1. Focus: Peru
Gkncore Xstrata completed
the USS 1.47 bllBon Antapaccay
expansion project at its Tintaya
mine in 2012
Toronto welcomes Latin flavour
Peru will keep one country's growth prospects on a 2014 PDAC menu that may be less appetising than usual
C
ould there be a better inaugural 'country
sponsor'for this year's PDAC conference than
Peru?
As the mining investment world looks for good
news stones amid the fog (let us imagine the gloom
is becoming more translucent), Peru continues to
build its case to be considered the emerging eco-
nomic and mining powerhouse of Latin America.
This year, as delegates at the major Toronto min-
ing investment conference will bear often next
month, development milestones for key resources
projects give Peruvian government representatives
and major investors in the country more opportuni-
ties to trumpet the country's credentials.
According to global accounting firm Ernst &
Young (EY), latest data suggests that in 2014 Peru
mining investments could reach a record of USS14
billion after hitting USS10 billion last year. That pre-
vious record mark was driven mainly by large-scale
projects such as Aluminum Corporation of China
Ltd's (Chinalco) USS4.8 billion Toromocho copper
venture, Freeport-McMoRan Copper & Gold Inc's
US$4.4 billion Cerro Verde expansion, and Hudbay
Minerals Inc's USS 1.8 billion Constancia project.
While a recent International Monetary Fund (IMF)
report warned lower commodity prices could unset-
tle the Peruvian economy in 2014, others point to its
growing resilience and to significant capital inflows
and continued reforms that should prove helpful in
continuing the country's healthy growth.
"In recent years, Peru has achieved significant
advances in social and development indicators as
well as in macroeconomic performance, with very
dynamic GDP growth rates, reduction of external
debt, a stable exchange rate, and low inflation -
which in 2013 was below the upper limit of the
Central Bank target range of 1% to 3%,' EY says in
its 2014-15 Peru mining investment guide.
"The country has had continuous economic and
political stability since the early 1990s. The Peru-
vian economy has been growing by an average
6.4% between 2002 and 2012 - the highest 10-year
average growth in Peru's history. This growth was
largely driven by prudent macroeconomic policies,
investor-friendly market policies and the govern-
ment's aggressive trade liberalisation strategies.
"Peru's rapid expansion has helped to reduce the
national poverty rate from 48.5% in 2004, to about
24.5% of its total population in 2013."
EY said growth was slowing in a context of lower
prices for Peru's largest commodity exports, but the
"country's economy remained strong in 2013,
growing about 5%, down from 6 3 % in 2012*.
"Despite the slowdown in 2013. Peru's economic
growth will continue to be one of the strongest
among peers, as the central bank now expects
growth of around 6% in 2014," the firm said. "It is
expected that the increase in mineral production
will support Peru's economic growth over the next
few years as metal pnces have weakened.
Fast facts: Peru
• Capital: Lima
T Population: 29.99 million
• Real GDP growth:
63% (2012 est)
• Currency:
Peruvian nuevo sol
"An estimated US$593 billion is expected to flow
into the country over the next few years... [w/fh]
new mines and expansion projects expected to
more than double its copper production by 2016.
The mining sector has real potential for growth and
further expansion."
EY Peru country manager Jorge Medina Mendez
says that as other parts of the world grapple with
weak growth, Latin America is "moving ever higher
up the global business agenda".
"Peru, in particular, has staged a remarkable
comeback from the difficult years of the 1980s and
1990s." he said.
"After years of conflicts with Maoist terrorists and
other challenges, Peruvians have seen a steady
increase in income and a dramatic drop in poverty."
Banking on growth
Mendez said World Bank data showed that since
2004 alone, per capita income in Peru nearly dou-
bled from US$5,530 in purchasing power parity
terms to US$9,440 in 2011. National GDP grew from
US$26.3 billion in 1990 to US$176.9 billion in 2011.
Over the same period the national poverty rate
fell from 58.7% in 2004, to 27.8% in 2011. Exports, a
key source of foreign exchange, grew from 14.8%
of GDP in 1999 to 28.7% in 2011.
"As in most Latin American economies, high
commodity prices have helped boost growth,'
Mendez said. 'But the most important factors in
Peru's turnaround are its sound economic policies.
As a result of responsible macroeconomic steward-
ship, the country's sovereign debt ratings have
achieved investment grade ratings from Standard
& Poor's and Moody's."
