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Special Advertising Section
PERULAND OF GOLDEN OPPORTUNITIES
(AND NOT JUST IN MINING)
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Peru is an Andean country of great potentialwealth thanks to its enormous resources ofminerals. It enjoys spectacular mountainscenery with a rich Inca and pre-Inca her-itage, whose most important sites include theancient Inca capital of Cuzco and the lost cityof Machu Picchu. A closer look reveals a hostof other archeological wonders from the vari-ous eras of Peru’s eventful past.
Yet Peru’s development has faltered because of past failureby the Government in the capital Lima to tackle corruption,and social exclusion. The turning point for its 27 millionpeople came with President Alejandro Toledo’s election inJune 2001 – his predecessor had left the country for exile inJapan and resigned by fax. Under the new democracy, Peruis now “on the rise”, exploiting a “window of opportunity” toattract fresh foreign investors.
President Toledo’s victory was one of history’s rare secondchances to end a system that had existed practically sinceindependence from Spain in 1821. The authoritarian rule ofthe past had left 54% of Peruvians living on less than $2 aday and one in two adults unemployed.
President Toledo says: “We were politically polarized, so-cially fragmented and structurally very excluded under theprevious administration, but we now have a new sense ofdirection. The time is now ripe to build governance and sta-bility in the region. To invest more in nutrition, health educa-tion and justice for the poor, we need to have the resourcesto the extent that we cannot wait another 20 years for eco-
nomic growth to come.” In 2002, GDP growth rebounded to5.2%, but President Toledo realizes that Peru competes forforeign capital in a global economy. He is keen to point outthe country’s unique opportunities in mining, agriculture andtourism. He sees great potential in agriculture, where Peruhas huge competitive advantages with more than 180 dif-ferent microclimates. “We can grow almost anything all yearround – grapes, mangos and asparagus,” he adds.
Spain is the number one investor in Peru, followed by the UKand the U.S. “With private investment there is no problem,”says President Toledo. “Yet there is no question that the pub-lic sector needs to accompany this by building roads and pro-viding the infrastructure.” In order to raise its sights, Peruneeds to improve its legal framework. “Capital investment willgo where there is legal stability,” says the President. “We needclear rules of the game that are permanent.”
With Peru actively reshaping its institutional framework,President Toledo believes the time is right for new invest-ment, despite the poor shape of the global economy. “Thisis a country which constitutes a hub of growth in LatinAmerica connected to Asia and is expanding its market toEurope and the U.S.,” he says.
Peru’s strategic location as a gateway to and from LatinAmerica is an advantage the Government is pushingthrough two promotional bodies: Prompex, focused on ex-ports, and PromPeru on tourism. They are directed by Min-ister of Exterior, Commerce and Tourism, Raúl DiezCanseco Terry, who is also the First Vice President. “Wewish the port of entry from Asia into Latin America to beone of the Peruvian ports, thus transforming Peru into ahub,” he says. This vision extends to deriving more benefitfrom the free trade agreements of which Peru forms a part,including the U.S.-enacted Andean Trade Preference andDrug Eradication Act (ATPDEA). The Vice President says:“The quota that the ATPDEA gave to Peru is so large thateven at maximum production levels, using all our installedfacilities, at our current capacity we wouldn’t even reach30% of our quotas.”
Tourism is now treated like a business, having an ex-pected $18 million budget next year to promote archeologi-cal, eco and adventure travel, in particular to U.S. visitors.“People are not aware that there is much more to visitingPeru than Machu Picchu. The source of the Amazon river isin Peru,” says the Vice President.
