Mineral industry of Peru

In 2006, Peru occupied a leading position in the global production of the following mineral commodities: arsenic trioxide (fourth after China, Chile, and Morocco), bismuth (third after China and Mexico), copper (third after Chile and the United States), gold (fifth after South Africa, Australia, the United States, and China), lead (fourth after China, Australia, and the United States), molybdenum (fourth after the United States, China, and Chile), rhenium (fourth after Chile, Kazakhstan, and the United States), silver (first followed by Mexico and China), tin (third after China and Indonesia), and zinc (third after China and Australia). In Latin America, Peru was the first ranked producer of, in order of value, gold, silver, zinc, lead, tin, and tellurium and the second ranked producer of copper and molybdenum (after Chile), and bismuth (after Mexico).

In 2006, Peru's economy benefited from high prices for mineral commodities. To date, the Government has privatized 220 state-owned firms via joint ventures and consortia in the mining and fuels industries. The firms have generated $9.2 billion, with an additional committed capital flow of about $11.4 billion, representing 17% and 21% of Peru's GDP, respectively. Privatizations and concessions generated a committed investment of $6.9 billion (2006–2010) by mining companies such as Perú Copper Inc. fidiota

ho copper project ($2.5 billion), Xstrata plc. for Las Bambas copper mine ($1 billion), Phelps Dodge for expansion of Cerro Verde copper mine ($850 million), Monterrico Metals Inc. for Rio Blanco base metals project ($800 million), Rio Tinto Limited for La Granja copper project ($700 million), Southern Copper Corporation for expansion of Ilo smelter ($400 million), Goldfields Ltd. for Cerro Corona copper-gold project ($350 million), and Companhia Vale do Rio Doce for the Bayovar phosphate project ($300 million). The Ministerio de Energía y Minas reported that of the committed investment in 2006, Peru received $1 billion for gas and $200 million for petroleum.

Petróleos del Perú (PETROPERU S.A.) was created on July 24, 1969 (law No.17753) as a state-owned entity, dedicated sequentially to transportation, refining, and commercialization of refined products and other derivatives of petroleum. The Peruvian Congress on June 2, 2004 (law No.28244) excluded PETROPERU S.A. from the privatization process and authorized its participation in the exploration and production of hydrocarbons. The state agency Perupetro S.A. was created on November 18, 1993 (law No. 26221) to be responsible for promoting investments for hydrocarbon exploration and production in the country. Perupetro negotiates, signs, and administers hydrocarbon contracts, for which PETROPERU must compete with private firms as well. In 2006, PETROPERU invested $4.5 billion in the hydrocarbon sector.

Minerals in the national economy

Higher mineral commodity prices contributed to the upturn in the country's economic growth. The mining and mineral processing industries represented almost 1% of the GDP in 2006. The minerals sector employed about 5% (83,000) of the industrial sector total of 1.7 million miners; this did not include nearly 5,000 active informal miners.

Government policies and programs

Peru's legal framework regarding domestic and foreign investors is governed by Constitutional Mandates as Legislative Decree No. 662 (promotion of foreign investment), which provides unrestricted access to all economic sectors; Legislative Decree No. 757 (framework for the development of private investment), which pertains to the private investment growth; and Texto Unico Official (TUO) approved by Supreme Decree No. 059-96-PCM, which promotes private investment in public infrastructure and utility works. Within the framework of Decree law No. 708 of November 1991 (promotion of investment in mining), Legislative Decree No. 818 of April 1996 (incentives for investing in natural resources), and Supreme Decree No. 162-92-EF of October 1992 (rules guaranteeing foreign investment), more than 250 domestic stability and guarantee contracts have been signed since 1993.

