Peru. Situation of the mining sector - BBVA Research
←
→
Page content transcription
If your browser does not render page correctly, please read the page content below
Peru. Situation of the mining sector / 1 Peru. Situation of the mining sector February 2019
Peru. Situation of the mining sector / 2 Key messages The highlight in the Peruvian mining sector is the beginning of a new investment cycle, particularly in copper mines. Investment is mainly concentrated in three projects: Quellaveco (with a total investment of more than USD 5 billion), Mina Justa (USD 1.6 billion), and the expansion of Toromocho (USD 1.3 billion). The beginning of this new cycle of mining investment takes place in a context where metal prices cover production costs and where financing costs are still relatively low. Mining investment increased last year to close to USD 5 billion (+26%) and will continue to increase this year, surpassing USD 6 billion. This higher expenditure, which is equivalent to seven tenths of a percentage point of GDP according to our estimates, will give important support to the growth of activity in 2019. The new cycle of mining investment will have a positive impact on the production of different branches of industry and services. In the past, the production of construction materials, transport materials, and basic chemicals, among others, have moved closely with mining investment. On the production side, metal extraction stagnated in 2018 due to temporary supply problems in copper mines (exploitation of low ore grade areas, a geotechnical problem in a large mine) and depletion of some gold units. We estimate that in 2019 mining production will rebound (expansion of just over 4%) due to the normalization of copper extraction and the operating income of the Toquepala (copper) and Marcona (iron) expansions.
Peru. Situation of the mining sector / 3 Key messages Later on, as a result of the current investment boom, mining production will continue to increase. In the particular case of copper, production will increase from a current level of MT 2.4 million to more than MT 3 million in 2024. As in the case of investment, the increase in mining production will have a positive impact on other branches of production, especially manufacturing and services. In addition to the projects that are currently under construction, there are other projects in the pipeline, i.e., that are completing the required studies. The amount of joint investment in these projects amounts to more than USD 10 billion. There is also another group of projects in the pipeline that have been postponed mainly due to social conflicts. With respect to the competitiveness of the Peruvian mining sector, it stands out for its geological potential and relatively low production costs. Where there is room for improvement is in the policies that favor investment in the sector, in particular labor regulation, socio-economic agreements with the communities where the projects are located, and in the safety of these. The Government has been working on policies to reduce procedures and simplify processes in the sector, improve the rules that regulate the activity, promote a more favorable social environment for investment, and make interventions according to the reality of each project. Peruvian mining competitiveness will be greater as these policies materialize.
Peru. Situation of the mining sector / 4 Key messages Finally, on the side of metal prices, these fell in 2018, including copper, in an environment of greater uncertainty about global growth. This increased uncertainty reflected the escalation of trade tensions, particularly between the US and China; more pronounced signs of global growth moderation; and, in that context, the continuation of monetary tightening in the US. However, so far in 2019, the price outlook has improved: the US Federal Reserve has adopted a more cautious monetary tightening tone and there are signs of progress in US-China trade negotiations. The elements that in the short term will affect the price of copper in our base scenario are the moderation of China’s growth (which demands around 50% of copper production worldwide), the proximity of the end of monetary tightening in the U.S., concerns about the slowdown in global growth that will dissipate (especially in the second half of the year), trade tensions that will no longer escalate, supply problems in some large mines, and inventories that are currently at relatively low levels. In the balance of these elements, we anticipate that the average annual copper price will be between USD 2.80 and USD 2.85 per pound in 2019 (USD 2.96 per pound in 2018). With these prices, the Peruvian mines currently under construction are profitable. Later on, the price of copper will find support in the growing demand of industries such as that of electric vehicles.
Peru. Situation of the mining sector / 5
01
Recent developments and
prospectsPeru. Situation of the mining sector / 6
The highlight in the Peruvian mining sector is the beginning of a
new investment cycle, particularly in copper mines...
Cycle of metallic mining activity: investment and production
(USD billions, accumulated in the last four quarters) Investment (left axis)
Series1 Series2
Series2 Series1 Production*Series1
Series2 (right axis)
32,000 32,000 10,000 10,000
10 Investment Production 30
boom** boom 9,000 9,000
30,000 30,000
9
8,000 Investment 28 8,000
28,000 28,000 boom
8
7,000 7,000
26,000 26,000 26
7 6,000 6,000
24,000 24,000
6 5,000 24 5,000
22,000 22,000
5 4,000 4,000
22
20,000 20,000 3,000
4 3,000
18,000 18,000 2,000 20 2,000
3 T411 T312 T213 T114 T414T411 T315T312 T216T213 T117T114 T417T414 T318T315 T216 T117 T417 T318
2 18
T411 T312 T213 T114 T414 T315 T216 T117 T417 Q418
T318
* Production valued at the average metal price between 3Q 2011 and 4Q 2018
** Las Bambas (USD 10 billion), Cerro Verde expansion (USD 4.6 billion), Toromocho (USD 3.5 billion), Constancia (USD 1.8 billion), and Toquepala expansion (USD 1.2 billion).
Source: MINEM, BCRP, and BBVA ResearchPeru. Situation of the mining sector / 7
... investment that is concentrated mainly in the central and southern
areas of the country...
Investment in new mining projects by geographical area*
(USD millions)
Copper
Tumbes
Amazonas
Gold
Loreto
Piura Tin
Quecher Main
USD USD 300 million
Lambayeque Cajamarca
Start of operation: 2019
San
9.8 La
Martín
Libertad
billion Áncash Huánuco
Ucayali
Pasco
Toromocho
expansion Lima
Junín
USD 1.3 billion Madre de Dios
Start of operation 2020
Huancavelica Cusco
Relaves B2 San Rafael
Mina Justa Apurímac USD 200 million
USD 1.6 billion Ica Puno
Ayacucho Start of operation: 2019
Start of operation 2020
84% Copper Marcona Arequipa
Quellaveco
Moquegua
expansion**
USD 5.3 billion
USD 1.1 billion Start of operation: 2022
Start of operation: 2019 Tacna
*For more details, see appendix 1.