Last August, S&P praised the administration of
president Ollanta Humala, who is more than half-
way through his term in office after narrowly win-
ning the 2011 election, for its infrastructure

2. Focus: Peru
Expansions
Confirmed investment
With feasibility studies
Exploration
Mining projects pipeline... mining and
metals investment over the period 2014-
2020is estimated by Peru's Ministry of
Energy and Mines to be around USSS9S
billion. About 62% will be invested in
copper projects, with gold and iron ore set
for much of the rest. This diagram shows
the projects involved. It distinguishes
between expansions of existing operations,
projects under construction for which
investment is confirmed, projects for which
feasibility studies have been carried out
and exploration projects
Las Bambas
GiencoreXstrata
(Switzerland)
Qusllavsco
Anglo American
Qx%WcoS4(UK)
Shoxin
(jplotac de fldaves
Shoxin (China)
Minas Conga
Ncvrmont.
Buenaventura iPenù
To romocho
Oànalco- AUmhum
(Corp. of China)
Constancia Invicta
Hudbay Peru SAC Imicta Mining Corp
{Canada) (Canada)
Ollachaa
.Minero.'«
írdCAustnia)
San Luis
Mian i Ventures SAC
(Canada)
Inmaculada
liodadiïd
Miningpk (USA)
Corani
Bear Creek Urning
CUS)
Shahuindo Crespo
Soliden GoldCorp GnjpoKodixhld
(Carada) (Peru)
Grupo Mexico
(Morico)
Proy Fosfatos
Cementos Poctnmayo
(Peru. Korea. Japan)
ñon Magistral
CfupoMüpo GntpohUpo
(Peru) (Peru)
Aaha MarcobrolfcnaJosta Haquan t "
SrKorv Mctoh Grupo SbcjÎ4 JCorao Resource^ LS-MUo Coopv Antom Mmmrfs '
(Canada) (Peni- Corea Japân) (Canada) J Ê
u H o n d o » MkfckpOav La Granfa PampadaPongo O w o o k i
oupSA GnpoVokm Anglo Amanean Uichiquiay SA R*> Tinto Naopnrhoo Group Co Cantm dJ HaBaigo
0 (Peru) (UO (UK-Australia) (China) (Peni)
fi alian
Jumau Coopm >
(Oiina) 1
Condcnf* Resources AQM Cooper ZfrnMninGroop Wrfim Mirartg Zincotv kfatah Inc Aitoqii ox^jc/ Mm Hampton Paru Gtxjpo G Cfliril)
(Canada) (Canada) (China) (Japan) (Canada) China) (Australia) (Per*
StrAe Resources Peru SAC
(AustnSa)
Grupo Uraco Grupo G Costilo focus Venti«»
(Mea ico) (Peni) (Canada)
C m C c o H w f h a q a g
Cuanro Resources Ine
(Canada)
Saémaeras da Sedi
Gro—Mm ÀanCa
(Canai)

3. Focus: Peru
investments. The ratings agency claims these pro-
jects could be instrumental in increasing Peru's
copper exports in the next few years. The wealth of
possibilities in the country would have been unim-
aginable two decades ago, Méndez said.
Between 2011 and 2021, Peru's total exports are
expected to rise a further US$223 billion, led by met-
ak (US$8.6 billion} and manufacturing (US$7.693 bil-
lion), with yearly exports likely to grow most to China
<8.9%), India (8.2%) and Argentina (5.6%).
Jose Blanco, principal of advisory firm Blanco Part-
ners and chairman of the Australia-Latin America
Business Council, said Chinese companies, which
currently supported about a quarter of Peru's mining
investments, would continue to be key players.
Shougang Corp, one of China's largest steelmak-
ers, plans to invest US$1.2 billion at its Marcona
iron-ore mine to double annual output to 2 0 M t
Chinalco's Toromocho mine expansion is expected
to be at full capacity by the September quarter of
this year, and Chinese interests are rumoured to be
the likely buyers of the US$6 billion Las Bambas
project that Glencore Xstrata pic is selling.
But Chinese companies are not the only ones
beefing up their operations in Peru. US-based Free-
Nationalism worries fade
At a time when commodity prices are
weak and capital expenditure is bang <
resource nationalism has been rearing i
ugly head.
Increased tax and royalty burdens, in
addition to rising free-carried interests,
have put many mining companies off
investments and despite Peru's strong
investment climate it has not been
exempt from this.