Supreme Decree No. 014-92-EM of June 1992 (the general mining law) and Legislative Decree No. 868 of May 1996 (Texto Unico Official) provide guaranteed protections to mining ventures and contracts under the Peruvian Civil Code. Consequently, such ventures and contracts are immune from unilateral changes by any governmental authority in Peru without an appropriate legal or administrative remedy or arbitration by the Convenio Constitutivo del Centro Internacional de Arreglo de Differencias Relativas a Inversiones (Formal Consent of the International Center for Settlement of Relative Differences on Investments). Additionally, Peru enacted the Supreme Decree No. 047-2002-EF of April 2002 (import duties for capital goods) to reduce the duties paid to 7% from 20% and 12% on capital goods to be used in exploration and production of certain minerals, such as oil and gas in the Amazon region. The capital, goods, and services linked to minerals exploration benefited from the elimination of 18% sales tax when law No. 27623-EF was enacted in January 2002. Supreme Decree No. 015-2004-PGM of January 2004 (legal framework for decentralization) was established to use revenues from mineral production to maximize the well-being of the local communities through economic growth, environmental protection, and social development in a sustainable way. Supreme Decree No. 066-2005-EM of May 2006 (legal framework for creation of the Dirección de Gestión Social) was established to administer the Corporate Social Responsibility program in the mining sector.

The Peruvian Constitution establishes equal protection for domestic and foreign investors who may enter into agreements with the Government and guarantees free access, possession, and disposal of foreign currency. Hydrocarbon Law No. 26844 of May 1997 eliminated the exclusive rights of the state-owned Petróleos del Perú S.A. to control the secondary recovery of crude oil, refining, and imports and subsequent resale of petroleum and byproducts. The Peruvian laws have attempted to ensure more-favorable minerals and crude oil and gas exploration and production contract terms for investors. Legal procedures to obtain mining rights were made easier by the enactment of complementary legislation Supreme Decree No. 018 of July 9, 1992. The Government relinquished exclusive control over exploration, mining, smelting, and refining of metals and fuel minerals. Individuals and private companies are allowed to hold mining permits in Peru. In the legal framework for investment and taxation, no distinction is made among domestic and foreign investors, corporations, joint ventures, and consortia formed in Peru or abroad. Municipalities and Regional governments in areas where mineral resources (metals and industrial minerals) are exploited will receive 50% of the taxes collected to be invested in education and social programs (health, housing, and others) in conformance with the Canon Minero (Ministry Resolution No. 266-2002-EF/15 of May 1, 2002). The remittance of dividends, depreciation, and royalties abroad has no restrictions. Contracts can be signed by investors, and the Government guarantees the stability of legal commitments and taxes. To increase protection of investors’ interests, Peru signed agreements with the World Bank’s Multilateral Investment Guarantee Agency in April 1991, which was authorized by Legislative Decree No. 25312 and with the Overseas Private Investment Corporation in December 2002, which was authorized by Legislative Decree No. 25809.

The Dirección General de Asuntos Ambientales (DGAA) of the Ministerio de Energía y Minas (MEM) has the responsibility to address environmental problems that result from energy and mining activities and is mandated to implement the laws and regulations of the environmental legal framework, such as Legislative Decree No. 613 of September 1990 (the environmental code) and Supreme Decree No. 016-93-EM of April 28, 1993 (the environmental regulation). The sustainable development model for the mining and energy sectors began in 1993 with regulations and procedures for the gradual reduction of pollution, which include economic development policies and environmental protection. The mining industry must comply by adjusting its ongoing operations to permissible effluent levels and its new operations by using cleaner technologies. The DGAA evaluates and proposes the environmental regulations for the mining and energy sectors, which include the maximum emission levels that are compatible with the internationally accepted limits set by the United Nations and the World Bank, approves environmental impact assessments for new operations and environmental adjustment and management programs for ongoing ones, and administers the national environmental information system. The MEM is authorized to manage environmental affairs in the minerals sector, such as establishing the environmental protection policy and maximum allowable levels for effluents, signing environmental administrative stability agreements, overseeing the impact of operations determining responsibilities, and imposing administrative sanctions. The oil companies, in particular, are under pressure because the number of operations in the Amazon Rain Forest, one of the world’s most sensitive ecosystems, is increasing.

Production

In 2006, the value of Peruvian minerals (metals, industrial minerals, and fuels) production amounted to $6.5 billion, compared with $5.1 billion in 2005. Mining and fuel production increased by 8.1% as a result of larger values of metals (7%) and fuel output (23%). The increase of mineral outputs (content) was mainly led by natural gas (77%), molybdenum (22%), gold (20%), crude oil (18%), and iron (8%), and to a lesser extent by silver and lead (4% each) compared with 2005 outputs. In 2006, metal prices were also driven upwards because of the higher consumption associated with increased world economic activity, such as in China, the United States, and other countries.

