Mining to Peru

(Last updated: 08 May 2008)

Trends and opportunities

The market

Peru is rich in mineral resources and the development and processing of these resources is an important economic activity that has helped build a very competitive business sector.

Peru is a major player in the international metals marketplace. At present Peru’s mining industry is second only to Chile’s, and has the potential to become the leader in Latin America.

Many domestic and foreign companies operating within Peru’s mining sector are expanding their operations, preparing feasibility studies and carrying out intensive exploration.

Planned investment in mining according to the Ministry of Energy and Mines include:

• Expansions (2001-2007) – US$492 million
• With and under feasibility study (2001–2007) – US$3,643 million
• Exploration (2001-2007) – US$1,506 million
• Privatisation (2001-2007) – US$2,210 million
• Other projects (2004-2009) – US$5,771 million

In the last 20 years, the political environment has played a crucial role in the development of the mining sector in Peru. The Peruvian mining industry only started growing in the 1990s with important changes to both corporate law and legislation governing investments in the sector promoting both domestic and foreign private investment. As a direct result of these reforms, Peru has been able to recover its position as a major world supplier of base and precious metals.

The following factors have contributed to Peru's mining sector development:

• Internationally recognised mineral resources (ranked first in the world in the last Fraser Institute’s Mining Survey) and relatively low recovery costs.
• A successful privatisation process that has created an attractive investment environment for international mining companies.
• Free profit repatriation scheme.
• Free trade of minerals, supplies and services in a free market economy.
• Efficient administration of mining rights and title granting procedures.
• Competitive taxation system.
• Modern geological information system.

The e-commerce revolution has yet to reach Peru but it is rapidly gaining acceptance. For cultural reasons, however, a personal relationship is beneficial and helps speed up business. Business-to-business (B2B) opportunities are concentrated within the country’s major industries of manufacturing, construction, mining, natural gas and energy, and their dealings with local and foreign partners and distributors.

There are several mining-related online portals in Peru: www.informaccion.com, Ministry of Energy and Mines, National Mining, Petroleum and Energy Society and Mining Engineers Institute. All of them are in Spanish.

Opportunities

The high level of investment being planned for the Peruvian mining industry (almost US$10 billion for 2006-2011) 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

A number of Australian resource companies – Xstrata Copper, Rio Tinto, Strike Resources, Investor Resources, Gallipoli Mining, Alturas Minerals, Western Mining and Newcrest – have already established a strong position within the Peruvian mining industry.

Competitive environment

The market for mining equipment and services is receptive and very competitive, with all major international suppliers represented. 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.

The mining industry is divided into three groups of companies determined by their production level:

• Gran Mineria or large scale mining (over 5000 tonnes per day)
• Mediana Mineria or medium scale mining (up to 5000 tonnes per day)
• Pequeña Mineria or small scale mining (less than 150 tonnes per day)

The Gran Mineria group, which leads the development of the sector, comprises the major presence of foreign mining companies. These companies have helped to introduce best practices in environmental and safety management, mining methods, social care and processing technology into the Peruvian mining industry:

• Grupo Mexico (Mexico) – Toquepala, Cuajone, Ilo smelter and refinery
• BHP-Billiton (Australia-UK) – Antamina
• Xstrata (Swiss-Australia) – Las Bambas, Tintaya
• Rio Tinto (Australia-UK) – La Granja
• Freeport McMoran (USA) – Cerro Verde
• Newmont (USA) – Yanacocha
• Barrick Gold (Canada) – Pierina, Lagunas Norte
• Doe Run (USA) – La Oroya, Cobriza
• Glencore (Switzerland) – Iscaycruz, Yauliyacu, Perubar
• Goldfields (South Africa) – Cerro Corona
• Teck Cominco (Canada) – Antamina
• Mitsubishi (Japan) – Antamina
• Shougang (China) – Marcona
• Pan American Silver (Canada) – Quiruvilca, Huaron
• Anglo American (UK) – Michiquillay, Quellaveco
• CVRD (Vale) (Brazil) – Bayovar
• Chinalco (China) – Toromocho
• Zi Jin (China) – Rio Blanco

The Mediana Mineria group is a mix of international juniors and all the big local mining companies. Most of the local mining companies have been managed as family businesses, and recently have made strategic alliances with foreign companies to explore and develop new deposits. The major local mining groups are:

• Arias Davila: San Ignacio de Morococha and Poderosa
• Baertl-Montori: Compañia Minera Milpo, Minera Ivan and Cerro Lindo
• Benavides: Compañia de Minas Buenaventura (Uchucchacua, Orcopampa, Julcani and Recuperada), Yanacocha, Brocal, Antapite, Caraveli, Tantahuatay and Minas Conga (under construction)
• Brescia: Minsur, Funsur smelter and refinery and Raura
• Gubbins-Cox: Casapalca, Yuramayo and Yauli
• Gubbins-Granger: Sociedad Minera Corona (Santa Rita, Carolina 1) and Cerro Corona (under construction)
• Hochschild: Arcata, Huaron, Pativilca, Sipan, Ares, Caylloma and Selene
• Picasso-Gallo: Atacocha, MInera San Manuel
• Picasso-Letts: Volcan
• Del Castillo: Aruntani
• Marsano: MARSA

Tariffs, regulations and customs

Common tariffs for mining equipment range from four 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.