President Ollanta Humala built his
2011 election campaign around policy
that would bring in more money for
community projects in some of the
country's poorest regions. Unfortunately, political party Gana Peru
one of the vehicles to do this was a mining
windfall tax that was received very negatively in the mining industry.
But the president decided on a more considered fiscal policy that included redesigned
and modified tax regulations that would raise an extra US$1.1 billion/y forthe state
budget while retaining many of the country's investment credentials, according to EY.
"This deal removed a cloud of doubt over the policies of the new government and
resulted in a comprehensive mineral fiscal system reform, which became effective in
October 2011,* the financial services firm said.
This system, which applied to all existing and future resource projects, was geared
towards profits instead of sales, and introduced a Special Mining Tax' based on a sliding
scale ranging from 2%-8.4% of operating profits. Meanwhile, royalties ranged from 1%-
12% of operating profits, compared with 1 % - 3 % of sales previously.
In addition, a 'Special Mining Burden'on operating profits of 4-13.12% was installed
for companies who signed fiscal stabilisation agreements under the General Mining
Law. These companies could elect to make 'voluntary' payments with the Peruvian
government, but it was not compulsory. EY said
"President Humala's administration appears to have realised that in order to properly
develop Peru's mineral industry, in addition to its important geological potential, it has
to offer a favourable and competitive investment environment that attracts national and
foreign capital towards exploration and mining activities,'EY said.
Despite weak prices for many commodities and. accordingly, falling government
receipts, there were "strong signs* that the government would take a more considered
approach towards policy that affected miners. Indeed, Peru's minister of economy
and finance, Luis Miguel Castilla. recently announced that the government was not
considering a change to the tax and royalty system and may even promote new
initiatives to encourage further investment.
"According to
global accounting
firm Ernst & Young
(EY), latest data
suggests Peru
mining investments
could reach a new
record in 2014
of US$14 billion
after hitting US$10
billion last year"
Supporters of President Ollanta Humala
carry a banner saying Verv wins with
Ollanta', a wordplay on his left-wing
port McMoRan plans to spend US$4.4 billion to
expand the Cerro Verde copper mine and Canada's
HudBay is advancing Constancia.
"Global emerging markets are experiencing
some financial turbulence, with the recent sell-off
in emerging-market currencies being the worst in
five years and revealing the extent of the fallout
from the US Federal Reserve's tapering of monetary
stimulus and individual country factors," Blanco
said. T h e markets in Latin America, including Peru,
are not immune to this development, but it is fair to
say that Peru is still doing well, both by regional
and global comparison-
According to the United Nations Economic Com-
mission for Latin America and the Caribbean
(ECLAQ, Peru will remain one of the most economi-
cally dynamic countries in the region in 2014, with
a GDP growth forecast of 5 . 5 % - second only to that
of Panama. More optimistic forecasts are being
made by the Peruvian Central Bank, which esti-
mates growth for 2014 at 6%, and the Spanish
bank, BBVA, which is estimating 6 . 3 %
The IMF has named Peru "the leader of economic
drive in Latin America", with forecasts of growth of
6.1% and an inflation rate of 2 % for 2014, the lowest
in the region. Blanco suggested these estimates
might need to be revised downward if financial tur-
bulence worsens, but even if this were to occur, Peru
would still remain relatively well positioned and
ahead of most of the economies in Latin America.
"Mining will continue to be a significant contrib-
utor to economic growth in Peru in 2014 and
beyond," he said.
"As the world's third-largest producer of both
copper and zinc, and its sixth-largest source of
gold, Peru benefited significantly from the boom in
the global commodities markets between 2002
and 2012, and it has an investment pipeline that
should allow it to maintain solid momentum
"As things currently stand, mining companies are
planning to press ahead with projects in Peru.
According to the Peruvian ministry of mining, the
investment pipeline comprises some 50 major pro-
jects that are either currently underway or awaiting
approval and that are valued at some US$57.4 bil-
lion - more than one-fourth of 2013's estimated
nominal GDP. About US$36 billion are copper pro-
jects, while gold and iron-ore ventures account for
some US$7 billion apiece."
While the investment plans sound impressive,
Peru's mining sector is not without its challenges,
including concern about falling mineral prices - a
global issue - and about growing social opposition
to some mining projects. Local residents adversely
affected by mining activity have successfully halted
new developments or the expansion of existing
mines with large-scale protests, so how the govern-
ment and mining companies address the commu-
nity concerns will be crucial to the success or failure
of the mining sector, according to Blanco.