Metal production growth was mainly led by an increase in copper, iron, silver, and lead, which offset the decreased output of gold, molybdenum, and zinc. The hydrocarbon sector’s output also increased owing to the increased extraction of natural gas at Aguaytia and Camisea. Crude oil output was expected to increase as the result of the 16 new oil exploration and production contracts signed in 2006.

Structure of the mineral industry

Peruvian laws have attempted to ensure equitable mineral, crude oil, and gas exploration and production. Owing to these terms, an increased number of domestic and foreign companies, AngloGold Ashanti, Barrick Gold Corp., BHP Billiton plc., Cambior, Inc., Falconbridge Limited, Mitsui & Co., Ltd., Mitsubishi Corp., Peñoles, Teck Cominco Ltd., and others, have expressed interest in participating in prospecting, exploration, production, and distribution of natural gas and petroleum contracts with Perupetro S.A. and mineral properties with Centromín. The structure of the Peruvian mineral industry continued to change owing to privatizations and joint-venture projects. The establishment of consortia in such deregulated industries as oil and gas, and joint ventures in energy and mining projects were becoming a common practice in Peru. According to the Ministerio de Energía y Minas, Peru was the seventh most attractive area for investments in exploration after, in order of investment attractiveness ranking, Tasmania (Australia), Nevada and Alaska (USA), Northwest Territories (Canada), Western Australia, and Indonesia.

The new operating process, which was the result of the privatization and joint-venture projects, incorporated policies that deal with economic and societal development issues and with environmental protection in a sustainable way. Private local interests owned most of the medium- and small-sized mining operations. More than 250 foreign mining companies have been established in Peru since 1990. Crude oil was transported through 1,754 km pipelines, natural gas and natural gas liquids through 983 km dual pipelines, and refined products through 13 km pipelines. Important mineral industry ports included Callao, Chimbote, Ilo, Matarani, Paita, Puerto Maldonado, Salaverry, San Martin, San Nicolas, and Talara on the Pacific Ocean and Iquitos Pucallpa and yurimaguas on the Amazon River and its tributaries. Peru had an installed electrical generating capacity of 5,050 megawatts (MW), about 80% of which was accounted for by hydroelectric plants. The Peruvian Government raised about $2 billion from the privatization of its electrical sector and committed to an investment of about $20 million to install an additional 1,006 MW of capacity in the immediate future. The energy mix, by source, was hydro (74.5%), fossil fuel (24.5%), and others (1.0%).

Mineral Trade

Peru’s mining industry, which has consistently been the country’s major foreign exchange generator since 1997, accounted for almost 61.8% ($14.7 billion) of total export revenues of more than $23.8 billion in 2006 compared with 56.3% ($9.8 billion) of total export revenues of about $17.4 billion in 2005. In 2006, Peru’s total trade balance recorded a surplus of about $8.9 billion compared with $5.3 billion in 2005, which increased by almost 68% compared with 6.6% in 2005. Peru's minerals sector had a trade surplus of $16.2 billion compared with $11 billion in 2005.

In 2006, mining was the main exporting sector of the country. Price increases for zinc (136.5%), copper (82.6%), and gold (36%) played an essential role in the Peruvian trade balance. Almost 82% of the total minerals exported ($14.7 billion) were copper ($6 billion), gold ($4 billion), and zinc ($2 billion). Peru’s other mineral exports were molybdenum ($838 million), lead ($713 million), silver ($479 million), tin ($332 million), and iron ($256 million).

