Peru. Situation of the mining sector - BBVA Research

 
 
Peru. Situation of the mining sector - BBVA Research
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
       prospects
Peru. 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 Research
Peru. 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                 **Iron
Peru. 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 Research
Peru. 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 Research
Peru. 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 Research
60
                                                                                                                                                        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 Research
Peru. 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 Research
Peru. 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 Research
Peru. 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 Research
Peru. 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 Research
Peru. 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 Research
Peru. 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                                                              ** Expansion
Peru. 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 Research
Peru. Situation of the mining sector / 21

           03
Competitiveness analysis of the
  metal mining sector in Peru
Peru. 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 conflicts
Peru. 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, 2017
Peru. 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, 2018
Peru. 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 conflicts
Peru. 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: OSINERGMIN
Peru. 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: MINEM
Peru. 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 releases
Peru. 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: MINEM
Peru. 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: Bloomberg
Peru. 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 Research
Peru. 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 Research
Peru. 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 Research
Peru. 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 Research
Peru. 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 2018
Peru. 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 Research
Peru. 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 2017
Peru. 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: BCRP
Peru. 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: MINEM
Peru. 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: MINEM
Peru. 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 Research
Peru. 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 Research
Peru. 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: MINEM
Peru. 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: MINEM
Peru. 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: MINEM
Peru. 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: MINEM
Peru. 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: MINEM
Peru. 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: MINEM
Peru. 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: MINEM
Peru. 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: MINEM
Peru. 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: MINEM
Peru. 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                40
Peru. Situation of the mining sector / 62

Peru: situation in the
mining sector
February 2019
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