Miners are bullish…
According to a recent survey of mining companies and financiers active in Latin America, the international law firm Dentons found that 66% of respondents were “either somewhat or very optimistic” that there will be increased investment in the mining sector over the next 12 months.
Specifically, the survey found that mining insiders currently consider Peru the hot spot for mining.
About 50% of the respondents to the Dentons survey thought Peru offered the most project and investment opportunities.
Perhaps that’s because, although the country is already a major producer of mineral commodities, Peru is currently experiencing a mining investment boom unlikely anywhere else right now.
More than $56 billion worth of mining projects (including 47 ventures in late-stage development and 30 projects dedicated to exploration or expansion of existing operations) are expected to come on-line in Peru beginning in 2016.
As a result, the Andean country’s mineral output is expected to heavily increase. Officials forecast production at Peru’s gold mines will increase over 8%, while silver will increase 14% next year.
But the real focus of Peruvian mining right now is copper.
The 2016 Peruvian Copper Rush
Already the world’s third-largest copper producer, Peru’s copper output is expected to increase 66% next year to about 5.5 billion pounds.
Considering this expected growth, Peru may surpass China to become the second-largest producer of copper in the world.
The main focus of this expected growth is the Las Bambas copper project in the highland region Apurimac, which will begin operations in February.
The Las Bambas mine is expected to produce between 550 million and 650 million pounds of copper in 2016, as well as significant amounts of zinc, silver, and gold.
The project is being financed by MMG Ltd., a Chinese-based mining company that’s primarily controlled by state-owned China Minmetals.
In total, the MMG consortium plans to invest $10 billion to produce copper, zinc, silver, and gold at Las Bambas. The Las Bambas mine is the single-largest Chinese investment project in Peru.
China is no stranger to investing in Peru. The country is currently the top mining investor in Peru, putting over $19 billion into projects. In total, Chinese investment accounts for 34% of the total portfolio of Peruvian mine projects.
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There have been significant roadblocks for MMG getting Las Bambas into production, however. Locals relentlessly protested the mine for months, citing environmental concerns.
Then things got ugly back in September when an estimated 15,000 people gathered in Challhuahuacho to protest the $7.4 billion project.
At least four people were killed and dozens seriously injured. The clash prompted President Ollanta Humala to decree a state of emergency.
A month later, however, a delegation from Peru’s government reached an agreement with community leaders in Apurimac state to end the indefinite strike against Las Bambas.
Protests against mines are not uncommon in Peru. Newmont Mining’s (NYSE: NEM) $4.8 billion Conga gold and copper project was derailed by unrest in 2011. Southern Copper (NYSE: SCCO) also put its $1.4 billion Tia Maria project on hold in May after three protesters died.
Despite these issues, mining investment continues to flow into the country.
For miners, the country has an attractive investor-friendly system that’s designed to support the industry.
The Peruvian government continues to actively attract mining investment by eliminating obstacles for foreign investors. Peru is considered to have one of the most open investment regimes in the world.
The mining sector has been a key source of economic growth for Peru, accounting for more than 55% of the country’s exports. Officials certainly hope to keep it that way.
Over the next several weeks, I will be investigating several Peruvian mining plays to hopefully bring you a few good winners. Got a Peruvian mining play in mind you think I should check out? Leave a comment below.
Good Investing,
Luke Burgess
Energy and Capital
