Peru: A Leader in Mining Exploration?

Geological potential and other factors

Miguel Cardozo

ProExplo 2009

Exploration investment per km2 in the world ten top investment destinations
Worldwide Exploration Investment - 2008 = Country Canada Australia United States Mexico Peru Russia Chile Brazil South Africa China Investment Ranking 1 2 3 4 5 6 7 8 9 10 Country Area millions of km2 7.7 9.1 9.2 1.9 1.3 17.0 0.8 8.5 1.2 9.3 $12,600 % of Worldwide Investment 19% 14% 7% 6% 5% 5% 4% 3% 3% 3% (US$ million) 2008 Investment (US$ millions) 2,394 1,764 882 756 630 630 504 378 378 378 Investment/km2 (US$) 311 194 96 398 485 37 630 44 315 41 Ranking US$/km2 5 6 7 3 2 10 1 8 4 9

Fuentes:
Areas territoriales: Inversin en Exploracin

http://www.cia.gov/cia/publications/factbook/index.html
"World Exploration Trends", Special Report from the Metals Economics Group for the PDAC 2009 Internacional Convention

Uranium excluded

Gold
10

Percentage

8 6 4 2 0 Production Reserve Base

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

Copper
10

2007e

Percentage

8 6 4 2 0

Production Reserve Base

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

Calculated from USGS published figures Reserve base: Measured + Indicated resources

2007e

Peruvian Gold Production by Deposit Types

8 7 6 5 5.5

Actual
6.7

Forecast
6.5

Moz

4 3 2 1 -

4.1

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020

Alluvial Gold Skarn LS Epithermal

Other Porphyry HS Epithermal

IOCG Mesothermal veins

Peruvian Copper Production by Deposit Types

2001 - 2020
4,000,000 3,500,000 3,000,000

Actual

Forecast
3.5Mt

Copper (TMF)

2,500,000 2,000,000 1,500,000 1,000,000 500,000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

1.2Mt

Paleocene Copper-Moly Porphyry Belt Central Peru Polymetallic Replacement & Skarn Belt Southern Coast IOCG & VMS

Miocene Cu-Au Porphyry-Skarn Belt Eocene-Oligocene Copper Porphyry & Skarn Belt Other

Mining and Investment

Several Latin American economies depend and will continue depending on mining Development of the mining sector entirely depends on private investment An increasing number of new regions and countries in the world are now opened to mining investment. Mining companies have numerous investment options but limited budgets Attracting mining investment becomes essential, but mining has to contribute to local economic and social development

Attracting Investment
Key factors to attract investment are determined by investors Only some of these factors can be controlled or influenced by governments Optimizing mining contribution to local sustainable development and at the same time maintaining country competitiveness is a real challenge

Exploration Investment
10 top decision factors
Geological potential Profitability of potential operations Tenure and permits reliability Profit expatriation Consistency of mining policy Realistic currency exchange control Stable exploration rules Reliable environmental rules Reliable tax regulations Stability of tax regime

Exploration Investment
What do exploration companies need?
Geological potential Reliable tenure and exploration rules Attractive and stable financial and tax regimes Predictable mining and environmental policies

Mining in Latin America

Geological Potential
Unexplored terrains in general Current regional predominance of gold exploration Four Latin American countries in the 10 top investment destinations in 2008:
Mexico, Peru, Chile, Brazil After Canada, Australia and the USA

Variable quality of available geological information (significant room for improvement) Lack of comprehensive public geological databases (local or regional) No legislation to enforce public availability of geological information generated by mining exploration companies Private investment in the acquisition of geological information is equivalent to hundreds of times the annual budgets of the local geological surveys

Mining in Latin America

Geological Potential
Geological information from the oil industry is available in several countries, but it has had very limited use in mining exploration Geological surveys require far more support; some are in a critical situation Geological education and research need urgent financial support and quality upgrade Adopting of standard, regulated reporting rules for resource-reserve estimates and exploration results, and the creation of a register for Qualified Persons is key for obtaining financing of exploration

