Peru's 'tragic' fall in gold production

In 2009, Peru produced 183t of gold but in 2021 it only produced 96.5t, a "tragic" state of affairs, according to José Augusto Palma, president of the 14th Gold Symposium and legal and corporate affairs VP of Hochschild Mining.

In March, production was 7.5t, a year-on-year drop of 9.4%. It reached 22.3t in the first quarter, down 2.1% on a year earlier.

In this interview, Palma explains why the output of the precious metal has fallen and how he sees the country's mining outlook.

BNamericas: The latest reports from the energy and mines ministry confirm that gold production in Peru continues to decline. Why is this?

Palma: We see with great concern what is happening with gold production in Peru. There is a marked slowdown that has almost halved the production of this metal in just 10 years. And that is tragic because we have enormous gold potential, and also other metals. We think that what is necessary is not being done to identify these deposits and put them into production. And that’s due to two reasons: the lack of exploration, which has to do with the permitting red tape that has prevailed in Peru, and that puts us on a downward trend when it comes to competitiveness, and social conflicts.

In 2006, 25 regulations were applied to mining, and today there are 400 and more than 100 administrative procedures involved.

As formal miners, we’re in favor of complying with the highest environmental standards and the best practices in terms of social management, but we believe that there is enormous room to streamline regulations and procedures.

It cannot be that an exploration application process takes more than 18 months, when in neighboring countries the procedures take a fraction of that. In two or three months one can be exploring in Brazil, Mexico, Chile or Colombia. That makes us less attractive and this was confirmed by the latest survey by the Fraser Institute.

Without exploration we’re not going to identify new deposits and neither are we going to recover the reserves that are being consumed with production, because eventually the deposits are exhausted.

BNamericas: Indeed, if we review Peru's portfolio of mining projects, only six are gold and three are silver, the rest are copper.

Palma: Almost 70% of Peru's project portfolio is copper. It’s very robust, but in gold and silver the percentage is much lower. That's why we have to explore more. And address in spaces such as the Gold Symposium the major global trends that are going to affect the sector. We also have to analyze the challenges and opportunities, such as social conflicts, illegal mining and mining as a development axis.

BNamericas: Is Peru losing competitiveness?

Palma: Absolutely, and the latest Fraser survey confirms it. The country risk has risen, there is little certainty regarding the regulatory framework and how it will be applied. And the problem of social conflicts is also taking its toll. There is no legal certainty. What is happening with the illegal invasion in Las Bambas is not a good message for the world. And the State is not capable of bringing order. It’s a bad sign for the mining sector and for the country.

BNamericas: Facing those challenges, what are the opportunities?

Palma: Mining is a pillar for the economy in this country, and it can also be an axis for development and wellbeing. In addition, it plays a significant role in transforming the world towards a carbon neutral economy.

By 2050, the world will seek to decarbonize the economy, the energy matrix will be changed and the use of electric vehicles will increase. And the design of cities will also change and smart cities will appear. All this generates an enormous opportunity to create wellbeing, employment and combat climate change. Mining is an integral part of that effort because it generates the metals for that transformation.

As a country we have to integrate ourselves more into that virtuous chain. We are already the second largest copper producer in the world, but we have the geological wealth to become the world's largest producer in the next decade, and that is an enormous possibility for the country.

If the portfolio of mining projects that we have is put into production, 2mn formal jobs would be generated. That would be transformative and would generate enormous amounts of resources for the country.

BNamericas: But voices have been heard within the government seeking changes in the tax scheme.

Palma: Last year, 14.5bn soles [US$3.8bn] were generated in [mining] contributions to the treasury, three times more than what was contributed annually in the last 10 years. This is thanks to the fact that we have a modern, progressive tax system that is recognized in the world as highly technical, which makes mining companies pay more when their profitability rises.

And this year the treasury is going to receive an amount equal to or greater than what it received in 2021. Therefore, the State will have the resources to invest in a transparent, disciplined and effective manner in closing gaps in water, sanitation, health, education, security. Which are key areas for the population that now demands that the State fulfill its role of investing and closing these gaps.

BNamericas: Given this context, will production projections be met this year?

Palma: We believe that the projections are going to be achieved. What worries us is the future. Las Bambas, Cuajone and Antamina are bad signs and affect copper production.

They must be resolved through dialogue, but without the State losing its role of authority. With that we should reach the production goals for copper, gold and silver.

What worries us is what happens next, because once Quellaveco starts production, investments in the sector are going to be significantly reduced, because there is no other project of that magnitude under way. And the same goes for gold. There isn't one of that size.

BNamericas: Despite everything, will Peru continue to be a major minerals producer?

Palma: We are and will continue to be one of the largest minerals producers in the world. We are currently the second gold producer in Latin America and we are ranked 11th in the world. In silver we are the second in Latin America and the third in the world. And in copper we are the second largest producer on the planet. But as a country we should not settle for that. We must seek to be the first because we have the geological potential to do so. Plus, we have the workforce to pull it off. We have a thousand-year tradition of mining. We only lack legal certainty and reaching a consensus so that mining continues to be a transforming factor in the economy, generating the resources that the world requires and working hand in hand with the State to close the gaps.