Peru’s mining industry In Need of a Jump-Start TABLE OF CONTENTS Introduction...................................................p66 This report was researched and prepared by Global Mining Production............................................p68 Business Reports (www.gbreports.com) for Engineering Community Relations........................................p74 & Mining Journal. Feeding the Project Pipeline..............................p76 Engineering and Construction.............................p80 Editorial researched and written by Alfonso Tejerina, Mining Services................................................p85 Laura Brangwin, Katherina Prügel and Miguel Pérez- Solero. For more details, please contact: [email protected] Cerro Verde has invested $5.6 billion to expand copper production: $4.6 billion to add extra capacity of 240,000 mt/d to its concentrator, and $1 billion to build a new leach pad and improve the existing concentrator and SX/EW facilities, among others. Photo courtesy of Freeport-McMoRan. A REPORT BY GBR FOR E&MJ AUGUST 2016 MINING IN PERU ous government. What we have seen is the exact opposite: projects being put on hold. If we have five more years of drought, this Introduction will result in an overall delay of 15-20 years before new mines come into production. It The election of a proactive, business-friendly is an emergency for Peru’s mining industry.” president should give new impulse to project Carlos Gálvez, president of the National Society of Mining, Petroleum and Energy development once metal prices are back (SNMPE), the main industry association, looks south and explains that Peru has a lot to learn from Chile in terms of its long-term plans and policies: “The international prices have been exactly the same for Peru and Chile. The difference is that in Chile, people are aware that copper is their bread and but- ter. Chile is a mining country, while Peru is a country with mines. To be a mining country, Peru will produce more than 2 million metric tons of copper this year. Image: Toromocho we need to share a conviction that mining is concentrator, courtesy of Chinalco. our biggest strength.” Despite these challenges, many in the The Ollanta Humala administration has (-12.3%) performed worse in terms of vol- sector are optimistic. Mariela García de Fab- drawn to a close. The election of Pedro umes as compared to 2014. bri, CEO of Ferreycorp, a large holding whose Pablo Kuczynski as the country’s president, The question now is ‘what’s next?’ 2016 main business is the Caterpillar representa- popularly known as PPK, has created fresh may see the expansion of Southern Copper’s tion in Peru, expects mining to continue being optimism within the business community Toquepala operation as the only sizeable the backbone of the economy: “In 2015 and in Peru. Many in the mining industry blame capital endeavor. Other large copper proj- 2016, the rhythm of mining investments has Humala for inaction when the country ects in the pipeline, like Anglo American’s slowed down, yet we strongly believe that needed new projects to keep pushing GDP Quellaveco, Rio Tinto’s La Granja, China mining is here to stay, at least for the me- growth. After all, the Conga and Tía María Minmetals’ El Galeno or First Quantum’s Ha- dium term. The portfolio of mining projects is projects are still on hold. quira, will still require some time to come worth $60 billion. In 12 to 18 months, with The outgoing administration, however, is online, provided positive investment deci- just one or two announcements for new large not satisfied with this negative perception sions are triggered and the respective social projects, we will be again in a great growth and presents a different picture: between licenses are obtained. position.” 2011 and 2015, total mining investments The fact that these projects have been in Kuczynski will now have to prove to be in the country reached a record $42 billion. the Ministry’s pipeline for years frustrates in- decisive enough to tackle potential social un- It is true that while the government did not dustry leaders because they are yet to trans- rest and promote new investment. Whether want to side with mining companies for the late into real production and real value for the he can unlock Conga and Tía María or not re- most conflictual projects, it did not act as an country. In other words, the industry has done mains a big question mark, but a recovery of obstacle to other large ventures either. well, but could have done so much better. metal prices would entice investors to pour Peru is unlikely to maintain its GDP Ernesto Balarezo, vice-president for the money into other projects. In the meantime, growth levels without fresh investment in the Americas at Gold Fields, laments