Peru’s fourth major traditional export, petroleum and derivatives, amounted to $1.6 billion in 2006 compared with $1.5 million in 2005. Peru’s total mineral exports, which included petroleum and derivatives, amounted to more than 68% of its total exports in 2006. Total mineral imports, which were mostly petroleum and derivatives, however, increased by about 34.8% to $3.1 billion compared with $2.3 billion in 2005. Total imports increased by about 21.5% to $14.7 billion compared with $12.1 billion in 2005 and generated a surplus of $2.6 billion compared with $5.3 billion in 2005. In 2006, the United States (34%), China (11%), Chile (7%), Canada (6%), and Japan (5%) were Peru’s leading mineral consumers. The United States, China, and Chile were the main importers of gold, copper, and molybdenum, respectively. Peru sold about 6% of its exports to other members of the Mercado Común Andino (ANCOM), whose members were Bolivia, Colombia, Ecuador, Peru, and Venezuela; about 3% was sold to the Mercado Común del Cono Sur (MERCOSUR) countries of Argentina, Brazil, Paraguay, and Uruguay, and associate members Bolivia and Chile; and 15% was sold to other Latin American countries. Peruvian mineral exports could increase if the negotiations between ANCOM and MERCOSUR lead to a South American free trade agreement and owing to the free trade agreement signed recently (2006) between the United States and Peru.

Commodity review

Metals

Copper

Peru’s copper output (Cu content) in 2006 was about 1.05 million metric tons (Mt) compared with almost 1.01 Mt in 2005, an increase of almost 4%. The country’s copper metal exports in 2006 totaled about 986,600 metric tons (t) valued at $6 billion, compared with 984,200 t valued at $3.4 billion in 2005; this value was 76.5% higher than that of 2005 as a result of the copper price increase to $2.829 per pound of copper in 2006 from $1.549 per pound in 2005.

Owing to China's increasing consumption of metals and minerals such as copper, which was expected to increase to 6 Mt by 2010 from 4 Mt in 2005, two Chinese companies, Baosteel Co., Ltd. (Baosteel) and Aluminum Corp. of China Ltd. (Chalco) were planning to have joint ventures with Latin America’s leading copper mining companies such as Companhia Vale do Rio Doce (CVRD) of Brazil, Corporación Nacional del Cobre (Codelco) of Chile, and Sociedad Minera Cerro Verde S.A.A. of Peru. China Minmetals Corp. planned to invest in metals and minerals mainly in Brazil, Chile, and Peru. In 2006, Peru’s planned investments of $2.8 billion were expected in projects with advanced exploration and environmental assessment work, such as in Las Bambas copper mine ($1.5 billion) and Los Chancas ($1.3 billion) copper deposits located in the Department of Apurimac and owned by Xstrata plc. of Switzerland and Southern Copper Corp. a subsidiary of Grupo Mexico S.A. de C.V., respectively. Other investments in copper deposits included Rio Blanco Copper S.A.’s Rio Blanco deposit located in the Department of Piura ($1.5 billion to produce copper by 2008), Perú Copper Inc.’s Toromocho deposit located in the Department of Junin ($1.5-$2.0 billion, reserves 1.6 billion metric tons), Southern Copper was planning to invest $600 million in additional exploration and to improve efficiencies in Cuajone and Toquepala copper mines, and Sociedad Minera Cerro Verde SA was planning to increase Cerro Verde Mine’s copper output to 300,000 metric tons per year (t/yr) from 100,000 t/yr with an investment of $890 million by 2006-07. Other mineral prospects included the San Gregorio zinc project of Sociedad Minera El Brocal S.A.A. located in the Department of Cerro de Pasco, the Minas Carachugo gold-and-silver project of Minera yanacocha S.R.L. (MyS) [Newmont Mining Corp. of the United States (51.35%), Compañía de Minas Buenaventura S.A.A. (43.65%), and World Bank International Finance Corporation (5%)] located in the Department of Cajamarca, and the Magistral copper-molybdenum-silver project of Inca Pacific Resources located in the Department of Ancash. Magistral is located in the same geologic trend as that of Compañía Minera Antamina S.A.'s (CMA) Antamina base-metal.

CMA's Antamina Mine was the leading copper concentrate producer in the country with a total output of 390,800 t in 2006 compared with 383,000 t in 2005. SPCC was the second leading producer of copper in the country with an output of 362,000 t in 2006 compared with 355,000 t in 2005. BHP Billiton Tintaya S.A. reported an output of 79,000 t of copper concentrate in 2006 compared with 78,300 t in 2005. SPCC reported 35,800 t of cathode copper from Toquepala mine, which was produced by solvent extraction-electrowinning (SX-EW). Copper metal output at its Ilo refinery located in the Department of Moquegua was 273,100 t compared with 285,200 t in 2005. Cerro Verde’s SX-EW plant at the Cerro Verde copper mine produced 96,500 t of cathode compared with 93,500 t in 2005.

