New production caused Peru’s copper output to increase 70% between 2014 and 2016 assuring the nation's place as the second global producer. GBR looks at Peru’s growing production of metals and minerals.

BY Alfonso Tejerina

Production and Exploration Overview

April 03, 2017

It was another great year for Peru’s copper production. With the completion of Cerro Verde’s expansion, operated by Freeport McMoRan, and the start of commercial production at Las Bambas by MMG, total copper output reached 2.35 million metric tons (mt) during 2016, a 38% increase year-on-year and a 70% increase over 2014 figures. Thus Peru reinforces its position as the world’s second largest producer of the red metal after Chile, while Chinese copper output only grew by 11%, for a total of 1.85 million mt/y.

Company-wise, and according to the preliminary data released by the Ministry of Energy and Mines, Cerro Verde became the largest contributor with 522,100 mt/y (+104%), followed by Antamina with 443,600 mt/y (+8%), Las Bambas with 329,400 mt/y and Southern Copper with 312,900 mt/y (-3%) between the Toquepala and Cuajone operations. Southern Copper is actually expanding Toquepala through a $1.2 billion investment, to add an extra 100,000 mt/y of copper starting next year.

In terms of zinc, while operators took advantage of improved metal prices in the later part of the year, overall production went down by 6% to 1.34 million mt/y. This was caused primarily by a 12% decrease in Antamina’s zinc output to 261,500 mt/y, which placed Volcan, who also suffered a 4% reduction, as the country’s largest zinc producer with approximately 273,400 mt/y. Antamina, however, expects to boost zinc output this year to reach more than 340,000 mt/y. The other large zinc player in the country is Milpo, part of Votorantim of Brazil, that reported production of 258,700 mt in 2016.

In other base metals, lead production remained flat at 314,100 mt/y, tin production decreased to 18,800 mt/y (-4%), and molybdenum output grew by 28% to just under 25,800 mt/y, helped by Cerro Verde and Antamina, which trebled and doubled their production figures, respectively.


Precious metals

Yanacocha’s decline continued during 2016, with gold output reaching 668,200 ounces per year (oz/y) (-27%). Meanwhile, Barrick also saw production fall at the Lagunas Norte mine, from 560,000 oz/y in 2015 to 435,000 oz/y in 2016, with all-in sustaining costs of $529/oz. In spite of that, Peru’s gold production grew by 4% for a total 4.92 million oz/y. Some of the companies that contributed to this growth were Hochschild Mining, with the production from its largest operation, the Inmaculada gold-silver mine; and Minera Poderosa, that yielded 221,000 oz/y in 2016, a 12% increase year-on-year.

Marcelo Santillana, general manager of Poderosa, summarized the company’s recent developments: “In 2016 we met our growth targets. We obtained the permit to implement technological improvements and process 800 mt/d at our Marañón plant, and we began the studies to expand our Santa María plant to 1,000 mt/d. For this project, we will have to acquire additional equipment, including two larger mills and a 1,000 mt/d crusher, however the largest expenditure will be the tailings dam at a cost of $10 million.”

Poderosa currently has 8 million oz of reserves, which would extend the operation’s life to nearly 40 years at current production rates, however the company plans to invest $40 million in exploration during 2017. Additionally, Poderosa is currently building a transmission line to assure the power supply for its expanded operation, which will use an additional 2 MW of capacity.

Recent highlights in terms of precious metals operations include Tahoe Resources’ Shahuindo, which started commercial production in 2016 and is currently expanding, and the inauguration of Buenaventura’s Tambomayo mine, located in Caylloma (Arequipa) at 4,800 meters above sea level. Víctor Gobitz, CEO of Buenaventura, gave more details about the latter: “Tambomayo, developed in record time since 2009, has overcome a tremendous logistical and technical challenge and will yield 150,000 oz/y of gold and 3 million oz/y of silver. It is an underground mine that optimizes metallurgical recovery and uses filtered tailings disposal to assure the industry’s best practices,” he said.

Peru’s silver production also increased in 2016 by nearly 7%, reaching 140.6 million oz/y, with Buenaventura (24.7 million oz/y) Antamina (20.9 million oz/y), Volcan (22 million oz/y) and Hochschild (13.9 million oz/y) as the main producers. With precious metals prices relatively stable, 2017 looks like it will be a good year for cost-competitive Peruvian producers: “We have a conservative price forecast of $1,150/oz gold and $16/oz silver, although I believe we will be seeing higher prices than that,” declared Ignacio Bustamante, CEO of Hochschild.

