Industry Trend Analysis - Project Pipeline To Support Economic Growth - FEB 2016


BMI View : Peru ' s copper sector will remain on track for strong production growth, driven by new projects coming online , such as MMG ' s Las Bambas mine. The copper sector will continue to be a major boon to the country ' s mining industry value and overall economic growth over the coming years .

Peru's strong copper production growth, supported by a major project pipeline, will be the mining sector's key driver of industry value and contribute significantly to the country's overall economic growth over the coming years. We forecast Peru's copper output to jump from 1.7mn tonnes (mnt) in 2016 to 2.1mnt by 2020, averaging 6.5% annual growth. Over the first 10 months of 2015, Peru's copper production increased 18.3% y-o-y, while Peru's 2015 copper exports to China increased 30.8% y-o-y.

Major projects will continue to boost growth over our forecast period to 2020. On January 19, Chinese firm MMG's USD7.4bn Las Bambas copper mine shipped its first cargo. In the firm's latest quarterly report, MMG stated that it expects Las Bambas to produce between 250 and 300 thousand tonnes (kt) of copper in 2016, reaching commercial production by Q216. According to Deputy Mines Minister Guillermo Shinno, mining investments in Peru will reach approximately USD6.5bn in 2016, following an estimated USD7.5bn in 2015.

Outward Copper Upward Bound
Peru - Total & China-Bound Unwrought Copper Exports (mnt)
Source: Bloomberg

Booming Copper Sector To Provide Much-Needed Tailwinds

Peru's impressive mining project pipeline, dominated by copper, will provide key growth opportunities in a weak price environment. We forecast the country's mining industry value to increase from USD19.6bn in 2016 to USD24.8bn by 2020, with copper accounting for nearly 50% of the total industry value. Further, the Peruvian government estimates that mining will contribute 1.0% of GDP growth in 2016, indicating a significant driver of growth, as we expect the country's GDP to increase by 3.8%. We forecast Peru's real GDP to climb from USD194bn in 2016 to USD229bn by 2020. Moreover, Peru's mining project pipeline will provide much-needed growth opportunities for mining equipment firms facing declining profits in most markets. For instance, Ferreycorp, a Peru-based distributor for Caterpillar Inc, saw its net income in Peru increase by 68.0% y-o-y over the first three quarters of 2015, due to high demand from mining firms such as MMG and Freeport McMoRan.

Peru To Remain Key Market
Ferreycorp - Net Income By Geography, Select Countries (USDmn)
Source: Bloomberg
Peru - Key Copper Projects
Company Mine Capex (USD) Production Capacity Timeline
n/a = not available. Source: Company announcements, BMI
MMG Limited Las Bambas 7.4bn 400ktpa Q216
Chinalco Toromocho 1.3bn Expansion Q216
Freeport-McMoRan Cerro Verde 4.6bn 272ktpa 2016
MMG Limited (60%) Jiangxi Copper (40%) Galeno 2.5bn 144ktpa 2016 (on hold)
Southern Copper Tia Maria 1.4bn 120ktpa H117
Southern Copper Toquepala 1.2bn Increase annual capacity by 100kt Q417
AQM Copper Zafranal 1.5bn 103ktpa 2017
Zijin Mining Rio Blanco 1.5bn 200ktpa 2019
First Quantum Minerals Haquira n/a 230ktpa 2019
Junefield Resources Don Javier 600mn Resources: 430mnt n/a