Social Conflicts, Legal Uncertainty Blight Peru’s Mining Sector

A study by Macroconsult and Peru’s institute of mining engineers (IIMP) shows a slump in investment in exploration in 2021 as the country has become less attractive to investors

Australia ansd Canada top the ranking in terms of their mining sectors' competitiveness, while Peru ranks bottom out of seven countries, according to a report by Macroconsult and the Peruvian institute of mining engineers (IIMP).
September 29, 2022 | 04:15 PM

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Arequipa, Peru — Although Peru has major mining potential, the perception of business leaders regarding the possibility of investing and developing mining projects in the country has deteriorated.

This is evidenced by the results of the latest Mining Competitiveness Index (ICM) 2022, prepared by consulting firm Macroconsult and Peru’s Institute of Mining Engineers (IIMP), and which ranks the country at the bottom among six other countries with mining operations.

Gonzalo Tamayo, a partner at Macroconsult, said Peru is losing ground “in the ‘Champions League’ countries” of the extractive industries.

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In general terms, Australia and Canada are ahead of countries in the region such as Chile, Mexico, Colombia and Peru. But Peru ranks at the bottom of the list due to poorer performance in the social environment and cumbersome bureaucratic procedures required to move operations forward.

Peru's mining sector is less competitive than that of Colombia in a ranking led by Australia, and which is followed by Canada, South Africa, Chile and Mexico. dfd

“The main factors pulling Peru down are that the procedures for a mining project are complex and take more time, and that the management of social conflicts has become even more complicated for us than it already was,” Tamayo said after presenting the report.

“In the short term, there is little room for improvement in that opinion [of the sector], because those responding to the surveys do not yet register positive signals,” he warned.

According to the study, 90% of those surveyed in the sector believe that the procedures for the approval of the necessary permits to develop mining activities are ‘complicated’ or ‘very complicated’. In addition, they expect them to worsen.

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Meanwhile, 67% believe that the social conflicts surrounding mining are a ‘bad’ or ‘very bad’ situation.

Among other indicators presented in the study, investment in mining exploration is migrating to countries with greater legal security than that perceived in Peru. In fact, Peru is in fifth place in terms of investment in exploration out of the seven countries analyzed, with 8% of the total resources allocated worldwide in 2021 to exploration ($11.24 billion).

The lower perception of legal security is something that has worsened significantly between 2019 and 2022 in Peru, according to data from the Fraser Institute. While in 2019, 58% of respondents in the sector answered that legal security in Peru encouraged investment, in 2022 barely 12% affirmed that..

“In legal certainty we have seriously lagged,” Tamayo said, adding that there were announcements that generated greater insecurity among the private sector at the start of President Pedro Castillo’s government in July 2021, such as statements made by former Prime Minister Mirtha Vásquez regarding the closure of mines in the Ayacucho region.

Tamayo also pointed out that it is a problem that Peru’s mining potential has fallen in people’s perceptions, since in reality the resources are present, while Peru has not been able to replenish its mining reserves in recent years.

Among the positive factors in the index, despite the inflationary environment, Peru has maintained its energy competitiveness against its peers; considering that the price of gas for industry in the country is controlled, with price ceilings and managed by contracts.

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Legal certainty in Peru plummeted between between 2019 and 2022, according to business leaders in the mining sector.dfd

Social conflicts, a decisive factor

According to the mining competitiveness index, the poorly handled social conflict in Peru has caused great losses to the mining sector and to the state, making this a key aspect in the deterioration of Peru’s mining competitiveness.

Several blockades of mining operations have taken place over the past year, at the Antamina, Las Bambas, Cuajone and Cajamarquilla projects, among others.

“The balance between the constitutional obligation to maintain free circulation and the right to protest has been left aside. Both are absolutely legitimate. But we have become accustomed to the fact that blocking roads is something that is allowed, when it is a crime,” Tamayo said.

According to ICM’s sentiment analysis, for the last four years and to July 2022, Peru has been the country with the most pessimistic coverage of mining issues, largely due to social conflicts.

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On the other hand, Peru has also lost competitiveness in the tax area. Although there have been no changes in the sector’s tax framework in the short term. Tamayo explained that this may have occurred because other countries have improved their taxation, and therefore are evaluated as better destinations for mining investment.

Taxation of the mining sector in Peru is less competitive than in countries such as Australia and Canada, and Peru is ranked in fifth place among seven countries in this aspect.dfd

“It is a relative position. Some countries may have improved and some may have worsened. Even if Peru does not make any changes, whoever evaluates projects will look at how profitable the investment is,” Tamayo said.