"Positive decisions this year should translate into higher investment levels from 2018 onwards."

Gonzalo Tamayo


March 01, 2017

What is the vision of the Kuczynski administration with regard to the development of mining activities? 
This government understands that a significant driver of Peru’s economic development is our geological potential. Peru is and will continue to be a mining country. In recent years we have become the second largest copper producer and we are among the top five producers of other metals. The conditions are there for us to maintain this leadership position, because we have only explored a small portion of the country.
Over the last years, mining has been impacted by a combination of external factors, with the end of the super cycle and the drop of commodity prices, and internal factors, with an increase of what we call ‘transaction costs’ related to advancing projects to the operational stage. This has to do with the de-centralization of decision-making in many government agencies, with red tape and, in some cases, with social conflicts. We are introducing mechanisms to make the rules simpler and to expedite procedures at the exploration stage. In environmental matters, we are introducing a single window and electronic processes. Finally, with regard to social conflicts, the previous government left a wide perception that it failed to fulfill the commitments it had with the communities. We want to rebuild trust with a more coordinated State presence in the affected areas.


How is this government going to channel the investment into social development projects?
There are two mechanisms. On one hand, the Ministry of Finance is issuing sovereign bonds to fund infrastructure projects. The first of these offerings has already been completed to finance projects in Cajamarca. On the other hand, in January the government created the Social Advance Fund that articulates the activities of several ministries to work together and address the needs of these regions with diverse sources of funding, from government resources to donations from multilateral bodies or companies.


Peru has had mixed results in terms of the development of basic infrastructure. How can this record improve? 
In the main mining regions you can see an improvement of the socio-economic levels. Probably, in those areas where there has been a bigger involvement of private parties, the projects have obtained better results, either through the Works for Taxes program or the Voluntary Contributionprogram. In those projects that were handled by the State, we have seen the country’s weaknesses, with delays in the execution and the development of projects that do not solve the people’s most basic needs, such as stadiums or bullrings, instead of systems for drinking water and sanitation. It is a complex problem of a sociological and anthropological nature.


Mining investment in Peru has fallen consistently since its peak in 2013. When do you expect this trend to be reversed? 
In recent years, we have seen the completion of world-class projects, such as Las Bambas, Toromocho and the Cerro Verde expansion. It is absolutely normal that expenditure levels decrease after projects of that size. That being said, metal prices are improving and we expect companies to take positive decisions this year with regard to new projects, like Pampa de Pongo, Corani and Mina Justa, which should translate into higher investment levels from 2018 onwards. We also expect a decision on Quellaveco mid-2018.


How do you read the election of Anglo American’s CEO in Peru as president of the main industry association, the SNMPE?
There has been a tradition that those leading the Mining Society (SNMPE) are the companies that have the most important projects in the pipeline. It is excellent news that Luis Marchese is the new SNMPE president, because from our perspective it shows Anglo American’s commitment. We are telling Anglo American that the government is very interested in seeing the project move ahead. Quellaveco has pretty much everything ready to get started.


What is your position about Southern Copper’s Tía María copper project?
In the same way that this new government is changing its approach towards community relations, we have told the owner of Tía María that they also need to change their strategy to promote the project. If they do exactly the same things as before, that change is not going to happen. The company has appointed a new manager to develop the project, and we expect some progress if they manage to improve their relationships within their areas of influence.


Do you think the future of Yanacocha will be more attached to underground development rather than large projects like Conga?
It is an option that Yanacocha is evaluating because it presents lower social costs and it allows for the reduction of the project’s footprint. Right now, Conga is not Newmont’s priority; it probably sits further down the line.


Beyond Conga, Cajamarca has enormous potential for large copper projects, such as Michiquillay, Galeno and La Granja. Due to the region’s complex social situation and the high capex levels of these projects, how can the State help to build common infrastructure and generate synergies? 
Each of the aforementioned projects require complementary infrastructure for their development. At some point, a study was made for the construction of a railway to take concentrates from Cajamarca to the Bayóvar area, however these projects have been evaluating their own solutions and their own schedules to start commercial production. It is a challenge to have better coordination among the different companies, and this will take a few years to bear fruit.


What can be done to solve the problem of illegal mining in Madre de Dios, and what has this administration changed with regard to the formalization process of the previous government? 
The environmental problem in Madre de Dios is very serious, and our position is very clear to be against the development of alluvial mining. Having said this, the new formalization process looks at addressing some of the limitations of the previous process, which had very poor results. We have tried to improve the economic incentives to encourage formalization, to strengthen the relationship with the regional governments, and to create a mining fund to promote the production of clean gold in Peru.


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