A licence to thrive
"Achieving a social licence to operate is the single
most important challenge that the mining industry
faces in Peru,' said EY Peru corporate governance
and sustainability leader, Beatriz Boza.

4. Focus: Peru
"Income and regional inequalities continue
to be a source of social conflicts, which have
had a negative impact on a number of mining
projects."
Infrastructure investment remains critical to
resource development In the 2012 World Eco-
nomic Forum's infrastructure ranking, Peru
placed 92 out of the 139 countries profied. One
senior industry adviser in Peru said the country
would only realise its full economic potential
after reducing its infrastructure bottlenecks. It is
no orphan on that front
Estimates vary, but the investment required
runs into billions of dollars and covers trans-
port, electricity, water and communications.
"In recent years, it is not so much the lack of
availability of financing but the lack of admin-
istrative capacity in the provinces for the
spending shortfalls in infrastructure that con-
tribute to feed anti-mining sentiments," an
observer said.
"Regional and local authorities are still sit-
ting on billions of soles from canon, mining
royalties and other levies collected over the
last decade lying dormant in bank accounts,
which could be used to fund new roads, hospi-
tals, schools and water projects."
According to EY, local and regional govern-
ments only spent on average 7 5 % of the
money available to be spent on infrastructure
last year.
"What is clear is that the private sector will
need to respond to deliver the required invest-
ment in infrastructure," the firm's audit mining
and metals leader, Victor Burga said.
"Doing so requires changes to historical
approaches to infrastructure investment,
which have typically been government-led,
[fo] one which places private sector capital at
the forefront"
The Peruvian government had become
highly proactive, providing the private sector
with incentives to develop investment pro-
jects. For example, said Burga, Peru's tax sys-
tem induded provisions to grant a form of
credit against income taxes to allow third-
party investors to recover capital investments
made in public infrastructure.
"Mining and metals companies are respond-
ing by building social infrastructure and involv-
ing communities at an early stage," he said.
There is also a lingering perception that Peru
remains an investment destination for large
mining companies and is less hospitable to
juniors. Most of the world's major mining com-
panies, including Glencore Xstrata, Newmont
Mining Corp, Gold Fields Ltd, Freeport-McMo-
Ran, Rio Tinto, Anglo American pic and Barrick
Gold Corp. have operations in the country.
Small Is good, too
However. Blanco said: "There is definitely a role
for junior mining companies to play in Peru
and it is worth noting the growing number of
such companies that are choosing to list on
the Lima Stock Exchange. That said, the fall in

5. Focus: Peru
mineral prices in recent years has hit the junior sec-
tor very hard and many are finding it difficult to
maintain business as usual.
"Given that market conditions are not as favoura-
ble as they were during the 2002-2012 boom period,
only those juniors that are well capitalised or that
have highly prospective projects are likely to win the
support of the market. There is plenty of exploration
to be undertaken in Peru and junior companies are
well suited to the task, but for many of them, the cur-
rent focus is on survival rather than growth.*
Another problem for Peru, also prevalent in
neighbouring countries such as Colombia, Ecuador
and Bolivia, is illegal mining and, in some cases, arti-
sanal mining.
Blanco said it was important, though, to distin-
guish between the two.
"Although both are conducted outside a regu-
lated environment and therefore can be classified as
illegal, there 3re several important differences
between the two,* he said. The primary distinction
is that, in many instances, the former tends to be car-
ried on by drug cartels or terrorist organisations. This
factor brings an added complication to the difficulty
that governments face in overcoming the problem.
The place to build a mining company
Aim-listed Minera IRL Ltd has benefited from the rise of the Andean country. It has more
than five years of profitable operations under its belt from its Corihuami gold mine in
Peru, which has given it the confidence to launch another US$ 178 million project there.
"Early in the last decade. Minera IRL carefully selected Peru as a top mining country in
which to base ourselves and build a mining company," chairman Courtney Chamberlain
told Mining Journal.
A high, sustainable growth rate, low inflation and a poverty rate that had almost
halved in the past decade was evidence of the country's investment credentials, he said
"The political system works and successive governments have supported the industry
with sound legislation and a supportive bureaucracy," he added.
The company's Ollachea gold asset was one of a handful of projects being developed
in the country, alongside others including Glencore Xstrata pic's Las Bambas copper
project, and is due to come into production in the next few years.
In January, Chamberlain said the 100,000oz/y operation was on course to receive its
construction permit by the end of April, while financing for the project was expected by
the end of the year.
