Mining Investment Impact on the Peruvian Development

1. Mining Investment Impact on the
Peruvian Development
Jorge Merino Tafur
Ministry of Energy and Mines of Peru
March 2013

2. Why invest in Peru?

3. 2
The Peruvian government continues to facilitate
the establishment and operation of businesses
Peru ranks second in the region in the
improvement of business regulations …
… and by 2050, it will be one of the fastest
growing economies in the world
Fastest growing economies
Ranking Country
1 China
2 India
3 Philippines
4 Egypt
5 Malaysia
6 Peru
SOURCE: Doing Business 2013 SOURCE: HSBC estimates / World Bank

4. 3
Peru offers a favorable legal framework to attract
foreign investment
… supported by legal stability agreementsKey economic policy guidelines …
▪ Non-discriminatory treatment: Foreign
investors receive the same treatment as local
investors
▪ Free transfer of capital
▪ Free competition
▪ Guarantee for private property
▪ Freedom to purchase stocks from locals
▪ Freedom to access internal and external credit
▪ Freedom to pay royalties
▪ Network of investments agreements and
member of ICSID1 and MIGA2
▪ Participation in the Investment Committee of
the Organization for Economic Cooperation
and Development (OECD) – it promotes the
implementation of the guidelines for
multinational enterprises
Investors
▪ Stability of the regulations regarding non-
discriminatory treatment
▪ Stability of the income tax regime applicable
to dividends
▪ Stability to use freely the most favorable
exchange rate available in the market
▪ Stability of the free availability and remittance
of foreign currency, dividends and royalties
regime
Receiving companies
▪ Stability of the labor recruitment regimes
▪ Stability of the regimes for the promotion
of exports
▪ Stability of the income tax regime
1 ICSID: “International Centre for Settlement of Investment Disputes”
2 MIGA: "Multinational Investment Guarantee Agency”

5. Overview of mining in Peru

6. 5
Silver 32
Zinc 31
Tin 31
Lead 41
Gold 61
Mercury 42
Copper 32
Molybdenum 42
Selenium 92
Cadmium 102
Iron ore 175
Phosphate rock 132
Peru is a leader in metallic and non-metallic
minerals
Mineral Production Ranking
Latin America World
SOURCE: MEM; USGS

7. 6
And we are already strong in many areas; for
example, the Lima Stock exchange has attractive
regulations to finance juniors
▪ Currently there
are 39 mining
companies and
17 juniors listed
on the Lima Stock
Exchange (BVL)
▪ The Lima Stock
Exchange is the
only online
market place that
this segment
leading the
private
placement of
shares

8. 7
No se puede
mostrar la
imagen en
este momento.
The mining sector has been the fastest growing
sector and is one of the top GDP contributors
SOURCE: Central Bank of Peru; INEI; IHS; Economy Ministry
1 Cumulative Annual Growth Rate
2 INEI 2007 input matrix (not published yet so no official trend data is available for it) shows that the mining share in the economy is 14,4%
3 Includes refining of non-ferrous metals
5%
63
61%
5%
2001
10%
8%
5%
2003
72
60%
12%
11%
6%
7%
4% 7%
12%
12%
2011
181
46%
13%
13%
12%
9%
7%
2009
130
48%
13%
13%
10%
9%
7%
20072
107
47%
14%
13%
12%
9%
6%
2005
79
51%
14%
13%
GDP/capita
Thousand
USD
2.9 6.14.53.8
11.8
12.7
13.8
16.2
8.1
CAGR1, %
11.0
2.62.4
GDP nominal prices
Billions USD
22.0
Construction
Transp & Com.
Mining3
Commerce
Manufacturing
Other sectors
The mining sector has grown to more than 20 % OVER THE
PAST 12 YEARS, contributing with more than 20 billion Dollars
to the GDP in 2011

9. 8
▪ ~30% of economic growth is due to
large investments and increasing
mining production
▪ Additional growth means that the
economy will generate $ 57 billion
GDP more, or in per capita terms,
the mining sector will make the
average Peruvian 10% richer by
20161
Looking forward, mining will continue to be the
growth engine of the economy
Economic growth
6.9
4.7
2016
2.2
2015
6.8
4.6
2.4
4.4
2.2
20142013
6.3
6.8
4.8
1.5
Explained by other sectors
Explained by mining sector
24 32 32
Share that mining
represents
35
1 $7.800 instead of $7.100
Percentage
SOURCE: Central Bank of Peru; IMF; INEI; Interviews with financial institutions

10. 9
Current mining portfolio investment has reached
its maximum historical values, and represents an
increase from its current production share
+35% CAGR
12,226
2007
24,693
54,610
20122011
53,761
2010
41,951
2009
35,471
2008
Peruvian mining
portfolio/
Worldwide
mining
investment
1.7
+118%
3.7
Peruvian mining
revenue/
Worldwide
mining revenues
Forecast mining portfolio invesment
Evolution ($ Millions)
International share
2011; Percentage
SOURCE: MEM; MEG; Global Mining CapEx Model
35% growth per year

