(Last updated: 18 May 2011)

Trends and opportunities

The market

Peru is rich in mineral resources and the development and processing of these resources is a vital economic activity contributing to 61 per cent of Peru’s exports, and five per cent of the GDP. The Peruvian economy is vulnerable to world raw material price fluctuations due to its reliance on the mining sector. Peru is a major player in the international metals marketplace and has consolidated this global leadership thanks to its polymetallic mining industry. The Peruvian mining potential is reflected in the extraction of gold, copper, silver, lead, zinc, molybdenum, tin, iron and exploration of other substances such as uranium. In Peru, the majority of mines are located in the Andes region where copper and gold deposits are commonly found. Mining in these areas – usually over 3,000m above sea level – raises issues like access, altitude, relocation of local communities and environmental considerations. Open pit mines in Peru are usually owned by multinational companies whilst underground mines tend to be owned by local family conglomerates.

Peru ranks highest in Latin America in terms of its climate for investment in mining. The estimated portfolio of mining investment is composed of 41 major projects, including both exploration and expansion projects, which together amount to US$42.5 billion for the period 2010-2016. Over US$6.8 billion of the announced investment will come from mining companies with significant Australian shareholdings, such as Xstrata Copper and Antamina (BHP Billiton, Xstrata Copper).

Investment in mineral exploration in Peru has grown rapidly in the last three years and today it accounts for five per cent of the global budget for exploration (US$534 million approximately). According to the Metals Economics Group (MEG), Peru ranked 5th in the world and 2nd in Latin America for investment in exploration.

There are 15 Australian companies currently investing in mining exploration in Peru, including Metminco, Indo Mines, Strike Resources and Mundo Minerals, amongst others. Australian engineering and consulting firms have also recently established a presence in the market, including: Ausenco, Worley Parsons, SKM (Sinclair Knight Mertz) and Coffey Mining.

Portfolio of mining projects

According to the Peruvian Ministry of Energy and Mines, the estimated portfolio of mining investment is composed of 46 major projects, including both exploration and expansion projects, which together add to US$51.4 billion for the period 2010-2016. Many local and foreign companies operating within Peru’s mining sector are expanding their operations, preparing feasibility studies and carrying out intensive exploration.

See the full list of Peru mining projects.

Some of the significant projects coming up include:

• Xstrata Copper – Antapacay: US$1.5 billion (EIS approved)
• BHP Billiton, Xstrata Copper, Teck, Mitsubishi – Antamina: US$1.1 billion (expansion)
• Chinalco-Aluminium Corp – Toromocho: US$2.2 billion (EIS approved)
• Xstrata Copper – Las Bambas: US$4.2 billion (EIS approved)

Opportunities

The high level of investment being planned for the Peruvian mining industry offers enormous business potential for both Australian resource investors and exporters of mining equipment services and technology across all facets of the industry.

Particular attention is being placed on the environmental, community relations and safety aspects of the industry.

The Peruvian mining community is determined to develop a world-class mining industry and this offers opportunities for Australian companies whose products and services have a technical and cost competitive advantage in:

• Mineral exploration (geophysics, mapping, diamond drilling, tunnelling)
• Mining software (resource estimation, modelling, mine design and planning, maintenance and optimisation)
• Gold mining and processing technologies
• Contract mining
• Engineering services
• Environmental equipment (water and sewage treatment plants, effluents analysers, software)
• Environmental consulting (remediation and mine closure)
• Mine safety training and equipment
• Mining equipment
• Equipment and technology for underground (eg. communications, safety, automation)

Competitive environment

The market for mining equipment and services is receptive and very competitive, with all major international suppliers represented. Canada, USA, Mexico, Singapore, South Korea and European Free Trade Association have Free Trade Agreements with Peru, which make them tough competitors. The local manufacturing industry also offers strong competition on commodity goods (that are not technology intensive), but also potential for joint ventures or manufacturing under license arrangements.

As part of an Austrade strategy to promote Australia as world leader in the mining industry, Austrade is currently promoting the ‘Australian mining value chain’: Juniors miners > engineering firms > equipment suppliers/services. The ‘Australian mining value chain’ is focused on attracting Australian junior miners to the region; connect them to Australian engineering firms, which will then pull-through Australian suppliers to participate in the development of these projects. Austrade already supports Australian companies in the different phases of this process.