'Macquarie Bank is taking the lead on that. We expect them to finish the due diligence
at the end of this quarter," Chamberlain said.The Australian bank would handle the debt
portion of the US$ 178 million bill, which was likely to be 50% of overall costs, while
options for the remainder included streaming, royalties and a host of other "mezzanine
options', he added.
Minera was also consulting with engineering, procurement, and construction
management (EPCM) contractors, hopeful that costs would decrease from the definitive
feasibility study issued at the end of the year. "There is lots of interest on the engineering
and consultancy front. (These] companies are struggling so we see opportunities to
actually reduce our costs from a year or two ago. There are a couple of areas where we
can drive down costs." he said.
Chamberlain was quick to talk up the benefits of local stakeholder engagement in
Pern, an issue that has been the downfall of some companies, such as Newmont Mining
Corp and its Minas Conga copper-gold project "Community relations sometimes get
negative press but, properly managed as true partners, the local inhabitants are often
the greatest asset *
Without doubt. Minera has something to crow about. A 5% participating interest for
the local community at Ollachea. once in production, combined with local involvement
at a very early stage of planning had fast-tracked the project. "The community is very
much part of the project. We consulted heavily on the environmental impact assessment
(ElA)and had not one rejection to the published EIA,"he " i d .
Of course, the geology also plays a part in the country 's pull. "Peru is home to
the widest part of the Andean mountain range, which offers excellent geology for
new discoveries and great mines. Our Ollachea discovery is demonstrative of this."
Chamberlain said - Daniel Cleeson
"The IMF has
named Peru "the
leader of economic
drive in Latin
America" with
forecasts of growth
of 6.1% and an
inflation rate of 2 %
for 2014, the lowest
in Latin America"
T h e Colombian government is seeking to have
illegal mining induded in the list of international
crimes. It, together with other members of the
Andean Community of Nations (CAN), agreed on
January9,2014, to applya set of measures to com-
bat the illicit activity. Basically, Colombia, Ecuador,
Peru and Bolivia have committed to destroying
machinery and even properties related to unlawful
mining if they can't be seized."
Illegal mining is detrimental to Peru and other
countries for a range of reasons. Primarily of course
it causes significant environmental damage, and its
proceeds are often used to finance other illegal
activity. The state is deprived of the corresponding
revenue from production.
T h e environmental damage caused also tar-
nishes the reputation of mining generally, as many
citizens in these countries do not fully understand
the difference between illegal mining and that
which is conducted by the majority of mining com-
panies, which adheres to the strictest environmen-
tal standards and is conducted in a sustainable
manner,* Blanco said. "It is therefore in the national
interest that the government succeeds in bringing
illegal mining under controL*
It is estimated that only 0.32% of the country's total
territory was being explored in 2013 (0.29% in 2012),
and only a small percentage of its mineral reserves
are being exploited: in 2013, perhaps only 0.9% of its
territory was under exploitation (0.8% in 2012).
"Within Latin America, Peru has. perhaps, the
greatest untapped potential for new discoveries
and production,* EY's Mendez said. 'Peru's clear
and simple mining law and excellent geological
potential has helped the country to attract one of
the largest budgets for minerals explorations and
development in the world. However, it is believed
that Peru has the capadty to double or triple the
current level of output, especially in base metals."
Peru has 13% of the world's copper reserves, 4 %
of its gold, 2 2 % of its silver, 7.6% of zinc, 9 % of lead
and 6 % of tin reserves, according to the most recent
data from Peru's Ministry of Energy and Mines.
In 2013 the mining sector accounted for 5 % of
the country's GDP, while mineral export revenues
reached US$ 19 billion by the end of October - more
than half the country's total exports.
Peru has about 200 operating mines and a pile of
major projects waiting to be developed.
"We rate Latin America very highly based on its
mineral endowment and potential for discovery and
development as indicated by an increase in explora-
tion investment over the past 18 months compared
to Australia and North America," said the managing
director of one international minerals consulting
firm looking to set up shop in the region
It also has relatively lower operating costs - par-
tkularlyfor exploration- although sovereign risk var-
ies from country to country, so government policy
making will determine where investment flows. We
expect the major mining economies of Mexico, Chile
and Brazil to continue to dominate... in this region,
but we see plenty of opportunity remaining in less
developed markets, such as Pern."
Peru may well be the one to overtake the rest in
the decade ahead. - Staff reporters V