Image courtesy of Element 29

The Peruvian exploration portfolio has remained relatively stagnant over the past few years, and the latest document published by the MINEM in early 2023 (and updated in September 2023) includes 70 projects with a total investment of US$521 million. Despite the millions of dollars in the pipeline, the total exploration budget executed in 2023 reached US$42 million, indicating a modest 2.4% increase compared to the figures from 2022. As reported by the MINEM, 2023 saw the highest exploration figures of the last five years, representing the third consecutive year of growth. 

The figures provided by MINEM do not distinguish between the investments made by junior and producing companies, making it challenging to discern which value chain segment has allocated resources to exploration activities. However, data from S&P indicates that in 2023, majors increased their exploration budget by 1.2% for their existing assets, while intermediates and juniors reported a decrease of 4.5% in their budgets in 2023 compared to 2022. This has resulted in the grassroots share of exploration falling to an all-time low of 23.4%. The lack of liquidity in the market and limited equity financing opportunities have placed financial strain on junior mining companies. 

It is interesting to compare this situation with majors and mid-tiers, as they have capitalized on the favorable mineral prices in recent months, generating cash flow to fund exploration activities. However, these favorable mineral prices have not translated into a positive sentiment among investors, leading to a reluctance to allocate capital to junior mining companies. 

Despite unfavorable market conditions, a company that made strides was Camino Corporation. In June 2023, Camino Corporation welcomed Nittetsu Mining as a partner for its Los Chapitos project, an IOCG (iron oxide-copper-gold) deposit. Nittetsu, a Japanese company, has invested CAD$10 million over three years, which, according to Jay Chmelauskas, CEO and president of Camino Corporation, will propel the company’s progress towards resource delineation and potentially a feasibility study: “We aim to establish multiple pits feeding a central processing plant for a prospective SX-EW copper oxide mine,” commented Chmelauskas. 

Reflecting on market conditions, Chmelauskas commented that the company’s engagement with stakeholders like the Japanese Embassy, Canadian Embassy, and the MINEM reinforces the positive impact of foreign investment on Peru: “The consensus is that high-risk capital investment is crucial for making significant discoveries. Junior mining companies like ours often pave the way for larger enterprises to follow, contributing substantially to the overall industry investment,” he concluded.

From a global perspective, the insufficient focus on exploration exacerbates the shortage of new projects, essential for the energy transition. McKinsey & Company forecasts that the demand for copper is projected to reach 36.6 million t/y by 2031. Compared with the projected supply, a substantial gap of 5.1 million t/y exists. According to David Kelley, president and CEO of Chakana Copper, there was already a supply gap for copper before the clean energy transition became a prominent topic. Additionally, other factors will contribute to copper fluctuation and Peru’s attractiveness as a mining jurisdiction, like disruptions seen in Panama and copper grades decreasing in Chile. 

Chakana owns the Soledad project in the Áncash region. In June 2023, Chakana received a permit to drill on the southern half of the project, enabling it to explore different types of mineralization, which include a porphyry target, referred to as Mega-Gold and a high-sulfidation epithermal style of mineralization called La Joya. Kelley, a geologist, explained that the mineralogy of the project is unique and the company wants to test the porphyry targets and the high-grade outcropping tourmaline breccia pipes: “We are in the Miocene mineral belt, one of South America’s most prolific porphyry belts. There is no better place to make a tier-one discovery than to be in the vicinity of other world-class deposits,” he commented. 

Chakana expects to use CAD$3 million recently raised for a 3,000-meter exploration drilling campaign at the Mega-Gold porphyry target in the first half of 2023.

DLP Resources is another junior company with its flagship project in the Miocene belt. The Aurora copper-porphyry project is in an advanced stage and was initially drilled by Bear Creek Mining in 2001. DLP acquired the project in 2021 and conducted deep drilling down to 1,000 m:  “We commenced the current drill program in August 2022 with three drill holes. In 2023, we completed 10 holes in the project. In total, we have performed 9,910 m of drilling. We have a program in place for 2024 to drill 10 holes and 10,000 m,” commented Ian Gendall, president and CEO of DLP Resources. “We must go through a financing round to raise CAD$4-5 million to complete the proposed drilling campaign to advance it to the point where it has a defined mineral resource by 2025”.