Gold

In 2006, gold output was 202.8 t compared with 208 t in 2005, a decrease of 2.5%. MyS produced 81.2 t compared with 103.2 t in 2005. Other leading gold producers were Minera Barrick Misquichilca S.A. (51.9 t), Madre de Dios S.A (15.8 t), Compañía de Minas Buenaventura S.A.A. (7.9 t), and Aruntani S.A.C. (6.5 t). Gold exports in 2006 totaled about 6,702.1 ounces [Note there is a major discrepancy in the 202.8 t (= 7,150,000 ounces)and the 6,702 ounces listed in this sentence] valued at $4 billion compared with 7,036.8 ounces valued at $3.2 billion in 2005; this value was 25% higher than that of 2005 as a result of the gold price increase to $605 per troy ounce in 2006 from $445 per troy ounce in 2005.

Gold recovered as a byproduct from the concentrates of Peru’s polymetallic mines amounted to 2.6 t. From the total gold output in 2006, large, medium, and small producers reported 187 t and an unknown number of placers and "garimperos" (informal individual miners) reported 15.8 t. Placers accounted for almost 8% of the gold produced in the country. The southeastern Andes have well known gold placers on the Inambari River and its tributaries. Placer gold was produced mostly in the Inca and the Mariategui Regions and from rivers and streams throughout the jungle. Goldfields Limited, the world’s fourth ranked gold producer, entered into a joint venture with Compañía de Minas Buenaventura S.A.A. to start operations in the Puquio gold project in the Department of Ayacucho in the third quarter of 2007. Goldfields Limited is also looking into the Cerro Corona gold project in the Department of Cajamarca.

Iron ore

Shougang Hierro Perú S.A.A. (a subsidiary of China’s Shougang Corporation) continued to be Peru’s sole iron ore producer in the Marcona District, in the Department of Ica. Mine output increased to 4.8 Mt of iron content in 2006 from 4.6 Mt in 2005. The iron ore exports amounted to 6.7 Mt at a value of $256 million compared with 6.6 Mt at a value of $216.1 million in 2005, which was an increase of 18.5% in value compared with 2005. The domestic consumption amounted to 300,000 t of iron ore, which remained about the same level as that of 2005. Iron ore production increased in response to higher demand in China and other economies in the Asian region for construction and higher steel output, which had a positive effect on higher molybdenum production as well. The Marcona Mine as of 2010 continued to be plagued by labor troubles but had ambitious plans for expanded production of 18 million tons of iron ore per annum by 2012.

Lead, silver, and zinc

In spite of higher demand for zinc by Asian countries and higher international prices in 2006, the Peruvian zinc industry produced 1.2 Mt of zinc in concentrates, which remained about the same level as that of 2005. Of the total output, the main producers’ contributions were, in order of tonnage, Volcan (232,645 t), Empresa Minera Los Quenuales S.A. (199,600 t), CMA (178,180 t), Compañía Minera Milpo S.A. (79,600 t), El Brocal (69,800 t), Empresa Administradora Chungar S.A.C. (62,230 t), Atacocha (59,800 t), and others (320,000 t).

The country's total silver content output increased to more than 3,471 t compared with 3,206 t in 2005. Peru, for the third time, surpassed Mexico’s silver output of 3,000 t in 2006. In silver output, companies, such as Aruntani, El Brocal, Compañía de Minas Buenaventura S.A.A., and Volcan Compañía Minera S.A.A. were more active, and silver production was higher than last year because Minera yanacocha S.R.L. and medium-sized gold-silver mines exceeded their initial production goals. yanacocha increased its output mainly as a result of technological innovations in its gold-silver recovery process. Higher international prices allowed medium-sized mines and small producers to mine lower grade ores. Peru produced more than 313,300 t of lead in concentrates compared with about 319,400 t in 2005. Exports of zinc, lead, and silver were valued at about $2 billion, $713 million, and $479 million, respectively, compared with $805 million, $491 million, and $281 million in 2005, respectively.