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Left : Alejandro Toledo -President. Center : Raul Diez Canseco - Vice President andMinister of Exterior, Commerce and Tourism Right : Jaime Quijandria Salmon -
Minister of Energy and Mines
The time is now ripe to buildgovernance and stability inthe region President AlejandroToledo“
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MINING WITHA SOCIALCONSCIENCE
Peru offers a hugediversity of min-eral wealth includ-ing, among oth-ers, silver, zinc,copper and gold,and is rankedthird in the world
in terms of geological potential, ac-cording to The Fraser Institute of Van-couver. Yet, until recently, mining tookplace against a legacy of past mistrustby native peoples concerned aboutthe environmental impact of new pro-jects. “The message to portray now isone of confidence,” says Minister ofEnergy and Mines, Jaime Quijandría.“Despite difficult times, there has notbeen one claim against the state. Evenin times of political turbulence, Peruhas managed to maintain economicstability.”
Minister Quijandría is proud of manymajor projects, especially the $2.5 bil-lion Antamina investment, the Pierinagold mine (with the second lowest pro-duction costs in the world) and the AltoChicama project, now under way.“They have created a lot of interestamong prestigious international in-vestors,” he says. “More South Africanand Australian miners have recently ar-rived to explore for gold.”
The Government credits much of thestability enjoyed by the mining compa-nies over successive governments tothe private sector, led by the SociedadNacional de Minería, Petróleo y Energía(SNMPE), a representative body for theindustry, whose president is Dr JoséMiguel Morales Dasso. “We now haveone of the most efficient systems in theworld for the granting of concessions,”he says. “Bankers and business execu-tives want stability. The most importantissue is to give the investor a very solidtitle to any mining operation that takesplace.”
Dr Morales estimates that around $6billion of investment is required in orderto realize a portfolio of some 270 possi-ble mining projects in Peru. Under Minis-ter Quijandría, a rapid consolidation ofprojects signed and agreed by previousgovernments has taken place, but Peruis aiming for the long term. “Investmentin energy and mining is not somethingdependent on current market prices oreven the politics of a country,” says theMinister.
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William M. Kallop &Cristina Newall de Kallop
President of Petrotech andhis wife
Compañía Minera Antamina, the world’s largest copper-zinc mine, is the biggest investment ever made in Peru. Itaccounted for 1.2% of GDP in its second year of opera-tions, and boosted Peruvian exports by 12% that sameyear. Investment from construction to start-up reached$2.26 billion, with some $146 million spent on improve-ments to public infrastructure. The project involved hugechallenges, including managing the relocation of some 60families in an exercise regarded as a benchmark by theWorld Bank.
Antamina’s former President and CEO Ron Simkus says:“We employ about 1,800 people in high caliber jobs, 97%of whom are Peruvian, and another 1,000 contractors. Thathas a stabilizing effect for the region. Succession planningis something we have been working heavily on – replacingexpatriate managers with Peruvians.”
Southern Peru Copper Corp (SPCC), Peru’s leading inte-grated producer of copper, also exports cathodes, anodes,sulphuric acid, silver, gold and molybdenum. SPCC’s Presi-dent and COO Oscar González Rocha says: “We sell in theU.S. mainly to traders, but also to the biggest companies inthe cable business. In Europe we sell to Pirelli and other ca-ble producers, and in Asia mainly to traders.”
SPCC’s president considers that there is plenty of poten-tial for more foreign investment in Peruvian mining. “Thefirst thing investors need to do is produce at the lowestpossible cost. After that they should comply with the envi-ronmental regulations, and have a social responsibility tothe communities where they operate.”
Minera Barrick Misquichilca’s success in finding gold atAlto Chicama partly accounts for the scramble for conces-sions. Barrick first began producing gold at Pierina in 1998,but Alto Chicama – discovered only last year – will be thesecond or third largest producer of gold in Peru as soon asit starts production.
Vice President and General Manager Igor GonzalesGalindo says: “Fortunately for the region, this project is lo-cated in a high, remote and isolated area. This gives us theopportunity to co-exist with local communities and bringbenefits to them.” Having been through a learning curve atPierina, Barrick is applying the lessons learned there to AltoChicama.
“One of the first tasks we carried out at Alto Chicama was tosend in a community relations officer,” says Mr Gonzales. “Inthe past, mining companies used to send in a geologist first.We are quite optimistic about Peru because of the potential it
presents. Peru exploits a very small part of its resources, andin terms of exploration, there’s a long way to go.”
