Marcial García, Partner and Mining Lead,

EY PERÚ

"Peru has all the conditions to be a very attractive destination for mining investment, but addressing the social and permitting issues is paramount for the country to fulfil its potential."

Last year was a challenging year for Peru, but to what extent do you think the country’s mining industry has rebounded in 2021?

Due to the lockdown in 2020, production ceased for about three months and decreased by approximately 12%. Tax revenues from the mining industry were hit even harder and fell by approximately 27%. Production is expected to rebound by 14% in 2021 due to lesser restrictions and new operations such as Mina Justa coming online. We hope that the increased metal prices will make projects more attractive to investors, but unfortunately our politicians are not creating a climate that is inducive to foreign investment. We hope that after the election things settle and incentives can be introduced.

Which fiscal incentives has the government introduced to stimulate exploration in recent years?

The VAT early recovery system for exploration projects is an incentive that has been in place for quite some time and is very attractive to investors. Everything bought in Peru is subject to VAT at a rate of 18%. If you have an investment project of over US$500,000, you can apply to the early recovery system and you basically get a refund on the VAT paid. This is an incentive to promote greenfield projects in Peru and the rationale behind the system is that you use the money to re-invest in operations. Over the last few years, no other incentives have been approved and no significant new legislation has been passed.

How do you think Peru could promote itself as a more stable mining country?

Peru’s geology is very attractive and only a small portion of the country has been subject to exploration, which makes the potential for discoveries quite high. We have a lower cost of production compared to other countries in the region and we also have lower power costs than Chile. We are also fortunate to have well-trained professionals in the industry such as engineers and geologists. Peru has all the conditions to be a very attractive destination for mining investment, but addressing the social and permitting issues is paramount for the country to fulfil its potential.

With regards to social licensing, what could be done by the private sector to improve the process?

Many companies in Peru that struggle with social licensing have been around for decades and sometimes have a bad reputation due to legacy issues, or if they were in a region where there has been historical conflict between mining and communities. On the other hand, companies that have entered the Peruvian market recently have been successful in obtaining their social license to operate. Establishing good relationships with the community from the start is key to accelerate the process.

What are some of the key transactions EY Peru has worked on recently, and in which area of the business do you see potential for growth?

EY is the leading firm that offers a broad range of auditing, tax, and consulting services in Peru, and we work with most of the major mining companies in the country. Without revealing any details, I can say that we are currently working on a number of deals, and I believe that 2021 will see many M&A activities, especially within the precious metals space. EY’s consulting unit is in high demand at the moment and we see significant potential for growth within this area of business moving forward.

What are your hopes for Peru’s mining industry in the next 12 months?

The mining industry is critical for Peru’s economy and we need to see more incentives to attract investment being implemented over the next year, especially after the economic impact of Covid. We hope that whichever candidate gets elected, understands the critical importance of the mining industry to Peru.

EY will continue helping companies with investments in Peru as we want to see foreign investors meet their objectives and we have all the experience and expertise to help clients achieve success.

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