In 2005, Volcan was the first ranked zinc producer in the country with an output of 232,645 t of zinc, 65,540 t of lead, and 413.5 t of silver from its operations in the Cerro de Pasco property located in the Department of Cerro de Pasco, and the San Cristobal, Carahuacra, and Andaychahua base-metal mines located in the Department of Junin. Empresa Minera Los Quenuales S.A. was the second ranked zinc producer from its operations in Casapalca and Iscaycruz Mines, which produced 199,540 t of zinc, 21,600 t of lead, and 183.4 t of silver from the Iscaycruz, the Pachangara, and the yauliyacu Mines. CMA was the third ranked zinc producer from its operations in the Antamina Mine, which produced 178,180 t of zinc and 301.5 t of silver (Ministerio de Energía y Minas, 2007a). Refined metals were reported by Doe Run Peru (120,300 t of lead, 1,145 t of silver, and 41,000 t of zinc from the La Oroya complex); by Sociedad Minera Refinería de Zinc Cajamarquilla S.A. (31.5 t of silver and 134,240 t of zinc from the Cajamarquilla refinery); and by SPCC (119.2 t of silver from its refining operations in Ilo). Peru’s silver metal production increased to 1,300 t from 1,230 t in 2005.

In the mining sector, the Grupo Votorantim Metais S.A. of Brazil acquired 99% of the Cajamarquilla refinery for about $210 million and was planning to increase its zinc output to 260,000 t/yr from 130,000 t/yr with an additional investment of $200 million by 2007-08.

Tin

Production from Minsur's San Rafael Mine located in the Mariátegui Region was 38,470 t in concentrate in 2006 compared with 42,145 t in 2005. Minsur’s tin smelting and refining operations in Pisco, located south of Lima, produced 40,500 t of metal compared with 36,700 t in 2005. Peru continued to be the leading tin producer in Latin America followed by Bolivia and Brazil. Minsur, which was the only fully integrated tin supplier in Peru, produced 15.5% of world’s output and exported 38,100 t valued at $332.1 million in 2006 compared with 36,900 t valued at $270.0 million in 2005.

Industrial minerals

Empresa Minera Regional Grau Bayóvar S.A.’s phosphate deposits (Bayóvar project) produced 38,000 t of phosphate ore, which was about the same level as that of 2005. The 90,000-t/yr phosphate plant that was operated by Grau Bayóvar produced 17,100 t of phosphate (P2 O5) in 2006. The Bayóvar project comprises 150,000 hectares of phosphate and brine and has proven reserves of 820 Mt of phosphatic rock equivalent to 260 Mt of rock phosphate with a P2O5 content of 30%. CVRD won an international bid on March 16, 2005, to explore further the Bayóvar phosphate deposit. The feasibility study to produce about 3.3 Mt/yr was expected to be completed in the second quarter of 2007.

Mineral fuels

Coal

Peru’s largest coal deposits were at Alto Chicama located in La Libertad Region. Other coal deposits occur in the Cuenca del Santa in the Marañón Region and the coal basins of Goyllarisquizga and Hatun Huasi in the Cáceres Region of central Peru. In 2006, Peru’s recoverable coal reserves were estimated to be 1.1 billion metric tons, and coal production was relatively small (about 29,535 t) compared with an estimated consumption of more than 1.3 Mt/yr.

Natural gas and petroleum

In 2006, Peru's recoverable (proven and probable) and possible crude oil, liquefied natural gas (LNG), and natural gas resources were estimated to be 6,239,100,000 barrels (991,940,000 m³); LNG 1,373,800 bbl (218,420 m³); and natural gas 859 billion cubic meters (30.4 trillion cubic feet), respectively. The leading gasfields were the Aguaytia, which is located about 41 km west-northwest of Pucallpa and had proven reserves of 8.5 billion cubic meters (301 billion cubic feet) of gas and 9,000 bbl (1,400 m³) of natural gas liquids (NGL) and the Camisea gasfields in the Ucayali Basin with 250 billion cubic meters (8.7 trillion cubic feet), which included 600,000 bbl (95,000 m³) of NGL. Natural gas production increased to 1,775 million cubic meters from 1,517 million cubic meters in 2005 and was produced by Pluspetrol S.A. (59%), Aguaytia S.A. (22%), Petrotech del Perú S.A. (8%), Petróleo Brasileiro S.A. (Petrobrás) (6%), and others (5%). Petrobrás through Petrobrás Energía S.A. acquired exploration and production rights for natural gas and petroleum in Lots 57 and X, respectively.