As a net importer of around 45,000 barrels per day (b/d) ofcrude oil, Peru remains optimistic about making a big find inhydrocarbons, despite having made none since the discov-ery of the Camisea gas fields, according to Minister Quijan-dría. “What we are currently hoping for is a big find,” hesays. “We will keep what we need to meet the country’scurrent deficit and then outsource the remainder to a pri-vate investor for export.”
Petro-Tech Peruana based in Lima, Peru commenced off-shore oil and gas exploration and production operations lo-cated along the northern coast of Peru in 1994 as the resultof an international bidding process conducted by the govern-ment to privatize its holdings. Affiliates of Petro-Tech, whichare all engaged in many phases of the international offshorehydrocarbons industry, originally commenced business inPeru in 1983, when marine support vessels were mobilized tothe country to provide services in the same offshore oil andgas fields now operated by Petro-Tech. The company is nowPeru’s second largest hydrocarbon producer, with productionof approximately 12,000 b/d of high-quality crude oil and 65million cu ft a day of natural gas rich in valuable liquids. Sev-eral large exploratory projects are under way to expand theseresults, and the company is currently completing the con-struction of a large processing plant to extract LPG from itsgas production..
Petro-Tech Chairman William M. Kallop is very pleasedwith the development of the company. “We’ve drilled 80 wellsto date and any number of exploratory wells,” says Kallop.“We have experienced a positive level of support from all thevarious government entities beginning with Minister Quijan-dria. This is basically a business environmentally friendlyarea. This is a company that is totally integrated from the cor-nerstone, which is the geology department where we have acomplete state-of-the-art computer processing installation,and onwards through drilling and production with all neces-sary support operations. We’ve stayed here through theworst of times and we now look forward to a positive future.”
Deputy Chairman Barbara C. Bruce emphasizes that Petro-Tech is self-supporting in the engineering and technical ar-eas, including its own state-of-the-art seismic vessel. “Ourprofessional staff is completely made up of Peruvians, withone exception,” she says. “We are one of the few companiesthat takes care of our employees in the education and healthof their families.” Cristina Newall de Kallop adds that the
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PLUSPETROL – leader of the consortium formed to develop Peru’slargest gas project, CAMISEA
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Kallop Foundation in Talara treats 2,000 people a month. It isopen to all residents of the town, not just to staff at Petro-Tech’s operations center. “Basic health care and midwifery isavailable for three new soles - less than $1,” she says.
CAMISEA – GAS FOR POWER GENERATIONPeru is expecting a major economic boost with the opening
of its giant $4.5 billion Camisea natural gas project due onstream in August 2004. Camisea is home to one of LatinAmerica’s most important non-associated natural gas re-serves. The Camisea project comprises the exploitation ofthese reserves, the construction and operation of twopipelines – one for natural gas and one for natural gas liquids– and the distribution network for Peruvian consumers andfor export.
In February 2000, the government awarded the license forthe upstream Camisea project to a consortium led by Plus-petrol Peru Corporation, Peru’s largest oil producer. Later thatyear, Pluspetrol joined Transportadora de Gas del Perú (TGP),the consortium specifically created to operate the first part ofthe downstream project, constructing and operating thepipelines to transport the gas and natural gas liquids (NGL)from the wells to the coast. A third company, Gas Natural deLima y Callao (GNLC), was set up to distribute the gas to endusers in the city of Lima.
Norberto M. Benito, General Manager of Pluspetrol PerúCorporation, says: “We are developing the largest gas projectever undertaken in this country – but we’d still like to see an-other three Camiseas in Peru. As yet there is no gas culture inPeru. It’ll take time but there will be development for gas con-sumption in electricity production and industry.”
