Precious Metals

High prices are offsetting a downward trend in production

Gold and silver production in Peru suffered more in 2020 than the other metals the country produces, falling 32% and 22.5% respectively, according to MINEM figures. The dramatic reduction in gold, from 4.13 million ounces per year (oz/y) in 2019 to 3.08 million oz in 2020, and silver, from 136.17 million oz in 2019 to 105.49 million oz in 2020, can be partially explained by the majority of precious metals (PM) being mined from underground operations, which were impacted more by Covid restrictions than open-pit operations. However, it also follows a trend that has seen PM production in Peru decrease for five years in a row.

Fortunately, 2020 was a banner year for precious metals prices, with gold reaching an all-time-high in August, averaging US$1,769/oz for the year, and silver approaching the US$30/oz mark for the first time in eight years, averaging over US$20 for the year. Q1 2021 saw a correction, as rising real rates caused gold to dip below US$1,700/oz in March, but a revival in Q2 on the back of rising inflation has positioned precious metals for a promising second half of the year. Experiencing its best month since July 2020, gold closed over US$1,900 in May 2021, with many expecting new all time highs before year-end.

While high PM prices are offsetting declining production in Peru, the news that the country’s biggest gold mine, the Newmont-operated Yanacocha, decided to delay the construction of its US$2.1 billion Sulfides project is a blow to the industry. The underground development of Yanacocha, as the mine transitions from oxides to sulfides, would represent the biggest single investment in Peru’s mining industry in 2021 if given the green light, as well as signaling the move to large-scale underground mining in the country.

Roque Benavides, chairman of Buenaventura, which owns a 43.65% interest in Yanacocha, acknowledged that the political situation in Peru may have been a contributing factor to the postponement of the Yanacocha Sulfides development, but added that there were other factors in play. The technical complexity of the project is one aspect, as the size of the operation could lend itself to bulk mining methods such as block caving, a more capex-intensive option that can significantly lower waste disposal requirements.

Another standout gold development projects in Peru’s pipeline is Buenaventura’s San Gabriel, which should be in production by 2023, according to Benavides. He revealed that the permitting process is almost complete and noted governmental support for the project: “The authorities always reference San Gabriel when speaking about active projects in Peru’s development pipeline,” he said.


“Poderosa is currently preparing environmental impact studies for the Las Defensas brownfield project in La Libertad. Once the case studies and procedures have been completed, an investment of US$68 million will be made to explore an area of 7,000 hectares.”

Marcelo Santillana, General Manager, Minera Poderosa

One international gold producer operating in Peru is South African major, Gold Fields. The company experienced a 25% drop in gold production at its Cerro Corona mine in 2020, but the operation remains hugely profitable, with the lowest running costs of Gold Fields’ global operations. Luis Rivera, Gold Fields’ executive vice president for the Americas, commented that despite the significant challenges posed by Covid, the company managed to establish the same production rate it had in December 2019 at its Cerro Corona mine in December 2020. Having previously completed a feasibility study to increase mine life at Cerro Corona to 2030, Gold Fields is currently undertaking a scoping study to extend this to 2034. Rivera explained that by using the mined-out pit at Cerro Corona as a tailings dam, the operation has gained extra space.

Rivera also elaborated on operational modifications and optimization work at the mine, including plans to recover the stripping waste in 2021 after activities had been reduced in 2020. The operation also plans to change its grinding circuit and 12-year-old crusher, as well as implementing a gravimetric circuit to recover additional coarse gold that was going to waste in the tailings dam. Rivera summarized the aim of the work being performed at Cerro Corona: “With these modifications we will have the appropriate conditions to continue mining deeper and recover additional coarse gold that was going to waste because it was too heavy to be brought into the flotation circuit.”

On February 16th, 2021, Barrick Gold announced it had reached an agreement to sell its 100% interest in the Lagunas Norte mine in Peru to Singapore’s Boroo Pte Ltd for a total consideration of up to US$81 million, plus the assumption by Boroo of Barrick’s closure liability relating to Lagunas Norte of US$226 million backed by an existing US$173 million bonding obligation. In 2015, Lagunas Norte was producing over 500,000 oz/y at an AISC of US$500/oz. However, with its reserves declining and the transition from oxides to more expensive sulfides, the asset no longer fitted with the company’s strategy. Barrick CEO Mark Bristow said the sale was in line with the company’s policy of selling non-core interests to focus on tier-one operations, and for Boroo it offers a platform into a country looking to expand its gold production. Boroo will now have the opportunity to extend the life of Lagunas Norte by accessing satellite resources and adapting the infrastructure.


Growth through exploration

The difficulty in obtaining exploration permits in Peru, combined with declining reserves and ore grades, has heightened the need to support brownfield exploration. Brownfield expansions will also take on greater importance considering the lack of large greenfield projects in Peru’s near-term development pipeline after Quellaveco. Free cash flow generated from high metals prices in the last 12 months is going back in the ground, as producers look to grow via the drill bit.

Despite reducing its exploration spending by 48% in 2020, from US$60 million per year to US$32 million, Peruvian precious metals producer Minera Poderosa (Poderosa) was the company with the highest exploration investment in Peru last year. “In terms of greenfield and brownfield exploration, we are investing US$8-10 million a year to find new deposits,” revealed Marcelo Santillana, Poderosa’s general manager.

From a production standpoint, Poderosa was the second biggest gold producer in Peru in 2020, accounting for 9.4% of the country’s production, according to MINEM figures. The company’s aggressive exploration strategy has been key to its output and is set to continue in the years ahead. “Poderosa is currently preparing environmental impact studies for the Las Defensas brownfield project in La Libertad. Once the case studies and procedures have been completed, an investment of US$68 million will be made to explore an area of 7,000 hectares,” detailed Santillana, who estimates that production at Las Defensas will begin in four to five years.


Ignacio Bustamante, president and CEO of Hochschild Mining, stated: “Brownfield exploration remains the most important pillar of Hochschild’s strategy,” noting that in 2020, the company managed to attain additional resources at its Inmaculada mine in Peru and San José mine in Argentina.

“Our aim is to have additional inferred resources to present to the market by the time we publish our mid-year 2021 report,” said Bustamante, adding that the company intends to drill two more targets – Minascucho and San Francisco – in the second half of 2021.

While Hochschild has been investing in its Inmaculada and Pallancata properties in Peru, it has also been advancing exploration projects in North America through its partnerships with Skeena Resources in British Columbia, and most recently with NV Gold in Nevada. When asked whether political uncertainty in South America is increasing the likelihood of Hochschild diversifying its geographical footprint into North America, Bustamante responded: “The current political situation in Peru is a reminder that we cannot put all our eggs in one basket, and advancing agreements with juniors is a strategy to diversify the company and diversify risk. Indeed, I would say that potential investments outside of Peru have taken on more importance due to the political context.”

Bustamante’s words are a reminder that if Peru is serious about reversing the downward trend in its precious metals production, it must become a more attractive mining jurisdiction, otherwise international companies will invest elsewhere. This starts with incentivizing exploration, and Peru still has a lot to discover.

Image courtesy of Gold Fields