The Camisea Project encompasses three segments—Upstream, Transportation, and Distribution of natural gas from the Camisea field, which is located in the Ucayali Basin in the Department of Cusco. Under the license contract, the Upstream Consortium holds the rights to produce natural gas and liquids in block 88 for 40 years. Investments to develop and produce, transport, and distribute natural gas from the Camisea field were estimated as follows: the Upstream Project to develop and produce natural gas, $550 million; the Transportation Project to transport natural gas and liquids to Lima through pipelines, $820 million; and the Distribution Project for the distribution network in Lima, $170 million.

In 2006, crude oil production increased to 77,500 barrels per day (12,320 m³/d) from 75,400 bbl/d (11,990 m³/d) in 2005, an increase of almost 3%. Production of petroleum derivatives decreased to 165,220 bbl/d (26,268 m³/d) from 176,411 bbl/d (28,047.1 m³/d) in 2005, a decrease of more than 6%. Peru imported an average of 121,400 bbl/d (19,300 m³/d) crude oil and petroleum products to satisfy its internal consumption of 155,800 bbl/d (24,770 m³/d). Peru’s total crude oil production of 28,300 bbl (4,500 m³) in 2006 came from Pluspetrol S.A. (59.6%), Petrobrás (16.7%), Petrotech (14.2%), and others (9.5%) (table 1; Ministerio de Energía y Minas, 2007b). Almost 60% of the country’s crude oil production came from the jungle blocks in the Loreto and the Ucayali Regions; the remainder was produced at the coastal and offshore fields in Talara. The country’s proven petroleum reserves were estimated to be about 355,000,000 barrels (56,400,000 m³).

In 2006, the largest oil refinery continued to be Petroperú's La Pampilla, which had a designed capacity of about 100,000 bbl/d (16,000 m³/d). The second largest oil refinery was Petroperú’s Talara, which had a designed capacity of about 70,000 bbl/d (11,000 m³/d). Other refineries had the following designed capacities: Conchan, 20,000 bbl/d (3,200 m³/d); Iquitos, 10,500 bbl/d (1,670 m³/d); Pucallpa, 3,500 bbl/d (560 m³/d); and El Milagro, 2,500 bbl/d (400 m³/d). Refinery production came from La Pampilla (47%), Talara (38%), Conchán (7%), Iquitos (5%), Pucallpa (2%), and Milagro (1%).

Outlook

The energy, mining, and related industries are expected to continue to attract capital flows via joint ventures and consortia, privatizations, and direct acquisitions. According to ProInversión, the privatization process in the minerals sector and FDI in every sector of the Peruvian economy, particularly in the banking and energy industries are expected to continue to generate additional investments. Higher demand for copper, gold, iron ore, and silver and high metal prices are likely to encourage mining companies to invest in expanding and modernizing their operations. The liquefaction of Camisea's natural gas for export to China, MERCOSUR, North American Free Trade Agreement (NAFTA), and other trading partners is expected to increase Peru’s mineral exports further. The transportation phase of Camisea's pipelines for natural gas (714 km) and for natural gas liquids (560 km), however, could encounter financial difficulties because of leaky NGL pipeline. This second phase would involve establishing infrastructure to pipe the gas and associated liquids from Camisea to the Lima area and to liquefy 17 million cubic meters per day of gas for exports to NAFTA and possibly to Chile. For that, and to develop the 113 billion cubic meters of gas in Camisea's Block 56, an investment of $3.2 billion will be required. However, the natural gas liquids pipeline, which began operating in 2004 following the Upstream phase of development, has ruptured on five different occasions.

At the national level, this trend could reduce the attraction of new investments and preclude Camisea's higher output needed for the regional economic development. On the other hand, Peru continues to encourage community development and environmental protection based on social responsibility and sustainable development principles. In spite of that strategy, the country is facing political unrest, and the mining industry has been the target of social protest. These events have affected the image of the mining industry and caused growing concern about the regional climate for mining investments.

Even though there might be some challenges due to said political unrest events, mining investment projects in Peru are expected to reach USD 60 billion over the next 10 years.