Peru Mining Report Q1 2012

We forecast Peru's mining sector to grow by 13.6% in 2012, reaching US$20.6bn, as investment continues to flow into the country. While Peru's mineral production has declined steadily over the last few years, we believe the long-term prospects for the mining industry remain favourable. With numerous medium-sized to large copper mines scheduled to come online in 2012, we expect output to rise. We forecast the strongest growth in copper and gold production, as those metals have attracted the largest interest from investors. Our production forecasts for zinc, tin and silver are more modest, in line with expectations that companies will continue to see falling ore grades and fewer new projects in these metals are planned at present.
While we expect Peru's business environment to remain favorable for mining companies, several recent developments could affect the sector. We highlight the recently revamped mining tax as a positive sign for investors, as it was done in such a way as to include mining sector interests and maintain the sector's regional competitiveness. President Ollanta Humala successfully negotiated higher taxes on company operating profits, determined using a sliding scale based on current market prices. Recent protests against one of the country's largest mining investment projects have also tested the administrations mettle. Having reshuffled his cabinet, we expect Humala to take a harder line stance towards mine protesters, protecting mining sector interests. The government has pledged its intention to continue attracting mining investment while increasing social spending on healthcare, education and infrastructure. That said, strikes, protests and environmental opposition will remain a key theme for Peru's mining sector in 2012.
Peru's mining sector has been amenable to foreign investment since the 1990s as successive governments have taken a pro-business stance. Despite fears that recently elected President Humala would shift policy far to the left, we were correct in our view that he would moderate his stance once in office. The majority of mining companies operating in Peru are foreign-owned, and we see no indication that the government is seeking to alter this trend through regulatory or legislative means. Companies will, however, have to deal with the impact of the new tax structure which ranges from 8-12% of operating profits, although many large-scale ongoing operations remain unaffected by the royalty due to previous contracts with the government.
Peru's mining industry is dominated by foreign-owned companies, with private domestic entities owning most of the small and medium-sized mining operations. Mined zinc, copper and tin production is highly consolidated, while silver and gold output are more fragmented. We expect primary copper miners as well as diversified mining companies will continue to invest and acquire projects in Peru, as fundamental demand for the country's minerals remains strong.

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Executive Summary 5
SWOT Analysis 6
Peru Political SWOT 6
Peru Economic SWOT 6
Peru Business Environment SWOT 7
Global Mining Outlook 8
Table: Recent Tax Increases 11
Table: Largest Coal Projects 13
Table: Frontier Mining Projects 14
Industry Trends And Developments 15
Planned Mining Projects 17
Main Global Mining Sector Strikes In 2011 18
Mining Business Environment 19
Table: Americas Mining Business Environment Ratings 20
Political Outlook 24
Domestic Politics 24
Long-Term Political Outlook 25
Industry Forecast 30
Tin 30
Table: Peru’s Tin Production, 2008-2015 31
Zinc 31
Key Expansion Plans 33
Table: Peru's Zinc Production, 2008-2015 33
Silver 33
Table: Peru's Silver Production, 2008-2015 36
Copper 36
Selected Planned New Projects 38
Table: Peru's Copper Output, 2008-2015 39
Regulatory Development 40
Competitive Landscape 42
Table: Operating Statistics - Selected Mining Companies, 2010 (Us$Mn) 43
Company Profiles 44
Minsur SA 44
Table: Minsur's Key Company Data, Fiscal Years Ended December 2006-2010 (US$mn) 45
Grupo México 46
Table: Grupo México's Key Company Data (consolidated group), Fiscal Years Ending December 2006-2010 (US$mn) 47
Xstrata 48
Commodity Strategy – Metals Update 50
Peru Mining Report Q1 2012
© Business Monitor International Ltd Page 4
Copper 50
Aluminium 51
Lead 52
Nickel 53
Tin 54
Zinc 55
Global Assumptions 56
Table: Global Assumptions, 2009-2015 56
Table: Global And Regional Real GDP Growth, 2010-2013 (% y-o-y) 57
Table: Selected Developed Market Exchange Rates, 2010-2013 (average) 57
Table: Selected Emerging Market Exchange Rates, 2010-2013 (average) 58
Developed States 58
Table: Developed States Real GDP Growth Forecasts, 2010-2013 (% y-o-y) 59
Table: Emerging Markets Real GDP Growth Forecasts, 2010-2013 (% y-o-y) 60
Consensus 61
Table: Real GDP Growth Consensus Forecasts, 2011-2012 (%chg y-o-y) 62
Business Environment Ratings Methodology 63
Table: Mining Business Environment Indicators 64
Table: Weighting Of Components 65
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