All tariffs and custom fees are based on cost, insurance and freight (CIF) value.

Although there is no exemption on custom duties, 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. 

Industry standards

The Peruvian mining industry is ruled by international technical and quality standards. A track record in working on high altitude projects is required in most of the cases (more applicable to equipment manufacturers and consultants).

Marketing your products and services

Market entry

Peruvian companies have generally favourable views of Australia although their knowledge of Australian mining industry capabilities can be limited. They are much more familiar with North American and European mining solutions.

The first step for Australian companies is to analyse the market potential and identify barriers to their products, services and technologies. Successful companies in Peru target a niche market and in most cases offer a ‘smart’ solution. The second step is to estimate market size and growth trends, and determine product competitiveness and the most suitable entry strategy, either through partners, an agent, distributor or direct sales. Visits to the region are essential to demonstrate commitment to customers and to raise the company’s profile in Peru.

Mining companies in Peru like dealing with a local distributor or agent for the following reasons:

• reliable after-sales service
• on-the-spot technical support
• guarantees
• lead times
• stocks reduction (tendency to use ‘just in time’ procurement practices)

Customers in the Peruvian mining industry are divided into local and foreign companies. The foreign mining companies operate world-class mines using state-of-the-art technology with high safety and environmental standards. They may have global procurement policies.

Local mining companies tend to have the latest technology but with some limitations. They tend to have lower safety and environmental standards although this is rapidly improving. Australian mining supply companies may find it more attractive to initially seek business with the local medium to large-scale mining companies in Peru.

Entry strategies:

• Participate in a trade show.
• Visit the market. Austrade can help organise a visit program with the key relevant users of a product. Suggest twice a year visits as a start.
• Search for a local representative or partner.
• Given the distance and freight costs, Austrade usually recommends that the products destined for market have a premium value added. Imports cannot compete with commodity type products. With this in mind Austrade can identify suitable partners or representatives according to the preferred commercialisation method.

Challenges for market entry

Depending on the nature of the product, the main challenges can be: 

• Price – mainly affected by cost of freight and import tariffs.
• Delivery time – to get to Callao, Peru’s main port, from Sydney takes between 45 to 60 days, there is no direct shipping.
• Payment terms – due to the long lead time, payment terms may be at least 60 day invoice.
• Local producers – imports from US, Canada or other Latin American countries.
• FTAs with Chile, the US, Canada and the European Union.
• In the case of services, there is a double taxation agreement with Chile and Canada that increases Australian costs by 30 per cent.
• Majority of customers require local technical support and request a local presence.

Links and industry contacts

Mining–related resources

Peruvian Mining Portal ‘MinPlaza’ – www.informaccion.com/mineria/minini.htm

Ministry for Energy and Mines – www.mem.gob.pe
Avenida Las Artes 260 – San Borja
Lima, Peru
Tel: +51 1 475 0206

Institute for Geology and Metallurgy – www.ingemmet.gob.pe
Avenida Canada 1470 – La Victoria
Lima, Peru
Tel: +51 1 225 3128  or 225 3061

National Society of Mining, Petroleum and Energy – www.snmpe.org.pe
Francisco Graña 671 - Magdalena
Lima, Peru
Tel: +51 1 460 1600

Peruvian Mining Engineers Institute – www.iimp.org.pe
Los Canarios 154 – La Molina
Lima, Peru
Tel: +51 1 349 0449 or 349 0940

Media

The mining media is very active in Peru, with several specialised newspapers, magazines and electronic magazines operating in the country.

The most popular are:

• Mundo Minero – independent newspaper
• Proactivo – independent newspaper
• Minas y Petróleo – independent newspaper
• Desde Adentro – national mining society magazine
• Minería – Mining Engineers Institute magazine

Contact details

The Australian Trade Commission (Austrade) is the Australian Government’s trade and investment development agency, operating as a statutory agency within the Foreign Affairs and Trade portfolio.

Austrade assists Australian businesses contribute to national prosperity by succeeding in trade and investment, internationally, and promoting and supporting productive foreign investment into Australia.

Austrade:

• Delivers services that assist Australian businesses initiate, sustain and grow trade and outward investment.
• Promotes Australia as an inward investment destination and, with the States and Territories, supports the inflow of productive foreign direct investment.
• Administers the Export Market Development Grants scheme.
• Undertakes initiatives designed to improve community awareness of, and commitment to, international trade and investment.
• Provides advice to the Australian Government on its trade and investment development activities.
• Delivers consular, passport and other government services in designated overseas locations.

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

More information

For further information please contact Austrade on 13 28 78 or email info@austrade.gov.au

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