An interview with Peru’s Energy and Mines Minister

Peru’s Minister of Energy & Mines, Pedro Sanchez, and a Peruvian delegation visited Toronto in early March to attend and speak at the Prospectors and Developers Association of Canada convention.

A few hours before delivering his speech to delegates, Minister Sanchez fielded questions from The Northern Miner about the state of mining in Peru and issues of concern to foreign investors.

The Northern Miner: Let’s talk about the big picture. With the global economic crisis, the fall in base metals prices, the layoffs, the unrest in Peru, how is the Peruvian government dealing with all this?

Pedro Sanchez: First of all, our economy has been performing very well over the last 18 months. We have sustained growth. . . and during 2008, we had one of the highest growth rates in the world — even a bit higher than the Chinese.

The other thing is we have committed to a very strong stimulus package to support the economy during this time. We are able to put this package together because we had savings, fiscal surpluses, due to a very favourable fiscal performance during the past three years.

So, we are in a very strong position to face this crisis. We are not relying on financing coming from multilaterals or whatever, only; we have our own resources to invest in this package.

TNM: What part of the stimulus package would help the mining industry?

PS: Basically, we are making a lot of investments in infrastructure. Roads, construction, all these activities that could help the engine of the economy to keep moving.

In energy, we have a number of projects as well, such as rural electrification, that are close to mining areas.

TNM: How bad have the mining layoffs been in Peru?

PS: In terms of production and volume, we are actually producing more this year than last. In terms of layoffs, our index is much less than any other country.

There are some numbers like 6,000-7,000 (mining layoffs), but that is less than 5% of the mining workforce. But in general we are in a good position to deal with this.

TNM: In early March, your president, Alan Garcia, was talking about encouraging a more coordinated approach between Peru and Chile with respect to copper production. What’s going on there?

PS: If you put Chile and Peru together, we are the leading producers of copper in the Americas. So probably it’s a good idea to start discussing some kind of mechanism to coordinate our commercial activities in order to better face this new phase of the global economy.

TNM: What could be done exactly, with Chile having so much government-owned copper production and Peru being far more oriented to private companies?

PS: It wouldn’t be a government-controlled mechanism; it’s more commercial among the players investing in Chile and Peru. In Peru, the government, as you know, we don’t (own) any companies, but these discussions can be made by the private investors.

TNM: Looking at new Chinese investments in Peru, is there any kind of political cost or worry about the Chinese coming in and perhaps running mines with low safety standards or not reinvesting in the local communities?

PS: One of the Peruvian government’s goals is to attract suitable investors dealing with sustainable developments. Based on that, we have very high standards for all those issues: security, social protection, corporate responsibility, all those things.

The Chinese companies are going to meet these standards as well. Basically, they are already doing that, because they are becoming global players, and our regulations’ standards are very high.

TNM: How about a mine like Shougang, where there were complaints of the Chinese not operating at a high level?

PS: Shougang was 1991; it happened a long time ago. Now, the other Chinese companies such as Chinalco are doing a much better job, and in other countries as well, so they have a track record of improvement.

TNM: Would you say their track record is equal to the levels of North American, British and Australian miners?

PS: They will reach that level soon.

TNM: Are there geo-political concerns within Peru about Chinese-government-owned miners buying assets in the country? I recall the concern in Canada when China Minmetals tried to take over Noranda.

PS: No, Peru is a very open economy and we have world-class investors in mining, so they put a high threshold on any other investors coming into the country. I note that Rio Tinto recently signed a major agreement with Chinalco, so it shows how the mining sector has been changing in the last few years.

TNM: With foreign private investors looking at Peru, there’s always a concern with political unrest and the rise of leftism in South America. Plus, in Peru’s mining sector, there tends to be many specific local issues that flare up — taxes here, safety there, wages over there, political unrest.

PS: Yes, we have had this struggle for many years, and in spite of this the Peruvian economy has shown an excellent performance. And because of this, we have a free-trade economy, and free-trade agreements with many countries.
In Peru, we engage in the global economy.

TNM: Are the protests more violent than before? Is there an elevation in the violence to attain political goals?