11. 10
6
7
10
10
16
18
22
9
China
Switzerland
Japan
Mexico 2
Peru
Other
USA
Canada
Australia
Peru receives investors from a very diverse
set of countries
2012
$ Million
China
USA
Canada
Australia
Switzerland
Japan
Mexico
Brazil
South Africa
Peru
UK
Other
12,219
9,800
8,739
5,670
5,200
3,790
3,460
1,638
1,600
1,120
700
744
54,680
SOURCE: MEM
Percentage of total
Investment portfolio by country
The current projects are highly diversified
between the various countries.

12. 11
… which will significantly increase Peru’s mining
production
SOURCE: MINEM
Mineral
Production
2016
Silver
Thousand
fine ounces
109,919 130,059
Zinc
Thousand
TMF
1,3 1,6
Lead
Thousand
TMF
230 285
Gold
Thousand
fine ounces
5,343 6,347
Production
2011
Copper 1,240 2,768
Thousand
TMF
Growth
2011-16
18%
23%
24%
19%
123%

13. 12
0
500
1000
1500
2000
2500
3000
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
Because of the growth of copper
production in Peru
1991 1994 2003 2012 2016
INVESTMENT PROMOTION
Promotion processes of investment in the mining
sector in the decade of the 90´´´´s has led the
sustainable growth of copper production
TMF x 1000
2 800

14. Peru mining competitiveness

15. 14
By 2016, Peru will be the second global producer of
copper significantly reducing the gap with Chile
SOURCE: Cochilco; MEM; Project Specific Information
2,8
+100%
0,8
+442%
2016
5,6
2014
5,5
1,6
2011
5,3
1,2
2008
5,3
1,3
2005
5,3
1,0
2002
4,6
ChilePeru
Annual copper production
Million tons

16. 15
Moreover the country is rich in economically
attractive minerals
SOURCE: MEM; USGS; McKinsey Basic Materials Practice
1
1
4
6
8
9
13
23
Tin
Zinc
Lead
Copper
Silver
Phosphate
Iron ore
Gold
1
4
2
3
6
Peruvian Reserves
Global share
Global
ranking
Current (2012) Expected (2020-2025)
Copper
Gold
Met Coal
Iron ore
Nickel
Silver
Zinc
Uranio
Lead
Potassium
Phosphate
Lithium
Copper
Gold
Met Coal
Nickel
Silver
Zinc
Uranio
Lead
Potassium
Phosphate
Lithium
Iron Ore
Economic
attractivenes
High
Medium
Low
Thermal Coal
Thermal Coal
8Tin
Tin
9
13

17. 16
Currently, more than 90% of copper operations in
Peru are in the first two quartiles of the cost curve
SOURCE: Wood Mackenzie
1 Includes cost to concentrate or cathode, transport, Tc/Rc
NOTE: Normal costing normalized by copper equivalent. Price used USD 362,7 c/lb in 2012
Copper cost curve 2012
600
700
Direct1, indirect cost and taxes
c/lb
0 2,000 4,000 6,000 8,000 10,000 12,000 14,000 Production
kt
0
100
200
300
400
500
Peru
Rest of world
40 52 2 6
x Peruvian production per
quartile
COPPER EXAMPLE
92% of Peruvian assets are in the
first two quartiles of costs

18. 17
300
200
100
0
Production
kt
15,00010,0005,0000
Direct1, indirect cost
and taxes
c/lb
700
600
500
400
100
200
0
300
400
500
600
700
Direct1, indirect cost
and taxes
c/lb
5,000 10,000 15,000
Production
kt
0
Moreover, by 2025 the country will continue to
have a competitive position on the cost curve
… while Chile will face higher costs
Peru will have 70% of its expected production in the
first two quartiles of the cost curve …
PeruRest of World
x Percentage of Peruvian
production in each quartile
20 30 24 26
ChileRest of World
1 Includes cost to concentrate or cathode, transport, Tc/Rc
NOTE: Normal costing normalized by copper equivalent. Price used USD 300 c/lb in 2025
SOURCE: Wood Mackenzie
1282447
2025 2025
COPPER EXAMPLE
Chile will have the half

19. 18
Specifically, in energy Peru is competitive and no
bottlenecks are foreseen in the near future
SOURCE: Wood Mackenzie; MEM; BBVA; COES; SNMPE
NOTE: Supply takes into consideration only new supply from hydroelectric and thermic stations, not solar nor eolic ones. Demand includes all new announced mining
projects
1 Difference between total installed capacity and maximum instant energy supply is due to potential losses related with lack of inputs (e.g., water), and transmission
losses
11.0
8.3
2015
9.4
7.0
2013
8.4
6.3
2017
Instant supply
Total Installed Capacity1
Demand
Energy supply and demand
GW
ENERGY EXAMPLE
Energy cost 2012
c/kWh
6.4
EEUU
Ø 10
Zambia
Peru 8.1
Canada 8.2
China 8.3
Mongolia 9.0
Argentina 10.4
Australia 12.7
Polonia 12.9
Chile 15.2
6.6