Source: MINEM, BCRP, and BBVA Research **IronPeru. Situation of the mining sector / 8
...and which relies on (i) metal prices covering production costs and (ii)
still relatively low financing costs.
Mining investment and copper price 10-Year U.S. Treasury Bond Yield
(%)
10 4.50 7
9 4.00 6
8
3.50 5
7
3.00
4
6
2.50
5 3
2.00
4 2
3 1.50
1,40 Mina Justa
Cash cost* Quellaveco 1
1,05
2 1.00
T211 T412 T214 T415 T217 T418
0
Series1 Series2(USD billions, cumulative last four quarters, left axis)
Mining investment Dic-98 Dic-03 Dic-08 Dic-13 Dic-18
Series2
Copper price (USD per pound, average last four quarters, right axis)
4.30
4.50
*Cash cost includes extraction cost, crushing, concentration, administrative costs, energy, fuel
and freight. It does not consider financial expenses.
4.00 press releases
Source: MINEM, Bloomberg, 3.80and BBVA ResearchPeru. Situation of the mining sector / 9
In this context, mining investment increased to around USD 5 billion
last year and will continue to increase in 2019...
Mining investment
(USD billions)
10
9
Increase of more than
8 one billion dollars
7
6
5
4
3
2
1
0
2011 2012 2013 2014 2015 2016 2017 2018 2019*
Nuevos proyectos
*Projection
Source: MINEM and BBVA ResearchPeru. Situation of the mining sector / 10
The additional mining investment spending that we estimate for 2019 will
give important support to the Peruvian GDP growth.
Increase in mining investment
(equivalent in percentage points of GDP)
2017 2018 2019
0,7
0,4
2,50,2 3,6
* Figure for 2019 is projected
Source: MINEM, BCRP, and BBVA Research60
60 Peru. Situation of the mining sector / 11
40
In the past, fluctuations in mining investment spending have had an 40
20
20
impact on production in different economic activities. 0
0
-20
There is an interesting correlation between mining investment expenditure and industries such as that of -20
-4 0
construction materials, chemicals or transport materials. -4 0
-6 0
-6 0 Prom. 20 13 20 14 20 15 20 16 20 17 20 18*
20 10 -12
Prom. 20 13 20 14 20 15 20 16 20 17 20 18*
Mining investment and production in selected economic activities* Mining investment (in real terms, left axis)
20Inversión
10 -12 minera
Inversión
Producciónminera
de mat erial de t ranspor t e
(YoY % chge.) Sector production (right axis)
Producción de mat erial de t ranspor t e
Production of transport Production of materials for
Production of basic chemicals
materials construction
60 60 14 60 14
12 12
40 40 40 10
10
8
8
20 20
20 6
6
4
4
0
0 0 2
2
0
0 -20
-20 -20
-2
-2
-4 0 -4
-4 0 -4 0 -4
-6
-6
-6 0 -8
-6 0 -6 0 -8 Prom. 20 13 20 14 20 15 20 16 20 17 20 18
Prom. 20 13 20 14 20 15 20 16 20 17 20 18 Prom. 20 13 20 14 20 15 20 16 20 17 20 18 20 10 -12
20 10 -12 20 10 -12
* A causality analysis
Inversión mineraconfirms the positive relationship between mining investment and production
Inversión minerain the sectors shown in the graphs. Inversión minera
Source: MINEM, INEI,
Producción and
de mat BBVA
erial Research
de t ranspor te Producción de sust ancias químicas básicas - eje der. Producción de mat eriales para la const rucción - eje der.Peru. Situation of the mining sector / 12
In this new cycle of mining investment, these economic activities will
once again be favored.
+ impact
Mining investment in... Production of
transport
materials
Exploration
Production of
+ basic chemicals
Infrastructure
+ Production of
materials for
construction
Equipment
Construction
sector Transport and
storage services
Source: BBVA ResearchPeru. Situation of the mining sector / 13
On the production side, metal extraction stagnated in 2018.
Copper production Metal and copper mining production
(MT millions, accumulated in the last four quarters) (YoY % chge.)
60
2.4
45
2.2
2.0 It represents little
more than 50% of the 30
metal mining GDP.
1.8
15
1.6
1.4 0
1.2
-15
2T-14 1T-15 4T-15 3T-16 2T-17 1T-18 4T-18
1.0
4T-13 4T-14 4T-15 4T-16 4T-17 4T-18
Minería metálica Cobre
The boom in metal mining production In 2018 there were temporary supply problems in
dissipated in 2017 when the new copper mines copper mines (exploitation of areas with low ore grade,
reached full operational capacity*. a geotechnical problem in a large mine) and depletion of
some gold mines.
*For more details, see appendix 3.
Source: MINEM, BCRP, and BBVA ResearchPeru. Situation of the mining sector / 14
We estimate that in 2019 mining production will expand again due to
the normalization of copper extraction...
Metal and copper mining production Mining exports
(YoY % chge.) (USD billions)
45 34
40
Increased mining
35 production
29
30
… and the entry into Lower average
25 annual price of
operation of the
copper and
expansions of Toquepala 24 other metals
20 (copper) and Marcona (iron)
15
10 19
5
0
14
*
2011
2012
2013
2014
2015
2018
2019
2016
2017
-5
2012 2013 2014 2015 2016 2017 2018 2019 *
Metal mining Copper
* Projection
Source: BCRP and BBVA ResearchPeru. Situation of the mining sector / 15
Later on, as a result of the current investment boom, mining production
-and copper in particular- will continue to increase.
