Thomas White Global Investing
Peru
Peru Stamp
September 25, 2009
A Postcard from the Americas
Peru: Mining Booms as Economy Recovers

Peru Mining

Mining accounts for 6.4% of Peru’s gross domestic product and 59% of its exports.

Was it just last year that metal prices collapsed, sending mineral-rich countries such as Peru into an economic freefall? Last year’s gloom may become a distant memory soon, if recent industry trends persist. Buoyed by prospects of a surge in prices, and attempting to tap into the expected global recovery, both domestic and international companies are now aggressively investing money into mine expansions and even digging new mines.

After the conclusion of the 29th Perumin Mining Convention held in Arequipa recently, the government is upbeat about the chance of a rebound. Investment inflows are now projected to total $30 billion over the next eight years, and at least $10 billion of that is expected over the next two years. Such optimism lies in the fact that prices of copper and zinc, Peru’s main metal exports, have recovered more than 50% each this year. The country is also a leading producer of lead, gold, silver and tin.

But the industry is politically fraught with a socially fragile problem that President Alan Garcia Perez and his team are pressed to solve. When Peru’s economy surged before the recession on the back of skyrocketing metal prices, many felt, especially in Lima’s poorer regions, that the benefits of mining were restricted to only a select few. This spurned violent protests in Lima earlier this year over rights given to mining companies to drill on Indian lands. At the Convention in September, even as Energy and Mines Minister Pedro Sanchez hailed the Peru mining industry as the future bulwark of the nation, he pointed out that the industry needs ‘greater acceptance’ from Peru’s communities, an overt reference to the churning turmoil.

But, how to promote sustainable development of the Peruvian mining regions while keeping in mind the social, environmental and economic aspects of Peruvian society? Much of Peru’s indigenous communities live in areas close to mining centers, and they often conduct their own small mining operations known as ‘informal mining’. Not to forget, the resources of the Amazon, rich as they are, also sit on some of the world’s most environmentally fragile zones. For an economy that shrank 1.1% year-on-year in the second quarter in 2009 after years of stellar growth, Peru knows that any nascent recovery would be inherently fragile. The country needs the billions in investment that mining companies are bringing in, yet at the same time, has to strike a delicate balance between growth over greed, and concern and care for the environment and the Peruvian population. Now, more than ever, President Garcia hopes he can change lead into gold.

 

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