20. 19
4.9 times the annual budget
More than 5.100 Km of roads
17.1 times the annual budget
Annual Education budget could
be increased in 36%
Construction of 74 hospitals
11.6 times the annual budget
US$ 2,000
Million in additional
fiscal revenue1
1 Average price of copper 2013 of the main Investment Banks – Bloomberg assumed: $ 8,000 /ton
And mining brings a virtuous development
cycle resulting in social inclusion
1.5 million additional
yearly production of TM
Copper by 2016
or
or
or
or
or

21. Country development based on
rational use of natural resources

22. 21
The mining industry in Peru is generating an emerging
industry through an associative model with a high grade
development in training and technological innovation at a
competitive level.
Mining is not just an extractive industry; 12 percent of the
Peru’s GDP in 2011 gives proof to this. It is the thriving
force that will pull us along with the oil and gas industry
envisioning the development for the following decades.
Peru has achieved a great wealth through the mining
industry with rationalized exploitation, and plans to establish
three geographic zones for additional industry development!
Let`s strengthen the following aspects:

23. 22
Source: PROINVERSION
ECUADOR
COLOMBIA
BRAZIL
NORTHERN MACRO-REGION
TERRITORY DEVELOPMENT
BAYOVAR
PORT
Copper Projects
Silver Projects
Gold Projects
Iron Projects
Hydropower StationPACIFIC OCEAN
NORTHERN IIRSA
CAJAMARCA -PIURA TRAIN
C.H. RENTEMA
1525 MW
C.H. CUMBA 4
825 MW
C.H. MANSERICHE
7550 MW
C.H. CHADIN 2
600 MW
C.H. BALSAS
915 MW
BAYOVAR PROJECT
• FOSFATOS
• DIATOMITAS
• SALMUERAS
• CALCAREOS
Railroad
COPPER-GOLD PROJECTS
FOR US$ 20 000 Millon

24. 23
CENTRAL MACRO-REGION
TERRITORY DEVELOPMENT
Copper Projects
Silver Projects
Gold Projects
Iron Projects
LIQUEFACTION PLANT
LA OROYA
METALLURGICAL
COMPLEX
CENTRAL IIRSA
PERU- BRAZIL
TRANSCONTINENTAL RAILROAD
BRAZIL
Source: PROINVERSION
CALLAO PORT
LA OROYA

25. 24
Source: PROINVERSION
Copper Projects
Silver Projects
Gold Projects
Iron Projects
SOUTHERN MACRO-REGION
TERRITORY DEVELOPMENT
FRACTIONATION
PLANT
BOLIVIA
CHILE
PACIFIC OCEAN
BRAZIL
INTER-OCEANIC
HIGHWAY
CAMISEA
MATARANI PORT
MARCONA PORT
GAS PIPELINE
Gas pipeline
Camisea Gas pipeline

26. Social Impact

27. 26
INVESTOR
COMMUNITY STATE
MINING
SUSTAINABLE
DEVELOPMENT
PROJECT
Sustainable
Development
The State accompanies
the process from the
beginning
PRIORITY WATER
NEW MINING
RELATIONSHIP POLICY

28. 27
• TRUST
• SOCIAL FUND
• SOCIAL PEACE
• WHILE OPERATING
PROFIT
• INFRASTRUCTURE
• EMPLOYMENT
• TRAINING
COMMUNICATION AND CONTINUOUS PRESENCE
IN THE AREA OF INFLUENCE OF PROJECTS
EXISTENCE AND
INTEGRATION
INTO COMMUNITY
Harmonious and
balanced
Participating
communities, local
governments and the
State
COMMUNITY
STATE
Social responsibility strategy before mining exploitation
Awareness
Social climate for investment
DEVELOPMENT
ROUNDTABLE
SUSTAINABLE
DEVELOPMENT

29. 28
The National government is working on the most critical
regulatory aspects today
▪ Regulating the 2011 Prior Consultation Law to eliminate
uncertainty and guarantee smooth implementation of
projects
▪ Securing the right economic and technical resources for
SENACE, the new agency that will process environmental
studies of detail.
▪ We would like to strengthen the ecological and economic
zoning to convert it into a growth opportunity
While we recognize the recent decline in international
institutional rankings, we are taking concrete actions to
strengthen our position

30. 29
Peruvian Mining contributes to the
sustainable development of all
regions in Peru
SUSTAINABLE MINING IN PERU

31. 30
www.minem.gob.pe