Copper production
(MT millions) Chile
5,9 1° global
3.5
Quellaveco 3,2
Mina Justa
3.0 Toromocho*
Las Bambas
2.5 Cerro Verde*
Toromocho
2.0 Constancia Toquepala*
China
1.5
1,5 3° global
1.0
Projection
0.5
0.0
2005 2008 2011 2014 2017 2020 2023
* Expansion of the mine. For the production of Chile and China, the Cochilco estimate for 2018 is considered.
Source: MINEM, BCRP, COCHILCO, and BBVA ResearchPeru. Situation of the mining sector / 16
And as in the case of investment, the increase in mining production will
have a positive impact on other branches of production.
Mining production: demand for goods and services from other productive
sectors (% of total mining production demand from other sectors)
Manufactura
Manufacturing 44%
Transporte
Transport y
and storage
almacenamiento
services
16%
Hidrocarburos
Hydrocarbons 13%
Electricity, gas
Electricidad,
8%
The extraction of
andywater
gas agua
Servicios
Financial
minerals demands goods
financieros
services
7% and services from other
Servicios prestados
Services
a empresas
companies
to
3% economic sectors, which
Trade
Comercio 1%
in turn require goods and
services from other
Construction
Construcción 1% productive activities.
Other
Resto 7%
Source: 2007 Input-output table, IPE: “El Valor Agregado de la Minería en el Perú” (The Added Value of
Mining in Peru), and BBVA ResearchPeru. Situation of the mining sector / 17 02 Mining projects in the pipeline
Peru. Situation of the mining sector / 18
Portfolio of mining projects in the study phase
Total
Portfolio of mining projects according to their state of progress* investment
(USD billions)
USD 10.5 billion
3.0
3,000
Los Chancas
2.5
2,500
Pampa de Pongo
2.0
2,000
1.5
1,500
Zafranal
1.0
1,000
Corani
Trapiche Pukaqaqa Lagunas
Magistral
0.5 Norte**
500
Coroccohuayco Santa María*
San Gabriel
Pachapaqui**
0.00
Pre-feasibility Feasibility Detail Engineering
Copper Gold Zinc Iron Silver
*For more details, see appendix 4.
* Expansion
Source: MINEM and BBVA ResearchPeru. Situation of the mining sector / 19
Of this portfolio, more than half corresponds to copper projects,
mostly located in central and southern Peru.
Portfolio of mining projects by metal* Portfolio of mining projects by geographical area*
(% of total portfolio)
61
Total Tumbes
Amazonas
Loreto
investment Piura
USD 10.5 billion Lambayeque Cajamarca
San Martín
Santa María**
Lagunas
La Libertad
Norte**
Áncash Huánuco
Magistral Ucayali
Pachapaqui** Pasco
21
Junín
Lima
Coroccohuayco
Madre de Dios
11 Huancavelica Cusco
Pukaqaqa
Apurímac Corani
6 Trapiche
Ica
Ayacucho Puno
1 Los Chancas
Arequipa
Zafranal
Cobre Hierro Oro Plata Zinc Pampa de Pongo Moquegua
San Gabriel
* In the pipeline because they have not yet been concluded with required studies Tacna
Source: MINEM and BBVA Research ** ExpansionPeru. Situation of the mining sector / 20
But there is also another portfolio of projects that have been postponed
mainly because of social conflicts.
Mining projects that have been postponed mainly because of social conflicts
Río Blanco Total USD investment
(USD 2.5 billion) 12 billion Communities adjacent to the project have
(expenditure equivalent to
5% of GDP) their activities threatened (agriculture,
Piura
livestock) by possible contamination. They
Jan
Cajamarca
17 oppose the projects.
Conga 214
(USD 4.8 billion)
Galeno
(USD 3.5 billion) Political cost of moving projects forward
could be significant.
Tía María
(USD 1.4 billion)
Arequipa
Source: MINEM, press releases, and BBVA ResearchPeru. Situation of the mining sector / 21
03
Competitiveness analysis of the
metal mining sector in PeruPeru. Situation of the mining sector / 22
Main factors that determine the competitiveness of the
mining sector
Mining Competitiveness Index (MCI) Production costs
01 02 03
Availability of Policies that encourage Cost
the resource investment in the sector
Regulation
Tax regime
Human capital
Infrastructure
Safety
Social conflictsPeru. Situation of the mining sector / 23
Competitiveness indicator of the mining sector
Competitiveness indicator of the mining sector*
Collects a sample of 15 countries that rank at the top in the global copper, gold, zinc and silver reserves share.
Mining Competitiveness Index (MCI)
01 02
Mining potential Policy perception
(availability of the resource)
* Prepared by the Fraser Institute. The Mining Competitiveness Index is built on the basis of surveys of executives related to the mining sector. The index corresponds to the percentage of respondents who indicate
that it is attractive to invest in mining. The indicator was constructed with a weight of 60% for Mining Potential and 40% for Policy Perception (40% of respondents indicate that their decision to invest is determined
by the policies applied in the sector).
Source: Fraser Institute, 2017Peru. Situation of the mining sector / 24
Peru has significant mining
resources...Peru. Situation of the mining sector / 25
Peru has significant mining resources.
01 Peru: position in the global ranking of metal reserves*
1st 3rd 3rd 7th
Gold
Copper Zinc
Silver
*For more details, see appendix 5.
Source: U.S. Geological Survey, 2018Peru. Situation of the mining sector / 26
In the indicator that measures the availability of the mining resource
(geological potential), Peru dropped two positions in 2017.