Mining in Latin America

Tenure and exploration rules
Historically complex systems; frequently subject to corruption practices Peru showed the way in 1992 creating a simple, transparent, high-tech, efficient system. Some countries are following the example Still expensive tenure payments for early stage projects Turn around of exploration ground still far from ideal Staggered tenure fees to incentive prospecting and early stage exploration are usual regulatory options

Mining in Latin America

Financial and tax regimes
Stable and predictable regimes needed Frequent public discussions on tax related issues by politicians generate negative impact on investors Mining has to contribute to the sustainable development of the society as a whole, and companies require a reasonable return on their investment: win-win situation Tax reforms should not:
consider individual taxes in isolation without evaluating their impact on the competitiveness of the mining sector reduce country competitiveness, make mineral deposits economically marginal reduce minable reserves by increasing cut-off grade of existing mines

Mining in Latin America

Financial and tax regimes

Tax incentives to high-risk exploration activities would help to accelerate discoveries, like in Canada The creation of a junior segments in the Peruvian Stock exchanges could be an important financing source for exploration juniors, considering the decline of the exploration budgets by most international companies. The Lima Stock Exchange has given the example.

Mining in Latin America

Mining and environmental policies
Stable and predictable permitting rules, using international standards are required Environmental evaluation of projects must be technically driven, avoiding political interferences
Social and community issues are not necessarily related to environmental problems

Strong governmental support must be given to viable projects, even against local political interests Educational programs of the population must be a priority for governments and companies Auto-regulation as a mechanism to ensure clean and safe operations must be adopted by the industry. This will:
reduce work load on the authorities that have to supervise mining operations improve the industry image and the public trust on mining companies in respect to their management of safety and environmental issues

Mining in Latin America

Other factor controlling mining

Corporate developments
Exploration budgets had considerably increased in recent years, but the current economic and financial crisis has significantly reduced investment in projects. The consolidation of the mining industry will continue negatively affecting exploration budgets. In the long term, metal prices will continue their cyclic variation, affecting investment returns, accelerating or delaying the development of new projects and impacting on the exploration investment

Mining in Latin America

Other factor controlling mining Technological developments
Improved mining methods and more intensive use of heavy equipment in underground operations. Biotechnological developments will allow for the treatment of low-grade copper sulfides. Efficiency- and cost-conscious management will be reinforced in new public companies as a result of corporate changes High-tech exploration technologies will be more intensively used, while exploration maturity of the different terrains increases

Summing up
Mining development in Latin America will continue as an economic need, but it will increasingly require social acceptance, which will depend on:
Mining contributing to sustainable development through clean and safe operations and social commitment of the operating companies Sustained education efforts by governments and companies to get people to understand the benefits of a modern mining industry that supports and promotes other long-term economic activities

Attracting mining investment by maintaining stable rules and eliminating country-risk factors is an obligation of governments and local politicians Strong support of governments to the mining industry will be needed for a trouble-less development of viable and sustainable mining projects Auto-regulation as a mechanism to ensure clean and safe operations must be adopted by the industry.

Summing up
Tax incentives to exploration investment will help to increase the discovery rate and improve the resource base required for expanding the mining industry Tenure and exploration regulations should provide low-cost access to prospecting and early stage exploration ground, and guarantee rapid turn around of exploration claims Financing of local and international exploration juniors should be organized and promoted through local stock exchanges Standard reporting practices should be enforced, and QPs trained and registered Geological surveys will need much stronger financial and scientific support to deliver quality geological information that allows for the identification of new and less obvious exploration targets

Summing up
Public geological databases should be created to host and distribute quality information from different sources, including exploration companies Delivery of exploration information from private companies to public files must be enforced by law Geoscientific education and research must be reinforced through generous financing and international technical cooperation

PERU: A MINING COUNTRY