONITE), Peru registered more than bought by Phelps Dodge Chapi Inc. of the United States in June $11.5 billion of FDI, which was about 15.2% higher than that 2002 for $130 million (Comisión Nacional de Inversiones y of 2001 (almost $11.0 billion); FDI was about $10.2 billion Tecnologías Extranjeras, 2003b§). in 2000, almost $9.5 billion in 1999, and $8.1 billion in 1998. In fiscal year 2001-02, mine expansions with total Peru had a decade of unprecedented growth (1992-2002), flows investments of $1.4 billion were completed. The most important of FDI into Peru in general increased to $11.5 billion in 2002 completions were Southern Peru Copper Corp.’s (SPCC’s) from $1.5 billion in 1992 partly owing to the country’s relative Cuajone Mine, to 87,000 metric tons per day (t/d) of copper ore stability in the economic and political fronts augmented by from 60,000 t/d; the concentrator, leaching, and ion exchange its natural resources, mainly metals and oil and gas, which plants at SPCC’s Toquepala Mine, to 60,000 t/d of copper ore were less affected by the global downturn and the adverse from 45,000 t/d; Cía. Minera Atacocha S.A.’s (Atacocha’s) international economic conditions that included the aftermath mill, to 3,500 t/d of lead-zinc concentrates from 2,100 t/d; of recession in the United States and lower growth in Europe Empresa Minera los Quenuales S.A.’s Iscaycruz mill, to 2,500 and Japan (Comisión Nacional de Inversiones y Tecnologías t/d of zinc ore from 1,700 t/d; and the gold smelter at Minera Extranjeras, 2003a§). Yanacocha S.R.L.’s (MYS’s) Yanacocha Mine, to 350 t/d from The Ministerio de Energía y Minas reported that Peru 150 t/d. Sociedad Minera Refinería de Zinc de Cajamarquilla received almost $3.4 billion of FDI in the minerals sector S.A. (Teck Cominco Ltd., 87%; Marubeni Corp. of Japan, (mining, $1.7 billion; gas, $1.6 billion; and petroleum, $98 13%) was considering building an equivalent 120,000-metric- million) compared with more than $3.3 billion in 2001, $3.4 ton-per-year (t/yr) zinc refinery next to the existing facility, billion in 2000, and $1.8 billion in 1999 (Ministerio de Energía but it was postponed because of lower zinc prices in the open y Minas, 2002, p. 8, 20-26; Banco Central de Reserva del Perú, market (Ministerio de Energía y Minas, 2002, p. 29; Instituto de 2003§). Ingenieros de Minas del Perú, 2003b, p. 70). CONITE reported that since July 19, 1991, when the In fiscal year 2002-03, mine projects with a total investment privatization program began, the Peruvian Government had of $2.6 billion were completed, such as BHP Billiton Tintaya privatized more than 230 state-owned corporations and netted S.A.’s ion exchange plant to treat copper oxides in Yauri, $10.5 billion, and new investments of $12.7 billion have been Department of Cusco; Cía.