TGP has faced formidable difficulties in building thepipeline, which crosses three different topographies –mountains, jungle and the coast, but is also committed toworking with the native communities whose hereditarylands are crossed by the link. Alejandro Segret, GeneralManager, TGP, says: “We are making a huge effort, both hu-man and financial, to avoid causing any social or environ-mental damage while we work. Moreover, we are involved inimproving infrastructure and training personnel in these re-gions.”
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BARRICK MISQUICHILCAGold Mine Puts ‘Community and Environment First’
Peru’s third largest gold mine, Alto Chicama, is due to start operationssoon with a planned investment of $300-$350 million by Minera Barrick Mis-quichilca. Barrick demonstrates a total commitment to environmental pro-tection and engagement with the local people in Huaraz. This represents amajor advance for Peruvian mining.
Barrick has mined gold from the Pierina gold mine since 1998, having in-vested $355 million. Planned production in 2003 is 900,000 ounces. Its new Alto Chicama operation, located between Pierina and Yanacochawill also involve crushing and leaching. Igor Gonzales Galindo, Vice Presi-dent and General Manager, Barrick Misquichilca, says that the main differ-ence is the environmental program, with the new mine in a different settingto the other.
“The Environmental Impact Assessment has a heavy concentration on so-cial aspects,” he says. “There is a series of public consultations. Nothing ishidden. You put everything on the table.”
Barrick is committed to international standards of environmental care usingthe same protocols as in Nevada and Australia. The new site is remote andisolated, but Barrick is already working on improving the 120 km accessroad. Any electricity it generates could be accessed by local communities.“We are helping ourselves,” says Mr Gonzales, “but we are also helping thecommunity and improving its infrastructure.”
MINERA BARRICK MISQUICHILCA S.A.PASAJE LOS DELFINES 159, 2do. PisoURB. LAS GARDENIAS, SURCOLIMA 33, PERUTEL: + 51 1 275 0600FAX: + 51 1 275 0249www.barrick.com
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S O U T H E R N P E R U C O P P E R C O R P O R A T I O N
ENVIRONMENT UPGRADEFOR COPPER SMELTER
Southern Peru Copper Corporation2575 E. Camelback Rd,Suite 500, Phoenix,AZ 85016, U.S.A.Phone: (602) 977-6500,Fax: (602) 977-6700NYSE Symbol: PCU
Ave. Caminos del Inca No. 171,Chacarilla del Estanque,
Santiago De Surco,Lima 33, Peru.
Phone: (511) 372-1414,Fax: (511) 372 0238
Lima SE Symbol: PCU
Web Page: www.southernperu.com Email: [email protected]
Southern Peru, Peru's top copper mining company and one ofthe world's 10 largest, is to invest up to $600m to upgrade itssmelter by January 2007. It is majority-owned by the world's No.3copper producer Grupo Mexico and is meeting Peruvian gov-ernment deadlines.
According to president and COO Oscar González Rocha, South-ern Peru produced 366,961 tonnes of fine copper in 2002, sell-ing 8% of output in Peru, with the rest going worldwide. Last yearit made $61m in profit, expected to rise to $90m in 2003. The com-pany is firmly committed to Peru's mining industry, where only10% of the land has been explored. "There is a high degree ofstability- both political and economic. It's very positive for in-vestments," says González Rocha.
Environmental Pledge“ Southern Peru has already spent more than $200m to fulfill anagreement with the government called PAMA - EnvironmentalCompliance and Management Program. It aims to capture morethan 92% of the smelter's sulfurous gas emissions, up from thecurrent 33%. The modernization of the smelter will complete ourenvironmental obligations,” says González Rocha.
Camisea is home to one of LatinAmerica’s most important non-associated natural gas reserves.
TRANSPORT HUB FORLATIN AMERICA
Improving the infrastructure is a keychallenge for Minister of Transport andCommunications, Javier ReáteguiRoselló, for whom regional develop-ment is an important theme. “Peru isworking on developing its highway in-frastructure by building roads that willconnect the coastline and major sea-ports of Peru with its neighbor Brazil tocreate a trans-continental road net-work. Peru will become a transport hub,channelling imports and exports be-tween all of South America and Asia.”
