Peru, like many of its neighbors in South America, is rich in natural mineral deposits. Unfortunately, nearly all of the headlines regarding the country's gold mining industry over the last several years has centered around illegal mining operations in the Amazon rainforest.
The legitimate mineral extraction industry has been forced to root out these makeshift projects one by one. It's unlikely that these practices can be completely wiped out.
Nonetheless, Peru remains one of the world's leading producers of copper, silver, and gold.
Driving Peru's Economy
Compared to the rest of the Peruvian economy, the mineral extraction sector has been by far the "star player." Political strife and social unrest have become a common feature of the national picture, and the mining industry is no exception.
Yet, this is still the best-performing sector in Peru and will likely remain so for years to come. Its newly online Las Bambas copper mine ranks as the third-largest in the world. In addition to ranking among the world leaders in gold and copper production, Peru is also a perennial close second to Mexico in annual silver production.
Over the course of 2015, private consumption and investment lagged in the fifth-largest economy in South America. This would normally pull down the country's overall growth significantly. In the case of Peru, an accelerating mining sector actually helped offset these losses in capital investment and consumer spending. As a result, BMI Research showed that real GDP growth in Peru is expected to rise to 3.2%, solidly above previous projections of 2.8%.
Future Prospects for the Mining Sector
According to the BMI Research report, “Peru will see economic activity accelerate in 2016 and remain robust in the coming years. Its extractive sector remains among the region's most positive growth stories and government expenditures will drive investments that support a gradual diversification of the economy.”
Based on this analysis, BMI projects that the country will even see somewhere between 3.6% to 3.8% growth in 2016, with the mining sector carrying the brunt of the load. This makes it one of the true success stories in Latin America, a region plagued by weak economic activity due to the overall downtrend for commodities prices over the past several years. This has had a wide-reaching impact on related political and social issues in addition to the economic troubles.
Strong investment in long-term projects prior to the commodities slump is helping propel Peruvian mining while many of its counterparts have suffered. Barrick Gold (ABX) announced it would pour an additional $640 million into its Lagunas Norte project, which is still one of the largest gold mines in the world.
It would seem that conditions are set to improve further following upcoming presidential elections in April. In the likely event that a center-right government comes into power, infrastructure investment should improve. Meanwhile, exports should remain competitive due to a fairly weak currency exchange rate for the Peruvian sol.
The opinions and forecasts herein are provided solely for informational purposes, and should not be used or construed as an offer, solicitation, or recommendation to buy or sell any product.