Monday, August 25, 2014

Peru This Week: The bright star of Peru's copper industry: How long will it shine?

 "The Bright Star of Peru's Copper Industry: How long will it shine?"
W. Alejandro Sanchez
Peru This Week
August 25, 2014
Originally published:
 The Peruvian economy is still booming and, unsurprisingly, its mining industry is a critical reason for this positive momentum. According to the Peruvian Ministry of Energy and Mining, the Andean nation’s production of copper increased by 9% in the first trimester of this year, compared to the same period in 2013. Between January and March of 2014, Peru produced over 115 thousand metric tons of copper, cementing the country’s position as the world’s third largest copper producer.
A press release by the Ministry of Energy and Mining paints a promising picture of the country’s mining sector, explaining that companies in Lima, Pasco, Cajamarca, and Cusco have enjoyed increased production in recent months.
Though Lima remains optimistic and ambitious, just how far Peru’s copper industry can go remains to be seen. In 2013, Deputy Minister of Mining Guillermo Shinno declared that, while Chile is the world’s largest copper producer (the U.S. is second), Peru aims to overtake its southern neighbor in 15 years. To accomplish this, the Peruvian government plans to open new copper mines in 2016. These potential projects include: Las Bambas (in Apurimac), Toromocho (in Junin), and Constancia (in Cuzco), among others. Luis Castilla, Peru’s Minister of Economy, made similar declarations in September of 2013. At the time, he optimistically explained that Peru “has an enormous potential thanks to our natural resources. It would be a crime to turn our backs to them;” hence, he advocates more mining within environmental regulations.
A short-term goal for Peru is to increase copper production to 2.8 million metric tons by 2016, a significant increase from the estimated 1.5 million metric tons it is currently producing. Yet, considering the aforementioned increase in copper production in the first trimester of 2014, such an increase by 2016 is a realistic objective.
Even high-profile scholars from Chile, Peru’s historical nemesis dating back to the 19th century War of the Pacific, recognize Peru’s mining potential. A statement by Juan Carlos Guajardo, the director of Chile’s Centro de Estudio del Cobre y la Minería (Center for Copper and Mining Studies), in February 2014 illustrates the growth potential of Peru’s mining industry. He declared to the Peruvian daily Gestion that Peru has one of the most competitive mining industries in Latin America. The expert also highlighted that, even though Peru and Chile are usually competitors (mostly due to the aforementioned war), there is also room for joint cooperation in mining projects. This is not the first time that Chilean experts have made similar declarations. A 2008 report by the Chilean Commission on Copper is provocatively titled “Peru and Chile: Competitors and Partners on Copper Mining.” The extent to which Lima-Santiago cooperation regarding copper will grow in the coming years remains to be seen, as Santiago understandably does not want to lose its status as the world’s biggest copper producer.
While Peru could benefit from Chilean investment and know-how to increase its copper productivity, Santiago is not necessarily a critical mining partner for Lima, especially considering China’s activities. This past April, China gained control of 33% of Peruvian copper production after the consortium MMG Ltd, led by the Chinese Minmetals Corp, purchased a mine called Las Bambas in the Apurimac region. The mine is expected to produce up to 450 thousand metric tons of copper when it becomes operative in 2015. Beijing is no stranger to investing in Peru’s copper industry; in 2007, the Aluminum Corporation of China (CHINALCO) purchased the mine called Toromocho, located in the Junin region.
Peru’s mining industry is going through a golden age, and copper is its cornerstone. Chinese investment in the Andean nation demonstrates that Lima will profit from the global demand for Peruvian natural resources for the immediate future.
Alas, copper is not a renewable resource, and Peru’s copper deposits will eventually dry up. Ideally, the Peruvian government will utilize copper profits to ensure that, once the mineral becomes scarce, Peru’s productivity can smoothly switch to other industries (preferably industries that are more environmentally-friendly). In 2014, being a one-commodity economy is a recipe for disaster, and Peru should not solely depend on copper to make the country’s economy shine.
You can follow W. Alejandro Sanchez on his Geopolitics & Geosecurity blog and on Twitter:@W_Alex_Sanchez.

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