Currently there are over 30 Australian companies (suppliers of products/services for the mining industry) with an office in Peru. In the last 18 months Australian engineering firms and mining suppliers like Ausenco, Sinclair Knight Merz (SKM), Worley Parsons, Immersive Technologies, Groundprobe and Ludowici have set up in Peru. Most of these companies already had clients in the Peruvian market but due to the increase in demand for their products and services they decided to establish a local business.

Tariffs, regulations and customs

Custom duties are imposed on the CIF value (cost, insurance and freight) of the imported goods, at rates of zero per cent, nin per cent, 17 per cent and 20 per cent. There are no restrictions on imports and exports, although there is a limited list of products which cannot be imported or exported. Exports are not subject to any taxes. The importation of most capital goods is subject to the zero per cent rate.

Common tariffs for mining equipment range from four per cent to 12 per cent, but every case needs to be reviewed as there may be exceptions where the tariff is zero per cent.

An additional customs fee of around five per cent is usually applicable.

There is some relief for foreign exporters of raw materials and supplies that will be used to manufacture goods that will be subsequently exported. Additional relief is also available for companies importing heavy equipment and machinery on a temporary (one year) basis.

The government allows a deferment of payment of duties on imported capital items on new projects. Companies can elect to spread the payments over a period of four and a half to seven years in equal six monthly instalments rather than having to pay the total amount immediately.

The government is empowered to grant duty exemptions under certain circumstances and also to suspend temporarily the assessment of duties on certain products. Customs duties are imposed on an ad-valorem basis the CIF value of the imported goods. Goods are classified for customs duty purposes under the Harmonized System.

(Source: PWC 2011)

Marketing your products and services

Market entry

Australian presence in Peru has grown steadily in the last decade particularly in the mining and energy sectors, due to Peru’s favourable investment framework and the political and economic stability.

Over 50 Australian suppliers of mining equipment and services are active in Peru and about 30 have registered offices in Lima. Some of the Australian companies currently present in the market first set up an office in Chile and have recently migrated to Peru due to the growth and opportunities of the Peruvian mining sector.

Most foreign competitors have subsidiaries or branch offices in Peru, while others use distributors or representatives. Peruvian companies tend to avoid working with suppliers that do not have a local presence because of their need for on-the-ground support, and effective communications.

The best way for most Australian companies to address these issues and to achieve success in Peru is to commit to establishing a local presence. Having a knowledgeable and well-connected Peruvian representative is a critical factor for success.

This is also dependant on the specific product and market characteristics. Ideally, Australian companies should:

• Have a local presence and long-term commitment (tech support)
• Offer in-market support and post-sales service, preferable with an office in Peru
• Have promotional material and brochures in Spanish
• Visit the market frequently – build confidence with the customer
• Follow-up with potential customers after visiting the market – building a close relationship is crucial when doing business in Peru
• Learn some Spanish – it sends a message
• Cover the details in paperwork and process

What are your options?

• Selecting a local distributor or representative
• Opening up an office (Ideally a mix of Australian knowledge and local expertise)
• Joint venture with a local partner
• Purchasing an existing company

In general, skilled labour and technical level of professionals is good but not always easy to find combined with good English skills.

Attending key events is another way of marketing your products and services. Some events are specific to areas, such as maintenance, exploration, mine closure, environment, etc. The biggest mining conference in Peru ‘Extemin’ is held every two years in Arequipa (the next conference is 12-16 September 2011).

Common mistakes include:

• Selecting the first company you meet and like as your local representative (you need to research your best option available)
• Coming to the market without pre-arranged meetings
• Contacting people in mining companies directly without any introduction
• Visiting the market once without follow-up

Links and industry contacts

Mining–related resources

Institute for Geology and Metallurgy – www.ingemmet.gob.pe
Ministry for Energy and Mines – www.mem.gob.pe
National Society of Mining, Petroleum and Energy – www.snmpe.org.pe
Peruvian Mining Engineers Institute – www.iimp.org.pe

Contact details

The Australian Trade Commission – Austrade – is the Australian Government’s trade and investment development agency.

Through Austrade’s network of offices in over 50 countries, we assist Australian companies to succeed in international business, attract productive foreign direct investment into Australia and promote Australia's education sector internationally.

For more information on how Austrade can assist you, contact us on:

Australia ph: 13 28 78 | Email: info@austrade.gov.au

A list of Austrade offices (in alphabetical order of country) is also available.