Latin Metals is another Canadian company focused on copper, though with a different model from traditional juniors since it is a prospect generator. Keith Henderson, CEO and president of Latin Metals, shared that prospect generators are a longer-term investment: “It attracts those with a long-term view. Prospect generators have the potential to organically grow into royalty companies without diluting shares,” he explained. 

The company has two projects in Peru: Auquis and Lacsha. At Auquis, Latin Metals has identified multiple centers of mineralization for various deposit types, and aims to secure a partner for the property in early 2024. As for Lacsha, there is a 3-year community agreement in place along with a drilling permit: “It is truly partner-ready. Funding from a potential partner can be deployed almost immediately for drilling. This is advantageous because community agreements and drill permits can be difficult to acquire in some areas of Peru, and even the places where acquiring permits is ideal, securing them can still be time-consuming,” stated Henderson. 

From national to regional turmoil

In 2023, there was a prevailing perception that Peru was losing its opportunity in the energy transition, leading investors to explore alternatives in other jurisdictions. Interest was heading north to countries like Canada and the US, known for their robust rule of law and policies promoting the development of critical minerals such as copper. Others seemed to look to more regional options like Panama and Ecuador. Interestingly, due to twists of fate and socio-political changes, it appears that the opposite scenario is unfolding. 
The current "calm" in Peru has outshined factors like narcoterrorism in Ecuador and the protests that erupted in 2023 against First Quantum’s contract to operate the Cobre Panama mine. While potentially favorable for Peru in the short term, these events in Latin America may raise concerns among investors about the possibility of a long-term contagious effect. 

Luquman Shaheen, president and CEO of Panoro Minerals, pointed out that Peru often faces misjudgments due to broader regional perceptions. North American investors, in particular, tend to generalize their views of Latin American countries based on isolated incidents: “This tendency can create challenges for companies operating in Peru, like ours, as they may be unfairly associated with broader regional concerns. For example, the stigma of being painted with the same brush as Panama poses difficulties for us to overcome. However, many investors understand the nuanced nature of the exploration story in Peru and Latin America,” he concluded.
What happened in Panama was a hard blow for the whole industry, but especially for First Quantum Minerals (FQM). This raises questions about how the Canadian producer will approach its two projects in Peru: Haquira and La Granja, a project in Cajamarca to be developed in a joint venture with Rio Tinto. 

Jorge Benavides, legal and corporate affairs manager – South America at FQM, explained that Haquira marked FQM’s initial entry into LATAM. However, the company prioritized Cobre Panama, allowing Haquira to progress cautiously. After a suspension period, FQM secured an access agreement with communities in the direct influence area by mid-2023. Since September 2023, the company has been drilling at the Haquira East deposit to enhance understanding of the deposit and to increase its volume.

Regarding La Granja, according to Benavides, the project boasts resources of 4.32 billion t at 0.51% copper and has significant expansion potential: “Our current focus is on an extensive two-year drilling campaign initiated in October 2023. This drilling campaign, geared towards improving geological, metallurgical, and geotechnical knowledge, will enable the upgrading of inferred resources, and their eventual conversion into reserves in order to allow the design of a mine plan,” he added.

Reflecting on the looming copper shortage, Benavides commented: “Copper deposits are few and far between, and any easy projects are already in operation. In order to deliver the increasing amounts of copper that the world needs, we need to operate in increasingly complex environments that require more advanced technologies and techniques with consequently higher costs,” concluded Benavides.

Regardless of their size, mining companies have plenty to risk, from reputation to millions of dollars in investments. Perhaps because of the complexity and intricacies of developing new mines, such as dealing with declining ore grades and navigating complex jurisdictions, we are witnessing more partnerships in various forms for developing future mines in Peru, exemplified by the JV between FQM and Rio Tinto.