01 Ranking
Mining Potential Index* position Mining Potential Index: ranking position
(%) (position)
Indonesia 1
0
Chile 2
Congo 3
2 2°
Perú 4
Kazakhstan 5 4 4°
Sur Africa 6
Canadá 7 6
Rusia 8
Australia 9
7°
8
Estados Unidos 10
Zambia 11 10
México 12
Brasil 13 12
China Chile
14
Bolivia 15 Perú
14
0 20 40 60 80 2013 2014 2015 2016 2017 Canadá
* Corresponds to the percentage of respondents who indicate that it is attractive to invest in mining when considering the country’s mineral resources (geological potential).
Source: Fraser (BBVA Research preparation)Peru. Situation of the mining sector / 27
But to be competitive in mining it is not enough
to have reserves of the resource...Peru. Situation of the mining sector / 28
In the indicator that measures how policies implemented in the mining
sector are perceived, Peru improved two positions in 2017.
02 Ranking
Policy Perception Index* position Policy Perception Index: ranking position
(%) (position)
1 0
Canadá
Estados Unidos 2
Chile 3
1 1°
Australia 4
2
Perú 5
México 6 3 3°
Kazakhstan 7
Rusia 8 4
Brasil 9
10 5 5°
Zambia
Sur Africa 11
6
Bolivia 12
Indonesia 13
7 Chile
China 14
15 Perú
Congo 8
2013 2014 2015 2016 2017 Canadá
0 20 40 60 80
* Corresponds to the percentage of respondents who indicate that it is attractive to invest in mining considering the policies implemented in the country’s mining sector.
Source: Fraser (BBVA Research preparation)Peru. Situation of the mining sector / 29
In this context, the MCI of Peru maintained its position in the 2017
ranking.
Ranking MCI: ranking position
Mining Competitiveness Index (MCI)* position
(%) (position)
1
Chile 0
2
Perú
Canadá 3 1 1°
Kazakhstan 4
Australia 5 2 2°
Estados Unidos 6
Rusia 7
3 3°
Indonesia 8
4
México 9
Sur Africa 10 5
Congo 11
Zambia 12 6
Brasil 13
7 Chile
China 14
Bolivia Perú
15
8
Canadá
0 20 40 60 80 2013 2014 2015 2016 2017
* Corresponds to the percentage of respondents who indicate that it is attractive to invest in the country’s mining sector. The indicator was constructed with a weight of 60% for the
Mining Potential and 40% for the Policy Perception.
Source: Fraser (BBVA Research preparation)Peru. Situation of the mining sector / 30
What policies should be improved to make investment in
the Peruvian mining sector more attractive?
Policy Perception Index questions* Peru’s position in the ranking for each aspect evaluated
within the Policy Perception Index**
1. Uncertainty regarding the administration, interpretation or application of (position out of a total of 15 countries)
existing regulation
15
2. Tax regime 14
3. Legal system 13
12
4. Commercial barriers 11
Worse than
5. Human capital 10
9
median
6. Uncertainty regarding environmental regulation 8
7. Uncertainty regarding disputed land claims 7
6
8. Political stability 5
9. Quality of geological data 4
3
10. Regulatory duplication and inconsistencies Better than
2
1 median
11. Uncertainty about protected areas
0
12. Infrastructure quality P1 P2 P3 P4 P5 P6 P7 P8 P9 P10 P11 P12 P13 P14 P15
13. Safety level Número de pregunta
14. Socio-economic agreements with communities
Perú Chile Canadá
15. Labor regulation/employment agreement and workers’ unions
* Prepared on the basis of the surveys carried out by the Fraser Institute. Considers the percentage of respondents who answered “Yes, it encourages investment” in each of the aspects evaluated (15 questions).
** Sample of 15 countries that rank at the top in the global copper, gold and zinc reserves share.
Source: Fraser (BBVA Research preparation)Peru. Situation of the mining sector / 31
Main factors that determine the competitiveness of the
mining sector
Mining Competitiveness Index (MCI) Production costs
01 02 03
Availability of Policies that encourage Cost
the resource investment in the sector
Regulation
Tax regime
Human capital
Infrastructure
Safety
Social conflictsPeru. Situation of the mining sector / 32
Low costs favor mining investment in Peru, which is important in an
environment where prices have fallen.
03
Cash cost of the main copper-producing Electricity rates for industrial customers*
countries* (USD per pound) (cUSD/KWh)
Congo 1.73 Panamá 18
EE.UU 1.72 Bolivia 15
El Salvador 15
Argentina 1.60 Brasil 15
China 1.55 Colombia 14
Australia 1.50 Chile 13
Costa Rica 13
Canadá 1.50
Uruguay 12
Chile 1.48 México 11
Promedio 1.42 Guatemala 10
Rusia 1.27 Ecuador 10
Perú 9
Brasil 1.19 Argentina 8
Perú 1.16 Paraguay 5
* 2015. In the case of Chile, in particular, the data is from the first half of 2018 and is considered a
sample of 21 operations, representing 90% of the country’s mining production. The cash cost includes
costs of extraction, crushing, concentration, administrative costs, energy, fuel and freight; it does not 2Q18
include financial costs. Source: OSINERMING
Source: Cochilco, Wood Mackenzie. Preparation: OSINERGMINPeru. Situation of the mining sector / 33
The Government is working to increase the attractiveness of
the mining sector.
Objectives of the sector to 2021 What are the strategies to reach them?
Ensure continuity of current operations
01
Regulatory Reduction
review of procedures and
Make viable the projects in the pipeline in processes
02 joint work with the communities
03 Encourage new explorations
Promote
Interventions
04 Promote mining formalization a sound social differentiated
environment per project
Manage mining environmental liabilities
05 in their entirety
Source: MINEMPeru. Situation of the mining sector / 34
What are the strategies to achieve this?
