In many emerging and developing countries in Latin America, the service sector is stamping its place as a significant driver of the local economies. In Peru, while the service sector continues growing, the mining industry remains a key economic contributor; this, however, is creating exciting opportunities for service companies linked to the mining sector. Not only are many service companies tailored to this sector, but also, Peru has built its legal system around it to support existing businesses and lure foreign investors into the country.
An Overview of the Peruvian Mining Sector
Peru, bordering Brazil, Chile, and Mexico, has an established mining industry and is home to some of the biggest companies worldwide, including Rio Tinto and BHP Billiton. The reasons for the influx of foreign investors into the Peruvian mining sector are manifold. On the one hand, Peru has one of the most natural resource-rich landscapes, both in Latin America and worldwide, having large reserves of copper, silver, iron ore and coal, among many other minerals and rare earth elements (RREs). Unsurprisingly, the South American country is Latin America’s number one producer of zinc, gold, and lead, while also being the second largest producer of silver in the world and in the future, potentially having one of the largest lithium mines in the world. On the other hand, the Peruvian government has provided an excellent investment environment, where foreign businesses enjoy the same benefits as the local business do.
Apart from the global players investing in the country, several Peruvian-based businesses invest in the mining industry as well. A particularly notable company is Minera Yanacocha – the explorer of the Yanacocha Mine in the Cajamarca province, the biggest gold mine in Latin America. Nevertheless, the Peruvian mining sector has a significant amount of FDI coming from businesses in Australia, Canada, the United States and just as importantly, China.
Thus, we will exemplify opportunities that exist for several types of international mining businesses in Peru.
Opportunities for Investors in the Mineral Mining Sector
Peru is a country with advantageous geological conditions and has great reserves of copper, gold, silver, and zinc. The current situation alone will help to consolidate the mining activities of the future and enable this sector to be the strongest pillar of Peru’s economy, according to the CEO of the mining company ‘Minas Buenaventura’, Víctor Gobitz.
For investors looking for opportunities to expand their business to Peru, an enticing factor is the low energy costs in comparison to other Latin American mining heavyweights, such as Argentina, Chile or Brazil. Consequently, the likelihood of international firms engaging and investing in Peruvian mining projects rather than in the neighboring countries is much higher. According to Víctor Gobitz, this reveals a competitive advantage when considering the margins in the Peruvian mining sector. In addition, Peru has a well-developed educational infrastructure with several technical schools and universities that support the formation and development of the mining sector. Furthermore, Peru fosters the geological, metallurgical and mining institute that is able to provide a modern and facilitated system of concessions for mining businesses, both local and foreign.
What types of mining companies can have success in the Peruvian mining sector?
Companies that execute extraction activities usually stand in the spotlight. Multinational companies, such as Rio Tinto, a world leader in copper extraction, or Barrick Gold, one of the biggest gold extractors, have some of the most important mining projects worldwide in the Peruvian mountainous regions. Nevertheless, these extraction companies receive support from numerous service and supply businesses, often SMEs.
More specifically, a wide range of opportunities exists for mining equipment, technology, and service (METS) companies that may form partnerships with extraction companies in Peru. Specific examples were discussed during the international promotion program for international METS companies. Several international companies engaged Peruvian miners in the fields of engineering services, conveyor belts, ventilation systems, and monitoring and equipment for the treatment of metallic minerals, among many others, in order to create a network of service/equipment and extraction businesses.
Among the companies that have had great success entering the Peruvian mining sector is our client ‘Luna Recursos Naturales S.A.C.’, which is a consultancy firm for natural resource businesses providing not only managerial but also technical and logistical solutions to entities in the mineral exploration and development sector.
As this success story demonstrates, an abundance of opportunities exists for foreign investors wanting to enter the Peruvian mining industry. These opportunities range from general consulting and advisory services to niche businesses for equipment and technological supplies to assistance in obtaining mining concessions.
Apart from opportunities available for METS companies, one specific business opportunity has emerged in the Peruvian gold mining sector.
What is ‘toll milling’ and how can foreign investors engage in it?
Peru is the world’s 6th largest gold producer behind economic superpowers, such as China, Russia, and the United States, having produced more than 162 tonnes of gold in 2017, which was 6 tonnes less than the year before. The reason for this drop is the fact that several illegal mining operations extract gold in environmentally harmful ways and then they export it illegally, which not only impedes the growth of the local economy, due to unpaid taxes but also creates concerns about health and safety. In recent years more than half of all illegal miners have formalized their businesses but numerous miners are still operating informally. Therefore, the following business opportunity has emerged: Toll Milling.
Toll Milling is the practice of artisanal miners, who sell the ore they have extracted to licensed mineral buyers. The buyers, in turn, have the experience and expertise to safely process minerals from a network of artisanal miners and then sell the gold back to the market.
One of the most successful toll milling businesses is the Canadian-based mineral resource company Inca One Gold Corp that uses two of its gold milling facilities and processes ore from formalized artisanal miners, who require their government permitted milling facilities.
Interested in Doing Business in the Peruvian Mining sector?
This article illustrates the opportunities available for all types of mining businesses in the Peruvian mineral sector. Biz Latin Hub Peru has an experienced team that can support and guide your entrance into the Peruvian mining sector. If you are interested in learning more, do not hesitate to contact our Senior Mining Lawyer, José at [email protected] for personalized mining support.
In need of more information regarding mining opportunities in Latin America? Check out this video to learn more.