that no new increased copper production during the year mining sector. After a disappointing 2.35% project has been added to the pipeline during will have a positive impact in Peru’s GDP expansion in 2014, growth levels reached the 2011-2016 Humala administration. “All growth figures, supporting the argument 3.26% in 2015. This was mainly a result of the projects that started production recently, that, if Peru is to diversify its economy, it the commissioning of two enormous copper such as Las Bambas, Inmaculada or the ex- needs to do so without turning its back on its projects: the expansion of Freeport-McMo- pansion of Cerro Verde, come from the previ- main driver: the mining industry. Ran’s Cerro Verde to 360,000 metric tons of throughput per day (mt/d), and the com- mencement of operations of Las Bambas, operated by Australian-Sino company MMG. Looking at the latest figures, copper pro- duction jumped from 1.3 million mt/y in 2014, to 1.7 million mt/y last year, with expectations to reach 2.3 million mt/y in 2016, as the latest new ventures reach full capacity. After three years of decline, gold production went up last year, reaching 4.66 million troy ounces per year (oz/y); silver production rose and reached 131.9 million oz/y. Zinc (+7.7%), lead (+13.4%) and mo- lybdenum (+18.1%) also recorded positive growth figures. Only tin (-15.5%) and iron Carlos Gálvez, president, SNMPE. Mariela García de Fabbri, CEO, Ferreycorp. 66 E&MJ • AUGUST 2016 www.e-mj.com MINING IN PERU www.e-mj.com E&MJ • AUGUST 2016 3 MINING IN PERU Mining Production Peru’s competitive cost position helps generate free cash flow, the mining producers’ new mantra Las Bambas reached commercial production in July 2016. Photo courtesy of Austin Engineering. Peru not only has one of the largest mining five years which, although smaller than the With regard to La Arena, the operation industries worldwide in terms of production, oxides production, is still significant and is currently exploiting the gold oxides where it is also one of the most profitable jurisdic- opens the door to unlock other potential re- mineral reserves were still 919,000 oz as of tions for those companies that were success- fractory ore sources in the surroundings. It the beginning of this year (taking the com- ful in project development. would be the first autoclave plant in Peru,” pany through to 2021). Tahoe is working Looking at the international gold pro- Fumagalli said. to expand gold resources there, while there ducers, their all-in-sustaining-cost (AISC) A growing player in Peru’s gold spectrum is also the copper resource underneath: “At position in Peru outperforms their global is Tahoe Resources, a medium-sized pro- La Arena we have not closed the Calaorco averages. Barrick’s Lagunas Norte operation ducer that has significantly raised its profile pit, but expanding it would probably need produced at an AISC of $509/oz last year, through the acquisitions of Rio Alto Min- higher gold prices. We also have the copper far below the company’s $831/oz average. ing and, more recently, Lake Shore Gold in resource of 274 million mt at 0.33% Cu and Gold Fields’ Cerro Corona gold and copper Canada. The company’s two assets in Peru 0.24 g/mt Au (M&I). Current copper prices operation yielded costs of $700/oz of gold are La Arena, which produced 230,000 oz are a bit low for us but we continue working equivalent, while the company’s average is of gold last year, and Shahuindo, a project in on the engineering to define a possible cop- $1,026/oz. Cajamarca that will be reaching commercial per mining operation. Combining our gold With the gold price at stable levels in production this year. oxide and the copper-gold sulfide reserves, the $1,200-1,300/oz range, any mine with Tahoe’s VP of operations Tim Williams there is potential for us to have a continu- costs below $1,000/oz not only has a healthy commented on the progress at Shahuindo: ous presence in Peru for the next 20 years,” margin, but also is in an enviable position to “Construction started last year and the start- emphasized Williams. capitalize on the next bullish rally. “Today, up pad with a capacity of 4.5 million metric South African company Gold Fields is it is not about producing more for the sake tons (mt) has been completed for the cur- also looking at how to extend its Cerro Co- of producing more. It is about producing in rent 10,000 mt/d mine plan. One difference rona operation beyond 2028, when the a profitable manner, maximizing free cash with the La Arena process is that Shahuindo reserves will be exhausted, but the mine is flow,” said Manuel Fumagalli, executive di- recoveries will greatly benefit from crushing space-constrained and the Cajamarca region rector of Barrick in Peru.