PS: No, if you compare the numbers of protests that we used to have during the first semester of 2008, from the last piece of the year until now, I think the number of protests have been reduced. Probably that is because the political situation has been improving a lot in the past few months.

TNM: Does Venezuelan President Hugo Chavez fund some opposition to the government within Peru, like he does in Colombia?

PS: There is some program. . .  but the way we are operating in Peru is very different than any other country.

TNM: The free trade agreements that Peru has, do they help miners much, particularly Peru’s agreements with Canada and the U.S.?

PS: We just started the free trade agreements, so we are going to see. I think they are going to help a lot, for instance in importing equipment at very competitive prices.

TNM: For some miners in Mexico, there are problems with drug dealers and criminal gangs, and land-access problems in areas with illegal crops. With coca grown in Peru, are there similar problems there?

PS: I don’t see this type of thing in Peru, at least related to the mining industry.

TNM: How would you describe the state of Peru’s infrastructure? It’s difficult to get around such a mountainous country.

PS: In general, our infrastructure has been improving in a sustainable way in the last few years, and a number of roads have been contracted.

And now, very recently, even after the crisis, we have been signing agreements for new investments, such as a road that is going to connect the northern region to the capital, which is a US$400-million investment with a Spanish company.

There has been about US$2 billion committed in recent months. It’s a very supportive indicator that, notwithstanding the crisis around, people are still willing to invest in Peru, particularly in infrastruture.

We have pipeline, road, telecom and power projects. All of those are supportive of mining in general.

TNM: On the environmental side in Peru, what kind of legacy issues are there, with the country having such a long mining history?

PS: We have a lot of issues, and we have been dealing with them. A great number of them have already been remediated in the last few years. We have a fund to work on that issue.

TNM: What does it mean having this new prime minister, the left-leaning Yehude Simon, in the wake of the bribery scandal that cost the outgoing cabinet chief and five other ministers their jobs? Does it change the government’s direction when it comes to mining?

PS: I think with this change, the political arena has improved. With this approach, there has been an intense dialogue with many other parties and stakeholders in the country, and it is helping with this.

TNM: Is the government planning for a certain length of time for the economic downturn?

PS: We are working very hard to get one of the highest growth rates in the world, for this year. All the forecasts, from the International Monetary Fund and investment bankers, all of them place Peru as one of the very few countries with very respectable growth rates for this year.

TNM: The Rio Blanco torture issue that has come to light in recent months — what’s going on there?

PS: This happened in 2004 or so. At this point, I think the government has asked the judiciary system to take care of this. All these things will be properly investigated. We take everything very seriously because human rights is our first priority.

[Editor’s note: Peruvian prosecutors had accused police of torturing protesters at the US$1.4-billion Rio Blanco copper project in Piura in 2005, but two weeks after this interview with Minister Sanchez, investigators had cleared of wrongdoing three groups of foreigners involved in the project: owner U.K.-based Monterrico Metals; China’s Zijin Mining, which bought Monterrico two year later; and Monterrico’s Swedish security firm at the site, Forza.

The Peruvian government investigation found that more than two dozen people had been kidnapped and beaten after protesting against the project — claims bolstered by photographs surfacing in recent months of protestors bloodied, bound, and with plastic bags over their heads.

The investigation concluded in mid-March that only a few Peruvian police officers were responsible for the torture, and the case is now before a judge who must decide whether to proceed with criminal charges.]

TNM: Will this incident lead to stronger regulation of security forces at mining projects?

PS: In general, our regulations are very tight in this regard, with security forces, but in this case it is a very remote area.

So it was obviously a violent problem there, from both sides, so that’s why we want the judicial system clarifying this issue.

TNM: When you come to Toronto, what are your goals as a minister? What is your message?

PS: I’m trying to continue promoting Peru as a focus for investment, and a very attractive country now, even during the global crisis. I want to reinforce the Peruvian government’s willingness to attract private investment.

TNM: Canadian miners have been in Peru so long now, do you run into any ‘been-there, done-that’ attitude, that everything has already been found in Peru?

PS: No, there is still space for new investment, and we claim to be a polymetallic country, in which we have a lot of resources of almost everything, including uranium, which we are promoting.