【Ferro-alloys.com】:Peru’s mining sector expanded in the first half but contracted again in July. On the other hand, although the trend has been downward, certain projects have shown positive results thanks to expansions and the start of new operations.

Issues being faced by the industry include how to resolve social conflicts, which have become more frequent this year, and the international situation that has squeezed financial margins due to higher costs.

In run-up to the 35th edition of the PERUMIN mining conference to be held September 26-30, BNamericas spoke with Miguel Incháustegui, an independent director at Candente Copper and a former energy and mines minister, about the role that mining will play in this uncertain scenario, initiatives that can be taken to meet social demands, the pipeline of projects, and the outlook for the coming years.

BNamericas: What is your assessment of the mining sector’s performance in recent months?

Incháustegui: The results have not been encouraging. There have been stoppages that limited production, there are mines that are evaluating their performance, and metal prices remain volatile. In June we grew, but fell again in July. The trend will be determined in the coming months.

BNamericas: Are companies evaluating if this is the best time to develop projects?

Incháustegui: Yes, like the case of the postponement of Yanacocha sulfides. As has been pointed out, the war in Ukraine has generated inflation, the inputs for the development of mining are expensive, and some companies are probably evaluating whether today is the best time to increase their production. Although metals prices have fallen, they remain attractive.

BNamericas: How much do external factors weigh against internal ones when making such decisions in the Peruvian market?

Incháustegui: External issues – the global economic situation, the need for a mining sector, and the future energy transition – weigh between 60% and 70%. Companies always assess the political situation in the countries where they operate. We had the case of the proposals for a new constitution and tax increases that caused concern at the time.

In the case of Yanacocha sulfides, Newmont has indicated that they’re going to postpone the development, but not cancel it. Moreover, they have announced that they will invest US$350mn – in addition to the US$500mn – as part of the plan. It won't be the initially announced US$2.5bn, but it's still an interesting amount.

BNamericas: Could Newmont's decision have a contagious effect on the sector?

Incháustegui: I don't think so. The issue with Yanacocha sulfides is that there’s a technical component that is being evaluated.

Although Newmont has postponed it, we have announcements from Antamina saying that they’ll invest US$1.6bn – between now and 2036 – and they’re only waiting for the approval of their environmental impact study. You also have the Zafranal project whose EIA is being evaluated and is an investment of around US$1.1bn. If the EIA is approved this year, the detailed engineering will begin next year, and construction in 2024. The same with Nexa Resources’ Magistral project and Hudbay's Constancia.

It's clear that if we had a more stable government, we would have more positive news. Despite that, there will always be mining investments in Peru.

BNamericas: What are the actions that the State must take to regain confidence?

Incháustegui: You have to go out and declare the importance of mining, and that your focus should be on closing gaps. Here the representatives of the energy and mines ministry [MEM] and the economy and finance ministry [MEF] are making an important effort, but for there to really be a change, this has to come from the president and his prime minister. A new deputy minister of mines has been appointed who knows the sector well and has experience.

On the other hand, the MEM has – and I suggest that it be reactivated – the vision of mining by 2030 that was worked on together with the Inter-American Development Bank. It was a six-month task with representatives of civil society and the government. What needs to be done is to reactivate multi-stakeholder dialogue.

BNamericas: What are the difficulties when dealing with conflicts with communities?

Incháustegui: The lack of a productive dialogue. Work groups are created, but few conclude agreements, carry them out them and monitor compliance. The challenge is how do we stop putting out fires and move on to a comprehensive dialogue. That is the key approach, and this government assumed there would be no conflict with them. The social management areas of MEM have just been reactivated, but it's time to start proposing things that can be done, keeping a record of commitments and following up on them.

BNamericas: The current reaction is 'ex-post'. How do you build an 'ex-ante' response?

Incháustegui: An initiative such as a registry of commitments would help with prevention. By this I mean not only the commitments of companies to communities, but also of governments and mayors. Then the ombudsman's office can be committed to inform the communities about the status of such compliance from time to time.

Another initiative that was developed – currently it has not been reactivated – were the mining-energy management committees. What was sought was to have representatives of regions with significant mining activity to lead working groups together with representatives of MEM. There was the case of a claim in Moquegua region where the committee invited the minister and deputy minister to settle a problem and the conflict was resolved.

Something like this has to be resumed – to have groups that listen and decentralized complaint systems so that concerns are taken up at the initial stages rather than waiting for them to explode. Two out of every three dialogue processes are started after a conflict.

BNamericas: What is your outlook for mining development for the remainder of the year and next?

Incháustegui: Although Newmont was a bit discouraging, you have Antamina, Buenaventura's San Gabriel project [US$400mn], Anglo American's Quellaveco, which is already starting production, and Chinalco's expansion of Toromocho. In the medium term, you have the Zafranal and Hudbay projects and other projects in the portfolio such as Cañariaco and Lagunas Norte – formerly Barrick and now Boroo. The latter is making a large investment to extend the life of the mine that was about to close.

Peru has an important portfolio of projects – around 43 – and mining investment continues to grow despite the fact that production has dropped. Of the portfolio – which exceeds US$53bn – almost two-thirds are copper projects. My expectation is that the change in the energy matrix will give mining an important role as an ally and provider of resources for this transformation. It’s a great opportunity for the sector and for Peru, but such development has to go hand in hand with a purpose.

• [Editor:Alakay]