The improved market conditions are also attracting new players to Peru. Great Panther Silver, a producer with assets in Mexico, recently signed a deal with Nyrstar to acquire the Coricancha mine in Peru, primarily a precious metals deposit with a base metals component, that had been in care and maintenance for some time. Once the final deal is closed, the company expects to conduct a preliminary economic assessment this year, and to invest between $20 million and $25 million to put the mine back into production.

Robert Archer, president & CEO of Great Panther, said: “One of the things that struck me in Peru is that there are not many medium-sized projects owned and operated by public companies. I saw a lot of opportunity for public companies of our size with access to the capital markets to bring some of these mines into production. We want Coricancha to be our first base of operations, and then gradually grow in the country in the same way we have done in Mexico.”


Exploration projects

In the junior segment, two main trends appear in the market. On one side, you have those juniors who have learnt to navigate the low cycle through innovative business models, mostly aiming at generating cash-flow. On the other, the few juniors left with good assets and access to finance have benefited from much better market conditions to keep advancing their projects.

Cash-flow generating models go from developing small mining operations with the support of contractors and third party mills, like Lupaka Gold and PPX Mining are doing, to the capital participation in toll processing businesses, following the successful model of Dynacor. Inca One Gold Corp and more recently Montan Mining and Duran Ventures have been investing in the development of mineral processing facilities in Peru. “Dynacor’s model involves processing gold ore and financing our exploration with the profit, thereby avoiding dilution to our shareholders,” said Jean Martineau, president and CEO of Dynacor.

Last year, Dyancor completed the construction of its new, 300 mt/d mill in Chala, Peru. The company processed third-party ores for a production of 73,500 oz/y last year, and expects to reach between 88,000 to 92,000 oz/y in 2017. “Our mill is built to the specified ore in the Peruvian mines in order to maximize the recovery rate. Over the years we have built up our knowledge and learned how to process the ore efficiently, blending the material in the best possible way to improve our production results,” Martineau concluded.

With regard to the more traditional juniors that add value through the drill-bit, Regulus Resources and Tinka Resources both have a favorable position to keep advancing. The two companies had no problem to raise C$14 million and C$11 million respectively last year, and both have planned extensive drilling campaigns for 2017.

Regulus Resources is focusing on its AntaKori copper project in northern Peru, located next to the Tantahuatay gold-silver mine operated by Coimolache, a joint venture between Southern Copper and Buenaventura. Regulus has recently signed an exploration agreement with Coimolache to collaboratively share information and better understand the potential of the district. “Coimolache have basically bumped up against our land package,” declared John Black, CEO of Regulus.

AntaKori already has a copper-gold-silver resource of 295 million mt at a copper equivalent grade of 0.8%, which the company expects to expand this year through a 15,000 to 18,000 meter drilling campaign.

Black gave more details about the geology of the project: “Previous drilling campaigns at AntaKori found extensive skarn mineralization that remains open in most directions and is similar to other occurrences in Peru, most notably Las Bambas and Antamina. At AntaKori, the skarn mineralization is cut by breccia bodies with fragments of porphyry copper-gold mineralization, indicating probably porphyry mineralization at depth […] [Gold Fields’] Cerro Corona, located 6 km from us, is a porphyry deposit currently in production.”

Meanwhile, Tinka Resources has benefited from the extraordinary run of the zinc price over the last few months. After the company’s share price hit rock bottom in the first months of 2016, the market situation changed drastically for the better. Indeed, zinc had not traded at more than $1.20/lb since 2008, noted Graham Carman, president and CEO of Tinka.

Last year, the company released a new resource for its Ayawilca project in Central Peru, with 18 million mt at a zinc equivalent grade of 8.2%, while it also ran initial metallurgical tests. “We took the typical grade from a chimney at West Ayawilca, grading 7% to 10% zinc, and we obtained a 52% zinc grade concentrate with no pollutants. There is some iron associated with the sphalerite, but there are no penalties for arsenic or manganese. This first study was to see if we could produce a marketable concentrate, and the answer is yes, we can,” said Carman.

While last year’s resource estimate unveiled a potentially valuable tin component in the deposit, Tinka’s focus right now is on the zinc. Carman added: “I think we are very close to the point where the project has enough tonnage already, but we want to make it more robust and prove there is potential for much more mineralization […] The exploration objective this year is two-fold: to target a global resource of over 30 million mt, and to continue to add significant high-grade chimney-style zinc mineralization.”


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