Plentiful natural assets fuel economy
THE DEVELOPMENT OF PERU'S HUGELY PROMISING MINING INDUSTRY CONTINUES APACE, WITH PRIVATE INVESTORS SET TO PLAY A FULL PART

A WEALTH OF RESOURCES As part of its process of economic liberalization, Peru is actively encouraging the participation of foreign investors in its hugely profitable mining industry.

Millions of years ago the soaring peaks of the Andes thrust through the surface of the planet and brought with them the gold that was later to be cherished by the Incas as the tears of the gods. These and other mineral deposits today provide Peru with 45% of its export earnings and 20% of overall government revenues. Some 6.5% of the country’s GDP comes straight out of the ground.
Peru is the world’s second-ranked silver producer, third in zinc, tin and lead, fifth in copper and eighth in gold. On its own list of revenue sources, gold comes first, followed by zinc. But as the Minister for Mining and Energy Jaime Quijandría Salmón acknowledges, there are aspects of the mining industry that cannot be measured in money terms, such as generating employment in remote areas and its ability to attract key infrastructure, particularly transportation and communications networks.

“Unfortunately, being a primary commodity exporter, Peru is especially vulnerable to international price fluctuations. Mining, however, has several advantages, not least of which is its ability to generate foreign currency,” says President Toledo. Still early into his administration, privatization plans are mainly focusing on the oil and natural gas sectors, although very large mining tenders have been awarded, such as the Pierina gold mine and the Antamina copper-zinc operations. U.S., Mexican, Australian, Canadian and Japanese firms have all taken up sizeable stakes in the industry.
The mining sector emerged remarkably unscathed from the recession of 1998-99, which saw the meltdown of Peru’s Asian markets and commodity price turmoil. In 2000, mining grew by 7%–the strongest performance of any single sector of the economy. Interestingly, much of that upward momentum came from gold. Though world prices were listless, gold output climbed sharply by 14.3% and 3.8%, thanks to the consolidation of large-scale mega-projects, before falling off in the first half of the current year. Other non-ferrous minerals also did extremely well and seven of the biggest companies posted revenues of over $100 million. Investment flows are another indicator of the prevailing climate in the industry. The Compania Minera Antamina channeled $100 million to build a new port and ore pipeline terminal at Huarmey, while the Anglo-American Group put up $827 million for its open-pit copper project at Quallveco. As Mr. Quijandría confirms, “there are leading U.S. companies operating in the Peruvian market and we hope that they will expand their activities.”

But at the end of the 1990s, even as output and revenues were soaring (and perhaps precisely because they were) the Fujimori administration took a series of moves that dismayed prospective investors and veteran operators alike by rewriting contracts and raising royalties.
The $9 billion that had been channeled into the industry over the past decade began to trickle off, and $300 million earmarked for exploration was put on hold. Says President Toledo, “I’ve told my minister to come up with a law that offers every incentive to encourage exploration for new petroleum and mineral deposits.” Mr. Quijandría insists that legislation now in the works will contain ironclad guarantees “that will attract the $1 billion we need to see pumped into the sector over the next five years.”