Another prong to this strategy is avia-tion. Not only is the Jorge Chávez Inter-national Airport in Lima undergoing im-provements, but more competition hasentered the market. However, moreflights are still required into and out ofPeru. “The number of flights betweenLima and Madrid has not changedsince 1954,” says Minister Reateguí.“The most important markets are theEuropean Union, the U.S. and the restof South America.”
LanPeru, a new airline launched inPeru in 1999, already has $60 million ayear in revenue, 600 staff and two Air-bus 320s serving seven domestic desti-nations. CEO Sergio Purcell Robinsonis aiming for a 20% to 30% slice of theLima-Madrid market through a leasearrangement with its partner LanChile,which already serves Miami, Los Ange-les, New York and Santiago de Chile.
The company is also a key player inthe tourism industry, which aims overallto triple the number of visitors to threemillion by 2006. “Today, we have 29 in-
ternational landings a day in Peru,”says Mr Purcell. “To reach three million,we need to increase to 86 landings aday. Peru is a great country to discover– not only Cuzco and Machu Pichu, butalso Iquitos and the jungle.”
TELECOM - LIBERALIZATIONBENEFITS USERS
In dismantling state monopolies, Min-ister Reátegui has reduced the redtape and restrictions around invest-ment in telecommunications – a themePeru will no doubt emphasize duringthe ITU Telecom World 2003 conven-tion in Geneva in October. The liberal-ization process that began in 1992 hasaccelerated under the new Govern-ment – the time when it took years tohave a line installed is now a distantmemory. The sale of cell phones inPeru increased to almost three millionin 2002, compared to 1.8 million in De-cember 2001
“We are studying the ways in whichour fixed-line players can share theirinfrastructure to bring benefits to theend users,” says Minister Reátegui . “Inorder to promote the development ofthe telecommunications infrastructurein Peru’s provinces, we have reducedthe state-imposed requirements of in-vestors in this area in order to make in-vestments more feasible.”
AT&T Latin America CEO José A.Gandullia – a highly respected mem-ber of the telecoms community in Peru– praises the innovative governmentstrategy. He says: “They opened thedoors to whoever wanted to come toPeru, whereas elsewhere the authori-ties were more closed and protectedlocal companies. Here, the marketsuddenly saw plenty of players and thatresulted in lower prices and improve-ments in quality.” Consequently, onlythe best companies have been able tosurvive.
Among the most innovative telecomoperators is TIM Peru, which began op-erations in 2001 offering GSM cellphones to the local market. “We nowhave almost 500,000 customers and areamong the top three cell phoneproviders in the country, “ says TIMPeru CEO Sergio Bartoletti, whose par-ent company is Telecom Italia Group.“Market penetration is still low, but isshowing good potential to increase.”
Bartoletti has a positive view of thedomestic economy, describing it asstable and well regulated. “Peru per-formed best out of all South Americancountries last year for growth,” he
says. “For us, stability helps to in-crease competition, which in turn in-creases our network penetration. Theeconomy is very stable, and in termsof regulation in the industry, the samesituation exists in Peru as any othercountry.”
Minister Reátegui is also bullishabout the future, since, as Mr Gandul-lia points out, Peru has one of the low-est telephone densities in the region ataround 8%, with “opportunity to growbecause of this low density”. The mar-ket is sufficient to sustain adequategrowth for all four players, accordingto Mr Bartoletti. Minister Reátegui saysmany very successful long-term in-vestments have been made in trans-port and communications. He adds:“Peru has the highest economicgrowth rate in South America withmonetary stability and a respect forthe rules of free trade. Foreign in-vestors are free to expatriate theirprofits without restrictions and thetreatment of foreign capital is identicalto that of Peruvian capital.”
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Left : Jose A. Gandullia - CEO of AT&TRight : Javier Reategui Rossello - Minister of Transport
and Communication
Market penetrationis still low, but is show-ing good potential toincrease
TIM Peru CEO Sergio Bartoletti
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