Peru Mining Report Q2 2016

Peru Mining Report Q2 2016

BMI View: Peru's mining industry will experience solid growth in both value and production, supported bycompetitive operating costs, a stable business environment and a significant project pipeline over ourforecast period to 2020.

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Peru's extractive industry will experience significant growth over our forecast period to 2020. We expectthe sector's value to climb from USD19.7bn in 2016 to USD24.1bn by 2020, averaging 4.1% annualgrowth. In particular, we expect copper and gold to outperform in terms of production growth due tostrong project pipelines and continued investment. Silver and lead will also benefit from a number of keyprojects, while tin and zinc output posts slower growth. The country will remain a top global producer ofeach of these metals.

Copper projects account for the largest proportion of new mine projects and expansions. The Peruviangovernment estimates that the country's 2016 mining investments will total USD6.5bn. The sector isdominated by global copper mining majors including Southern Copper (a division of Grupo México),Freeport McMoRan and Glencore Xstrata, which are boosting output by both expanding existingoperations and undertaking new investment projects. Increasing Chinese investment and mining activitywill stem from MMG and Chinalco.

Ongoing metal price weakness, anti-mining protests, and illegal mining will remain key challenges toPeru's mining industry. While these factors may result in project delays, Peru's low operating costs,supportive political environment and significant project pipeline will offset any production declines.

Peru's mining sector will be supported by the country's vast mineral reserves, open investmentframework, and low operating costs. Peru will remain competitive relative to other Americas miningjurisdictions and we expect mining firms will continue to invest in the country. While the country'soverall tax levels are relatively higher than its regional peers, miners in Chile still face elevated labour,electricity and water costs compared to Peru.