Silver, always overshadowed by copper

Silver is an attractive commodity, yet overshadowed. On the one hand, it serves as a heaven during an economic crisis, but it does not exhibit the same interest as gold. On the other hand, it plays a crucial role as an industrial metal. However, it does not receive the same attention as copper, particularly in the energy transition context.

When discussing this with Peter Dembicki, president and CEO of Tier One Silver, he complained about silver being thought of only as a byproduct of copper production, adding that there are very few true silver producers: “Silver has outperformed gold by a large margin in the eight previous bull markets. When it is silver’s time, it shines brighter and moves higher and faster than gold,” he emphasized. 
Like many junior companies, Dembicki explained that Tier One Silver has faced unfavorable market conditions, making 2023 a “humbling year” for the company, as it could not drill its Curibaya project. However, Dembicki asserted that Curibaya holds great potential: “The grades are unparalleled. In previous drill cycles, we achieved grades of over 300,000 g/t of silver and 980 g/t of gold, and over 80 samples with over 1,000 g/t of silver and 2.5 g/t of gold,” he added.

Silver Mountain Resources is a more recent entrant into the Peruvian exploration segment, capitalizing on silver’s fundamentals. Since going public in 2021, the company has been focused on rehabilitating the Reliquias mine in the Castrovirreyna district, with over 35,000 m drilled: “It will be an underground mine, and we are in the first phase of a two-stage strategy to revive Reliquias and commence operations at the Caudalosa plant, where we aim to achieve a daily production of 2,000 t/d,” commented Álvaro Espinoza, CEO of the company.

From the Lithium Triangle to the Lithium Quadrilateral

Lithium has emerged as one of the hot commodities in recent years, listed as a critical mineral by many countries due to its significance in lithium-ion batteries for electric vehicles (EVs).

In LATAM, the focus is on the Lithium Triangle, an area shared by Bolivia, Argentina and Chile, which, according to different sources quoting the USGS, is thought to hold more than 50% of the world’s lithium resources.

While suggesting that Peru could become a ‘fourth point’ in the lithium triangle, it is just a metaphor due to the hard-rock nature of lithium in the Andean country, as opposed to the brines found in Bolivia, Argentina, and Chile. However, Peru’s lithium story is unfolding with the publication of a 2024 Preliminary Economic Assessment (PEA) for the Falchani project by American Lithium. The PEA, released in January 2024, increased the measured and indicated categories by 476%. According to this economic analysis, Falchani is projected to produce over 85,000 t/y of lithium carbonate: “We saw a tripling in NPV from the prior economic analysis; it grew from US$ 1.5 billion to US$ 5.1 billion, showing the scale and purity of the project. Operating cost will be approximately US$5,100/t, placing it in the lower quartile of the global cost curve,” commented Simon Clarke, CEO of American Lithium.

Following President Biden’s passage of the Inflation Reduction Act (IRA), several reports indicate that lithium demand for the US energy transition will be 15% higher by 2035 than initially projected before the IRA. Despite the US making efforts to achieve lithium self-sufficiency with projects on the brink of production, it is suggested that the US will need to rely on allies. This holds particular significance for Peru, as both countries share a free-trade agreement, and the type of rock mined in Peru will not be shipped to China: “FThis makes it unique among hard rock deposits. Battery grade lithium products will be produced onsite at Falchani without the need for beneficiation overseas and reducing reliance on China for processing," concluded Clarke.

In addition to Falchani, American Lithium also owns the Macusani Uranium Project, another mineral not commonly found in Peru. Clark suggested that the escalating tensions between Russia and the West and a tightening supply from Kazakhstan, coupled with the world's shift towards the green transition, further emphasizes the increasing demand for uranium, which Macusani is poised to meet: "Our Macusani Uranium Project has a relatively simple flowsheet and low capex at US $300 million. With the ability to produce 6-7 million pounds of U3O8 a year, this is a top tier asset that will significantly contribute to annual global uranium supply."