Peru Mining Report Q3 2012

We maintain our view that Peru''s mining sector will grow steadily over our forecast period driven primarily by investments into copper and gold mine projects. We forecast Peru''s mining sector to grow by 4.2% in 2012, reaching a value of US$18.7bn. With a large number of projects in early development and construction phases, the sector presents promising growth opportunities for miners of a wide array of minerals. Peru is a globally significant producer of several base and precious metals and we expect this mineral diversification will benefit miners exploring for and developing new deposits. Copper projects account for the largest proportion of new mine projects and expansions, though precious metals projects will also support growth. Base metals will continue to be the primary driver of mining sector expansion in the coming years but we anticipate precious metals mines will also play a key role in supporting industry growth. Though Peru will remain a key global producer of other metals such as tin, zinc and silver, we see more modest production growth for these minerals in the coming years. Market fundamentals for these metals are less favourable for investors to seek new projects. Peru''s favourable mining business environment will remain so as President Humala seeks to maintain foreign investment interest while increasing social spending. We highlight the revamped tax scheme in 2011 as a positive sign for the sector, as mining interests were involved in the negotiations and the tax retains the sector''s competitiveness. On the other hand, rising public opposition to mining projects could see additional project delays in the coming quarters as companies seek to mitigate conflicts and maintain security. We expect Humala will seek to protect mining company interests while simultaneously increasing spending on local level infrastructure and social programmes to alleviate poverty. Strikes, protests and environmental opposition will remain a key theme for Peru''s mining sector throughout 2012. Humala To Keep Supporting Mining Although fears that President Humala would shift policy far to the left were overblown, he has recently faced backlash for moderating his stance and governing from the centre. Three congressmen from Humala''s own party have resigned in response to his moderation. They feel that the campaign promises made last year have not been kept and that his political decisions are not aligned with the party. We expect Humala to remain supportive of mining sector interests, but could face substantial political pressure to increase control over the sector. We do not expect the government to enact higher taxes, due to the recently revised tax structure passed in 2011, which maintains the country''s competitiveness in the region. Foreign Owned Miners Dominate We expect foreign-owned mining companies will continue to dominate Peru''s mining sector landscape, given the lack of large domestic miners. Domestic companies own and operate many of Peru''s smaller mining complexes, making the sector highly diversified. Within each mineral produced, the large foreign firms control the majority of production, with the exception of silver, which is diversified across many companies. Investment from mining companies between 2012 and 2020 is estimated at US$53bn, although we believe it is unlikely that all of this will actually come to pass.