Reduction of procedures Regulatory Promote a sound social Interventions differentiated
and processes review environment by project
An accompaniment strategy is Regulatory improvements are being A new social conflict management It seeks to develop strategies
being implemented for new projects promoted and work is underway to system is being developed, differentiated in such a way that
and current operations through a update and identify necessary promoting the Social Advancement each of the mining projects in the
close multisectoral coordination, changes in current legislation, with Fund (FAS). pipeline is viable taking into
with more dynamic processes a regulatory impact analysis and a account their particularities, their
through the use of the Electronic participatory regulatory process. Creation of mining-energy own reality.
Government. information committees. They seek
Creation of the Center for to diminish the asymmetry of For example, in the case of
Creation of the Directorate General Convergence and Good Mining and information between communities, environmental liabilities, there are
for Mining Promotion and Energy Practices* (August 2018). It the State, and the private new projects that face resistance
Sustainability (August 2018). One is a space for the State, the private enterprise. The first center located from the population because older
of its functions is to simplify sector and civil society to dialogue in Moquegua (Quellaveco project) adjacent projects polluted the area.
procedures and make it easier to about the activities of the sector. was recently created. In these types of cases, state
obtain permits. intervention seeks to clean up the
contaminated area in order to
reduce the resistance of the
population.
Source: MINEM and press releasesPeru. Situation of the mining sector / 35
These strategies are added to the current legal framework for the
promotion of the mining sector.
Tax stability contracts Definitive return of the general sales Early recovery of the IGV*
tax (IGV)
Companies may enter into legal stability It is a tax benefit to the holders of the mining It’s a tax benefit during the pre-productive stage.
agreements with the State in order to maintain the activity during the exploration phase.
validity of a certain regulatory regime for as long It consists of the return of the IGV that taxed local
as it is agreed in that agreement. To this end, mining concessions must enter into imports or purchases of new capital goods,
an exploration investment contract with the State. intermediate goods, services and construction
The enjoyment of the stability benefit applies contracts.
under the following conditions: (i) 10 years for a Repayment includes all imports or purchases of
minimum investment of USD 20 million; (ii) 12 goods, loans or use of services and construction The scheme is open to natural or legal persons
years for an investment of USD 100 million (USD contracts. investing in any economic sector.
250 million for ongoing operations); and (iii) 15
years for a minimum investment of USD 500
Mining and hydrocarbon companies will continue They must meet the following requirements: (i) the
million.
to receive this tax benefit until December 31, project must generate third category income; (ii)
2019. the investment in the project must be at least USD
5 million; and (iii) the project must require a pre-
productive stage of at least 2 years.
* Law 1423.
Source: MINEMPeru. Situation of the mining sector / 36 04 Copper price outlook
Peru. Situation of the mining sector / 37
In the second half of 2018 the prices of metals decreased, among them
copper, ...
Copper price* Metal prices
(USD/lb.) (average annual level, % chge. with respect to the previous
3.5 year)
3.3 2017 2018
3.1 38
27
2.9 24
2.7
6
1
2.5
0
-3
-8
2.3 Dec-18
Set-17
Set-18
Mar-17
Mar-18
Ene-17
Ene-18
Nov-17
Nov-18
May-17
May-18
Jul-17
Jul-18
Zinc Cobre Plomo Plata
* Data as of December 31
Source: BloombergPeru. Situation of the mining sector / 38
... due to increased uncertainty about global growth in an environment
where...
Perception of risk
(VIX*, in basis points)
40 Trade tensions escalate, especially between
35 the US and China.
30
25
Signs of global growth moderation are
becoming more pronounced
20 (second half of 2018)
15
10
FED continues to raise its policy rate.
5
0
Nov-16 Abr-17 Set-17 Feb-18 Jul-18 Dic-18
* VIX (Chicago Board Options Exchange Market Volatility Index)
Source: Bloomberg and BBVA ResearchPeru. Situation of the mining sector / 39
So far in 2019, however, the outlook improved: Fed is more cautious and
there are signs of progress in the US-China trade negotiations.
Perception of risk Price of copper
(VIX*, in basis points) (USD/lb.)
3.5
40
35 3.3
30
3.1
25
2.9
20
15 2.7
10
2.5
5
2.3
Set-17
Set-18
Mar-17
Mar-18
Ene-17
May-17
Ene-18
May-18
Ene-19
Nov-17
Nov-18
Jul-17
Jul-18
0
Nov-16 Abr-17 Set-17 Feb-18 Jul-18 Dic-18 Feb-18
* VIX (Chicago Board Options Exchange Market Volatility Index). Updated to February 13
Source: Bloomberg and BBVA ResearchPeru. Situation of the mining sector / 40
What elements affect our forecasts for the price of copper in the short
term? China’s growth, but also...
China: GDP
(YoY % chge.)
7.3
FED
Projection
6.9 It is close to ending the upward cycle of its policy rate.
6.8
6.7
6.6
6.0 Concerns about global growth
5.8 In our scenario these are moderate, especially in the second half of
2019.
Trade tensions
In our base scenario we do not consider additional increases in
tariffs.
Physical supply/demand balance
Deficit in 2019 and 2020 due to lower production in a large
mine located in Asia
2014 2015 2016 2017 2018 2019 2020
China demands around 50% of global copper Inventories
At relatively low levels
production.
Source: Bloomberg and BBVA ResearchPeru. Situation of the mining sector / 41
In the balance of these items, we expect some downward correction in
the copper price for the short term.
Copper price
(USD/lb., annual average level)
4.5
4.01 Projection
4.0
3.5
3.12 2.80 -
2.96
3.0 2.85
2.5
2.20
2.0
1.5
1.0
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Source: BCRP and BBVA ResearchPeru. Situation of the mining sector / 42
Later on, the price of copper will find support in the increased
demand from industries such as that of electric vehicles.
