Mining in Peru: Set to Get Easier?
Tuesday, 9/17/2013 23:54
Highly rated yet spurned by mining companies, Peru is changing...
WITH a credit rating higher than Mexico and Brazil, Peru should be high on the list of mining investors.
But confidence has been shaken over the last few years when the government revoked some high-profile mining licenses.
According to Lima-based Kallpa Securities managing director Ricardo Carrión and president Alberto Arispe, recent government actions might signal a reset, with the government even acting as a mediator between mining companies and the local communities.
In this interview with
The Gold Report, Carrión and Arispe detail the state of mining exploration in Peru today...
The Gold Report: Please tell us about what's happening now in Peru.
Ricardo Carrión: The government of Alan García revoked the license for a Santa Ana project back in June 2011, so Ollanta Humala, the current president of Peru, inherited that situation. Additionally, the Minas Conga project, which was a flagship mining project of the Peruvian government, was suspended because of social and political issues.
The Peruvian government realizes that mining is a very important item on the agenda and is a cash cow. It has been upgrading the regulatory framework in Peru and simplifying the process.
The government has developed a new strategy to avoid another Minas Conga situation.
TGR: Do you think Minas Conga will ever reach production?
Ricardo Carrión: It all depends on its company, but we expect Conga to move forward in the next two or three years.
TGR: Standard & Poor's just gave Peru a new credit rating of BBB+ and that's higher than either Mexico or Brazil. However, many investors would prefer to put their mining investment Dollars elsewhere. Why doesn't the perception match the reality in Peru?
Alberto Arispe: Peru is a smaller country than Mexico and Brazil, so it's not as much on the radar of investors. Also, most of the mining in Peru is in the highlands, the poorest area of the country. The risk of mining is higher in these areas than around Lima. There is a lot of inequality in the highlands, which leads to cultural clashes. That's why some of these companies have problems with local communities in the highlands.
Some companies have no problems, others have minor problems and others have a lot of problems. There are projects that are going ahead with good community relations and there are projects that are not going ahead because they have done a bad job in dealing with the local communities.
TGR: So is it really about a lack of community engagement on behalf of the companies in most cases?
Alberto Arispe: I think so. It depends a lot on the company.
TGR: Do you think that the Peruvian government has learned from its mining issues and has taken measures to make sure that those types of problems don't happen as frequently in the future?
Ricardo Carrión: On the approval of the three EIAs, I know that the government has been trying to work closely with the companies and the communities, trying to be the mediator.
TGR: Is your company seeing a greater interest from institutional and even retail investors in mining securities?
Ricardo Carrión: Obviously we are not isolated from the problems around the world. The TSX Venture has had low liquidities for the last few months and investors are afraid of mining ventures. My impression is that we probably will be out of this problem in the next 6 to 12 months. I think the worst is over.
TGR: And at the bottom of the food chain are the explorers.
Ricardo Carrión: With explorers there is also a wide range of risks. On one side are all those companies that have been drilling for a couple of years, have come up with a bigger resource and are entering the stage of developing the first economic studies, like preliminary economic assessments and prefeasibility studies.
TGR: Do you have any parting thoughts on the mining equity space in Peru and investing in mining equities in general at this stage?
Ricardo Carrión: One of the main issues that we have now is liquidity in the markets. We have been seeing low volumes in our local exchange, the same as on the TSX and TSX Venture exchanges, but it's improving. Even though we have had some very bad months, in the last few weeks we have seen a little change. We need to see an improvement in liquidity. Then we need to see stable metals prices. The rapid drop in the gold price in April was a shock for investors and some are still concerned about the gold price. If we have stable metal prices and liquidity coming back to the market, we will see more activity.
The best catalyst for our local market, at least on the mining side, is to see transactions. The junior market is based on confidence and confidence relies on the ability of the junior miners to set up a deal and sell the project. Good transactions can really boost the interest on equities.
TGR: What do you think is going to bring about that kind of confidence? New discoveries? A couple of breakthrough stocks?
Ricardo Carrión: The best catalyst for confidence is to see a junior company getting a good deal with a major. We need to see more transactions at high valuations to bring companies back to the market.
TGR: Thanks for your insights.
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