Peruvian mineral production will likely edge down for the fourth straight year in 2012 as reserves are depleted, demand slows abroad and social conflicts threaten to delay fresh projects, analysts say.
The European debt crisis has also hit global metal prices -even safe-haven gold - hurting exports and the profits of mining firms at a time when environmental protests are threatening future output in the world's No 2 copper and No 6 gold producer.
Overall mining production will likely fall around 4% in 2012 and could suffer more in coming years if new mines are not developed, said Jose Miguel Morales, head of the gold committee at the Society of Mining, Oil and Energy in Peru.
Gold reserves readily available for production have fallen as much as 20% in the last decade to 2.7-million tons, though proven copper reserves have risen 30% to 90.8-million tons, according to official data.
Despite signs of lower output, Peru has only mined about 10% to 20% percent of its estimated mineral resources and exploration firms say big new discoveries are possible. The government says the mining sector, an important component of gross domestic product, will likely grow 3.3% this year.
Barrick Gold, the world's top gold producer, said recently it expects its Peru gold output to be lower this year than in 2011. Reserves at its Pierina mine, which is expected to cease production in 2014, are running out.
Protests from villagers and native communities who fear mining will cause pollution or provide them with little economic benefit have threatened $53-billion in planned investments for new projects just as existing mines, like Pierina, face retirement.
"Volume is declining, we expect by 3% or 4% this year," said Morales, of the mining society. "It's not much, but if new mines don't start producing we are going to have bigger problems."
Peru's human rights office has documented around 250 social conflicts in the Andean country, mostly over natural resource extraction, and President Ollanta Humala pledged to solve them through dialogue when he took office a year ago.
But one such conflict has halted construction on Newmont Mining's $4.8-billion Conga gold and copper project, which Humala needs to fund antipoverty initiatives. Protesters have challenged his government's mediation ability.
Mining firms operating in Peru also worry the Antapaccay satellite deposit project, vital to increasing the life of Xstrata Copper's Tintaya mine beyond 2013, could be delayed due to recent protests in Cusco.
DOUBLE TROUBLE
Amid protests, declining reserves and falling prices, mining exports, 60% of Peru's total sales abroad, fell 23% in April to $327-million. Gold production fell 9.6% that month to 11.45-million grams, its lowest in ten years.
In April Peru posted its first trade deficit since January 2009, and the government is considering contingency measures to protect exporters.
The fall in prices and output is also hurting mining firms, analysts said. First-quarter profits for the 18 firms that list on the Lima stock exchange fell 21% to $1.1-billion this year from a year earlier.
"I think for the remainder of the year the question will be one not of volume, but of price," said Lali Merino, an analyst at local brokerage Inteligo.
Global copper prices fell 2.32% between January and May, and gold, which often rises in times of economic turmoil, fell 0.6%. Copper and gold account for 70% of Peru's mineral exports, equaling $27.36-billion in 2011.
"There has been a fall in production in previous years, but prices were rising, now we have a double effect: prices are falling and production is falling," said Carlos Herrera Descalzi, a former minister of energy and mines.
Edited by: Reuters