Use of copper by vehicle type Number of electric vehicles Number of electric vehicles in the
in the world world
(million units) (million units)
Use of copper 3.5
Type of vehicle (kilograms)
3.0
Conventional vehicle 23 2.5
Hybrid electric vehicle 40-60 2.0
Hybrid electric bus 89 1.5
1.0
Battery-powered electric
224-369
bus 0.5
0.0 Battery-powered electric vehicles Hybrid vehicles
2013 2014 2015 2016 2017 Battery-powered electric commercial vehicles Hybrid commercial vehicles
Battery-powered electric buses Hybrid buses
China EE.UU Europa Otros
Battery-powered electric trucks Hybrid trucks
Source: International Copper Association and Cochilco Source: International Energy Agency (IEA) Source: International Energy Agency (IEA)
France will put an end to the sale of UK to ban new gasoline and diesel Denmark wants to ban the sale of gasoline
diesel and gasoline cars by 2040. vehicles by 2040 and diesel cars by 2030.
July 2017 July 2017 October 2018Peru. Situation of the mining sector / 43 Peru: situation in the mining sector February 2019
Peru. Situation of the mining sector / 44
Appendix 1. Projects in the pipeline in the new mining investment
cycle
Total investment: USD 9.8 billion
Quellaveco (Copper) Mina Justa (Copper) Toromocho expansion (Copper)
Total Investment: USD 5.3 billion Total Investment: USD 1.6 billion Total Investment: USD 1.3 billion
Company: Anglo American (60%) and Mitsubishi (40%) Company: Marcobre Company: Chinalco
Location: Moquegua Location: Ica Location: Junín
Annual production: 300,000 MTF/Cu Annual production: 102,000 MTF/Cu Annual production: 75,000 MTF/Cu
Entry into operation: 2022 Entry into operation: 2021 Entry into operation: 2020
Other data: Cash cost (C1) USD 1.05 per pound Other data: Cash cost (C1) USD 1.4 per pound
Quecher Main (Gold) B2 San Rafael (Tin) Marcona expansion (Iron)
Total Investment: USD 300 million Total Investment: USD 200 million Total Investment: USD 1.1 billion
Company: Yanacocha Company: Minsur Company: Shougang
Location: Cajamarca Location: Puno Location: Ica
Annual production: 200,000 Oz Annual production: 4,000 - 5,000 Annual production: 10 million MT
Entry into operation: 2019 MTF Entry into operation: 2018
Entry into operation: 2020
Source: MINEM and BBVA ResearchPeru. Situation of the mining sector / 45
Appendix 2. Direct impact of metal mining*
Exports Private investment GDP
of the value of
60% exports 11% of
private investment 10% of the
total production
Use Tax revenues
of the of the
5% employed workforce 5% tax revenues
* Data from 2017Peru. Situation of the mining sector / 46
Appendix 2. Importance of metal mining in exports
Exported value: share in 2017 Share within mining exports in 2017
(%) (%)
50
Non-traditional
exports
26
30
Mining
61
Other traditional
13
exports
9
6
3
2
Cobre Oro Zinc Plomo Hierro Otros
27 billion
USD230 million MT
Global reserves
*Other: silver, molybdenum, tin.
Source: BCRPPeru. Situation of the mining sector / 47
Appendix 2. Importance of metal mining in private sector investment
Regional share in mining investment, 2017
230 million MT (%)
Global reserves
Tumbes
5% Piura
Amazonas
Loreto 80%
Mining 4 billion USD Lambayeque Cajamarca
San
Martín
investment 5% La Libertad
Áncash
(2017) Huánuco
Ucayali
7%
Pasco
7% Lima
Junín
Private Madre de Dios
10%
investment
11% Huancavelica
Ica
Apurímac
Cusco
10% Ayacucho Puno
Arequipa
13% Moquegua
Tacna
9%
Source: MINEM and BCRP Source: MINEM
13%Peru. Situation of the mining sector / 48
Appendix 2. Importance of metal mining in national production
GDP: sectoral share in 2017 Regional share in copper production, 2017
(%) (%)
Comercio y Servicios 60
Manufactura 12
Tumbes
Amazonas
Loreto
92%
Piura
Lambayeque Cajamarca
Minería metálica 10 18% San Martín
La Libertad
Áncash Huánuco
Otros 6 9% Pasco
Ucayali 13%
Lima Junín
Madre de Dios
19%
Construcción 6 Huancavelica
Apurímac
Cusco
21%
Ica
Ayacucho Puno
Agropecuario 5 Arequipa 6%
Moquegua
7%
Tacna
Source: BCRP Source: MINEMPeru. Situation of the mining sector / 49
Appendix 2. Importance of metal mining in the generation of
employment
Distribution by region of direct jobs generated by the
190,000 mining sector in 2017
(%)
Arequipa
Direct jobs* generated by Junín 19,004
28,480
mining La Libertad 18,994
Cajamarca 17,379
Lima 14,728
Pasco 12,973
For each direct job 4** indirect jobs
Ancash 12,544
Apurímac 11,374 53%
Ica 8,749
are created. Moquegua 8,495
Cusco 7,833
Ayacucho 6,980
5% of the Economically Active Tacna
Puno
5,865
5,683
Huancavelica
Population (EAP) employed (2017) Callao
3,983
2,755
Otros 1,035
* Illegal mining is not considered.
** The calculation prepared by MACROCONSULT (input-output table of 2007, basic prices) is considered.
Source: MINEMPeru. Situation of the mining sector / 50
Appendix 2. Importance of metal mining in tax revenues
Tax revenues linked to mining production*
(% of tax revenue)
14
Tax revenues from mining currently
12 represent 5% of the total.
10
In the coming years, tax revenues related
8 to mining will increase due to higher
profits from projects currently underway.
