Peru mining investment down 14% on unrest, violence, low metal prices

Peru mining investment down 14% on unrest, violence

Freeport-McMoRan’s Cerro Verde’s $4.6 billion expansion is scheduled for completion in the first quarter of 2016.

Mining investments in Peru, which have driven economic growth during the past decade, fell 14% in the first quarter of the year and could drop even further if the ongoing wave of violent anti-mining opposition goes on.

But the gloomy outlook, provided last month by the head of the country’s National Mining, Oil and Energy Society (SNMPE), Carlos Galvez, may be short-lived, local newspaper Pulso (in Spanish) reports.

Quoting a study by Scotiabank, the article argues that the main reason for the investment drop is the increasing difficulties for attracting financing in an environment of lower metal prices, which has severely hurt miners.

"Investments have fallen because there are fewer large-scale projects in the works,” Erika Manchego, an economist of the Department of Economic Studies at Scotiabank, was quoted as saying.

She added that mining investment would likely fall even further this year, to 17% ore more, compared to 2014.

However, the Scotiabank analyst expects copper exports to offset the fall in investments, forecasting an increase for 2015, as two mines — Constancia and Toromocho — will reach full capacity this year.

From January to March, almost half of all mining investments in Peru (48%) were driven by two key copper projects: Freeport-McMoRan's (NYSE:FCX) Cerro Verde's $4.6 billion expansion and MMG’s Las Bambas.

Despite these massive endeavours, Scotiabank anticipates that mining investments in Peru would likely total $7.7 billion this year, down from 2014's $8.7 billion and significantly lower than a record $10 billion in 2013.

In 2016 and 2017, annual investments are expected to decline further to $5 billion. This figure, says SNMPE could be significantly lower if Southern Copper's (NYSE, LON:SCCO) troubled $1.4 billion Tia Maria project doesn’t go forward due to ongoing protests, the biggest wave of anti-mining opposition in three years.

The upheaval could also shatter Peru's dreams of becoming a copper powerhouse by 2016, regaining its second place as top’s world producer, just behind Chile.

Peru mining investment down 14% on unrest, violence

Graphic courtesy of GFMS, Thomson Reuters' Copper Survey 2015.