So common was gold in the ancient Incan empire that garments made of colourful feathers from jungle birds had more status than ones adorned by the yellow metal. Yet only now is Peru experiencing a gold-mining revival, while at the same time expanding and modernizing its traditional base metal mining sector.
In a recent interview in Peru’s capital city, Mines Minister Daniel Hokama said the mining revival is linked to structural reforms introduced by President Alberto Fujimori, which include a major privatization program and a new system for acquiring and registering exploration concessions.
“Until 1990, Peruvian mining was mostly in state hands,” the minister explained. “Today, about 97% is in private hands and we’re working hard to complete that process. Thanks to the legal reforms and new mining laws, production grew 40% by 1996 [since 1990].”
Mining now accounts for 45-50% of Peru’s exports and about 10% of its gross domestic product. The South American country is the world’s second-largest silver producer, third in tin, fourth in lead and zinc, seventh in copper and eighth in gold. In Latin America, Peru is the largest producer of gold, zinc, lead and tin, and the second-largest producer of copper and silver.
The reforms also triggered a dramatic diversification into copper and gold from the silver-lead-zinc mines typically exploited in the past. In the next few years, Peru’s status as a leading producer of minerals and metals will increase dramatically, based on production from new mines such as Pierina and Antamina, and the ongoing privatization program.
“Our goal is to double the country’s production,” the minister said, adding that the privatization program has already generated US$2.8 billion in new investment. Further investment should bring this to US$4.5 billion, and, by 2007, investment is expected to reach US$10 billion.
Peruvian mining officials make it clear that the huge Antamina copper-zinc project will become a cornerstone of their mining industry in the next century, while providing a major boost to the national economy. “We also expect it will make an important social contribution,” Hokama added.
The newer gold mines, Yanacocha and Pierina, are also significant contributors to Peru’s mining exports. In 1998, Yanacocha accounted for 44% of the country’s gold production. Pierina only recently began production, but its costs of production are expected to rank among the lowest in the world.
Carola Perez, an analyst with Apoyo Consultants, noted that while 1998 was a record year for gold production, base metal operations — particularly copper mines — were hard-hit by poor prices and the Asian crisis. “However, many of Peru’s polymetallic mines were able to survive because they were protected by silver,” she added.
Even so, Perez expects that some of the larger base metal projects on the books will be delayed, including La Granja (a copper project developed by Cambior) and Cerro Corona (a low-grade gold project previously owned by Barrick Gold but now in state hands).
Peru also has been experiencing an exploration boom, though this has cooled somewhat because of recent weakness in the equity markets. Among the large holders of concessions are
“Cajamarca is a favoured destination,” Perez said. “And gold appears to be the favoured exploration target.”
Despite the industry downturn, the mines minister hopes that exploration will get a boost when new geological maps, containing new and more precise information, are released next year.
“The country most interested in our mineral potential is Canada,” Hokama said. “In fact, half of all investment in Peruvian mining comes from there. We also have a geoscience agreement with the government of Canada.”
Hokama stresses that foreign companies are expected to respect the environment while working in Peru, though he says he understands the problems some foreign companies have had in trying to develop mines in jurisdictions with overly stringent standards, such as British Columbia.
“The environment has become a major issue in recent years, and we have expectations [of mining companies]. We’ve made important advances in environmental regulations and have set emission standards. And every new mine has to present an environmental impact study.”
The government is working to resolve problems caused by poor mining practices. Recently, it launched an initiative to clean up more than a dozen abandoned mine sites. While the state has assumed environmental liabilities at many operations that have since been privatized, the new owners are expected to upgrade them to meet modern environmental standards. “We’ve given them ten years to upgrade,” the minister added.
Hans Flury, president of the National Society of Mines, Petroleum and Energy, said foreign companies are well-represented in the society, which provides input to government on mineral policies. In the past, the membership largely reflected the fact that mines not owned by the state were in the hands of several prominent Peruvian families. Some of these families have welcomed the influx of foreign companies and signed deals with both majors and juniors to explore and develop their holdings and modernize their mines.
Flury said foreign companies working in Peru appreciate the timely approvals for mining proposals and the clear guidelines for environmental protection. There are also incentives for companies to reinvest and expand their operations. He said he has been impressed by the social programs carried out by foreign companies in communities near the projects. “The Canadian companies do so much good work [of this type], but for some reason they don’t talk about it.”
Emilio Zuniga, vice-president of Flemings (a British investment bank), said Peru is well-positioned for a mining revival in the next century because of its competitive mining policy, economic reforms and untapped mineral potential.
“Almost all major mining companies are here, and many of them have teamed up with local partners. There are still challenges, particularly the lack of infrastructure and the remoteness of some of the prospective areas, as well as the lack of skills in certain areas of manpower. But the issue of political instability has been overcome.”
Zuniga says Fujimori has strong support for his political and economic reforms, efforts to quash terrorism, and the recent peace accord with neighbouring Ecuador. The poverty alleviation programs under way in the country are getting high marks for their effectiveness. Also, the labour market is perceived as more flexible than in the past, and the workforce is made up of young, hard-working Latins anxious to acquire modern-day skills and improve their lives.
Trained as an engineer and a mathematician, and known for his great respect for logic, Fujimori is a pragmatic problem-solver who makes no secret of his inability “to let problems sit by without a solution for years and years.” He deflects criticism of his take-charge attitude by candidly admitting he doesn’t have the disposition “to talk and debate without moving ahead.”
But with an election looming in the year 2000, the country appears divided over whether Fujimori should be allowed to run for a third term. An interpretation of the constitution suggests he might be entitled to exemption from the recently imposed 2-term limit, though not everyone shares that view.
Zuniga dismissed concerns that recent reforms would be reversed if Fujimori were not allowed to run, or loses the election.
“The opposition leaders follow the same economic policies and I don’t see much debate on the direction of the country’s economic program.”
Daniel Hokama, Peru’s minister of energy and mines, points to a map of mineral projects that are being explored and developed in his country.
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