6
4
2
0
2018**
2005
2006
2007
2008
2009
2010
2012
2013
2014
2015
2016
2017
2011
* Income tax (3rd category), royalties, lien and special tax on mining.
** Projection as of October.
Source: BCRP and BBVA ResearchPeru. Situation of the mining sector / 51
Appendix 3. The boom in metal mining production dissipated in 2017,
when the new copper mines reached full operational capability.
Copper production in selected mines
(annual, MT thousands)
Cerro Verde Antamina Las Bambas1 Toromocho Constancia
500
473 465 455 460 453
444 439
412 450 450
385
329
208 208
182 195
168 200
133 122 122
106 130
2015 2016 2017 2018 2015 2016 2017 2018 2016 2017 2018 2015 2016 2017 2018 2015 2016 2017 2018
Maximum production levels
1: Production was reduced in 2018 due to a geotechnical problem in one of the walls of the Ferrobamba pit.
Source: MINEM, BCRP, and BBVA ResearchPeru. Situation of the mining sector / 52
Appendix 4. Concessioned projects portfolio
Pampa de Pongo Corani
Investment: USD 2.2 billion Investment: USD 585 million
Company: Jinzhao Mining Perú S.A. Company: Bear Creek Mining S.A.C.
Location: Arequipa Location: Puno
Metals: Iron (15 million FMT Fe) Metals: Silver (approx. 8 million ounces)
Current situation: Current situation:
The following studies are available: Engineering Study, The Engineering Study has been approved.
Environmental Impact Study. The Environmental Impact Study has been
In January 2018, the company presented the first approved.
modification of the Environmental Impact Study, which is The operating activities have been approved.
being evaluated by SENACE.
The project operator is conducting an evaluation of
The company is looking for partners for the development of capital and operational savings, as well as time
the project. Explorations are also being carried out to reduction.
determine copper resources.
There is a risk that new authorities will delay the
start of construction.
Source: MINEMPeru. Situation of the mining sector / 53
Appendix 4. Concessioned projects portfolio
Zafranal Pukaqaqa Lagunas Norte
Investment: USD 1.157 billion Investment: USD 706 million Investment: USD 640 million
Company: Compañía Minera Antapaccay S.A. Company: Nexa Resources Perú. S.A.A. Company: Minera Barrick Misquichilca S.A.
Location: Arequipa Location: Huancavelica Location: La Libertad
Metals: Copper (75,000 FMT Cu) and Gold (25,000 oz Au) Metals: Copper (40,600 FMT Cu) Metals: Gold (240,000 oz Au)
Current situation: Current situation: Current situation:
The feasibility studies have been approved. During the second quarter of 2018 the social license It is the first stage of the project that would extend
was obtained to start the drilling campaign. In the useful life of the mine by 10 years. The
The company is preparing its detailed EIA of the project, addition, the pre-feasibility study of the project is Engineering Study has been approved.
which is expected to be completed during the third quarter underway.
of 2019. An update of the EIA was presented in September
The EIA has been approved. 2018.
The company has not yet submitted its application for
operating activities. The project operator has not yet submitted its The project does not contemplate a new operating
application for an Operating Permit. permit and approval of the mine plan.
Source: MINEMPeru. Situation of the mining sector / 54
Appendix 4. Concessioned projects portfolio
Coroccohuayco Magistral Santa María (expansion)
Investment: USD 590 million Investment: USD 480 million Investment: USD 120 million
Company: Compañía Minera Antapaccay S.A. Company: Nexa Resources Perú S.A.A. Company: Compañía Minera Poderosa S.A.
Location: Cusco Location: Huancavelica Location: La Libertad
Metals: Copper (100,000 FMT Cu) Metals: Copper (40,600 TMF Cu) Metals: Gold (36,000 oz Au)
Current situation: Current situation: Current situation:
Expansion of the Antapaccay mine. The feasibility studies The EIA and feasibility studies have been approved. The EIA and the feasibility and engineering studies
have been approved. The company is in the process of preparing its have been approved.
engineering studies.
The company is in the process of modifying the EIA of the The project does not contemplate a new operating
project that is currently in operation. The project operator has not yet submitted the permit and approval of the mine plan.
application for an operating permit.
The project operator has not yet submitted the application
for an Operating Permit.
Source: MINEMPeru. Situation of the mining sector / 55
Appendix 4. Concessioned projects portfolio
Los Chancas Trapiche San Gabriel
Investment: USD 2.8 billion Investment: USD 700 million Investment: USD 431 million
Company: Southern Perú Copper Corporation Company: El Molle Verde S.A.C. Company: Compañía de Minas Buenaventura S.A.A.
Location: Apurímac Location: Huancavelica Location: Moquegua
Metals: Copper (100,000 FMT Cu) Metals: Copper (65,000 FMT Cu) Metals: Gold (200,000 oz Au)
Current situation: Current situation: Current situation:
The pre-feasibility studies have been approved. It is in the pre-feasibility stage. The EIA has been approved. The company expects
to obtain approval of its pre-feasibility studies.
In August 2018 the company submitted the EIA for In August 2018, the company submitted an EIA
evaluation. update for evaluation. In October 2017, the company submitted to MINEM
its request for approval of the mining plan for
The project operator has not yet submitted the application The project operator has not yet submitted its preparation and development activities.
for an Operating Permit. application for an Operating Permit.
According to the studies, they are analyzing if it is more The company is working to strengthen relations with
convenient to carry out the processing of the minerals by the community of Mollebamba in order to lay a solid
leaching, which is a more economic process and of low foundation for the project.
initial capital (CAPEX), but where molybdenum or gold is
not recovered; or if the flotation alternative is chosen,
where the three metals can be recovered, but the initial
capital will be greater.
Source: MINEMPeru. Situation of the mining sector / 56
Appendix 4. Concessioned projects portfolio
Río Blanco Conga Tía María
Investment: USD 2.5 billion Investment: USD 4.8 billion Investment: USD 1.4 billion
Company: Zijin Mining Group (45%), Tongling Non-Ferrous Company: Newmont Mining Corporation (51%), Grupo Company: Grupo México
Metals Group Holding (35%) and Xiamen C&D Co. Ltd (20%) Buenaventura (44%) and Sumitomo Corporation (5%)
Start of construction: Undefined
Start of construction: Undefined Start of construction: Undefined
Location: Arequipa
Location: Piura Location: Cajamarca
Metals: Copper (120,000 FMT)
Metals: Copper (200,000 FMT Cu) Metals: Gold (680,000 Oz) and Copper (54,000 FMT)
Current situation:
Current situation: Current situation: The company has the engineering studies and the
The feasibility study has been approved. The project has come to a halt at the feasibility Environmental Impact Study of the project.
stage due to socio-economic conflicts in the area of The company is currently working with the State to
The company has not submitted the Environmental Impact influence.
Study. obtain the construction permit, which has not been
granted due to the social conflicts in the Tambo
The company has been coordinating with various ministries Valley.
in order to strengthen the presence of the State in the area
and improve relations between communities. The conflicts are due to people’s concern about
impacts on the area and water use. Southern
Copper ruled out in its EIA the use of the Tambo
river basin as a source and offered a solution
through the use of desalinated seawater.
Source: MINEMPeru. Situation of the mining sector / 57
Appendix 5. First place in global silver reserves
Share in global silver reserves Regional share of silver reserves*
(%) (%)
Perú 17 1°
Polonia 17
94%
Tumbes
22% Piura
Amazonas
Loreto
Australia 17
Lambayeque Cajamarca
Rusia 10 San Martín
12%
China
14% La Libertad
7
Áncash Huánuco
Ucayali
15%
Pasco
México 7
4% Lima Junín
Chile 5
Madre de Dios
3%
Huancavelica Cusco
Apurímac
Estados Unidos 5 Ica
Puno
Ayacucho
15% 7%
Bolivia 4 Arequipa
530 million MT 3%
Moquegua
Global reserves Tacna
* Probable and proven reserves.
Source: U.S. Geological Survey, 2018 Source: MINEMPeru. Situation of the mining sector / 58
Appendix 5. Third place in global copper reserves
Share in global copper reserves Regional share of copper reserves*
(%) (%)
Chile 22
Australia 11
95%
Tumbes
Amazonas
Perú 10 3° Piura
Loreto
México 6 Lambayeque Cajamarca
8% San Martín
Estados Unidos 6 La Libertad
China 3
Áncash Huánuco
Ucayali
8%
Pasco
Indonesia 3 Lima Junín
7% Madre de Dios
Zambia 3 Huancavelica Cusco
19% Ica
Apurímac
7%
Congo 3 Ayacucho Puno
Canadá 1 Arequipa 16%
790 million MT Moquegua
Global reserves 29%
Tacna
* Probable and proven reserves.
Source: U.S. Geological Survey, 2018 Source: MINEMPeru. Situation of the mining sector / 59
Appendix 5. Third place in global zinc reserves
Share in global zinc reserves Regional share in zinc reserves*
(%) (%)
Australia 28
China 18
94%
Tumbes
Amazonas
Perú 12 3° Piura
Loreto
Lambayeque Cajamarca
México 9 46% San Martín
Kazahs 6 La Libertad
16%
India 5
Áncash Huánuco
Ucayali
12%
Pasco
Estados Unidos 4
9% Lima Junín
Madre de Dios
Canadá 2 6% Huancavelica Cusco
Apurímac
Bolivia 2
Ica
Ayacucho Puno 2%
4%
Arequipa
Suecia 2
230 million MT Moquegua
Global reserves Tacna
* Probable and proven reserves.
Source: U.S. Geological Survey, 2018 Source: MINEMPeru. Situation of the mining sector / 60
Appendix 5. Seventh place in global gold reserves
Share in global gold reserves Regional share in gold reserves*
(%) (%)
Australia 18
Sur Afríca 11
Rusia 10
95%
Tumbes
Amazonas
Estados Unidos 6 Piura
Loreto
Indonesia 5
Lambayeque Cajamarca
Brasil 4 38% San Martín
4%
Perú 4 7° La Libertad
Áncash Huánuco
Canadá 4
China 4 28% Pasco Ucayali
3%
Lima Junín
Uzbekistan 3 6% Madre de Dios
Huancavelica Cusco
Mécico 3 Apurímac
Nueva Guinea 2
Ica
Ayacucho Puno 2%
6%
Kazakhstan 2 Arequipa
5%
54 MT 3% Moquegua
Global reserves Tacna
* Probable and proven reserves.
Source: U.S. Geological Survey, 2018 Source: MINEMPeru. Situation of the mining sector / 61
Appendix 6. Global demand for copper continues to rise. China is the main
demander and the sectors that most use this metal are construction and the
electricity network.
Global refined copper consumption Copper consumption, 2017
(millions of MT) (share, % of total)
60
25
45
20
30
15
15
10
0
China
Turquía
Japón
Europa
EE.UU
R.Mundo
Taiwán
India
Corea del
5
Sur
0
2000 2017
Refined copper consumption by property Refined copper consumption by sector
(share, % of total) (share, % of total)
Conductividad eléctrica
Construcción
Estética maleable
Red eléctrica
Transferencia de calor Consumo general
Transportes
Transferencia de señal
Maquinaría industrial
0 20 40 60 80
Source: Cochilco 0 10 20 30 40Peru. Situation of the mining sector / 62 Peru: situation in the mining sector February 2019
You can also read
