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Peru

Mining sector outlook

February 3, 2023

Key points

Importance of the

Peruvian mining

sector

Mining

production

Peruvian mining output has not yet been able to recover its pre-pandemic levels. Social unrest in

the sector and the gradual depletion trend of some units have not aided recovery. However, with

the start of operations of the Quellaveco copper mine, the country's mining output is on track to

exceed its pre-pandemic levels by 2024 if social conflict recedes.

Mining is an economically important sector in Peru, contributing with around 10% of the

country's total output and two-thirds of export value.

Investment in

mining

On the mining investment side, a period of strong expansion came to an end in 2022, precisely

at the conclusion of the construction of Quellaveco (a project that required an investment of

more than USD 5 billion) and other smaller mines. It is likely that, in an environment of

continuous political instability and high social unrest, investment in the sector will decrease over

the next two years, despite the attractive levels of metal prices.

Key points

Opportunities

In addition to the development of copper projects in the portfolio (which, according to

MINEM data, amounts to USD 37 billion), Peru has opportunities in the lithium

industry, another metal that is attractive due to the growing global interest in green

technologies. To exploit lithium, it is necessary to develop a timely regulation that

generates the right incentives in economic, social and environmental terms.

Contents Importance of the Peruvian mining sector Recent trends and short-term outlook Analysis of mining sector competitiveness Social conflict in Peruvian mining Recent trends and outlook for copper prices Opportunities: lithium? Annexes 01 02 03 04 05 06 07

EXPORTS PRIVATE INVESTMENT GDP EMPLOYMENT TAX REVENUE

of employed

labor force

Importance of mining: direct impact on…

of tax revenue

of value of

exports

of private

investment

of total output*

• Includes hydrocarbon output.

VALUE OF PERUVIAN EXPORTS

(% OF TOTAL EXPORTED IN 2022*)

USD 66 billion

SHARE OF EACH METAL IN MINING EXPORTS*

(% OF TOTAL MINING EXPORTS)

Importance of mining: direct impact on exports

• Accumulated last twelve months as of November 2022. Source: BCRP. * Accumulated last twelve months as of November 2022.

COPPER OUTPUT BY REGION IN 2021

(% OF TOTAL COPPER PRODUCED)

Importance of mining: direct impact on GDP

Source: MINEM. Tumbes Piura Lambay eque Cajamarca Amazonas (^) Loreto La Libertad Áncash Lima Ica Junín Pasco Huánuco San Martín Arequipa Puno Cusco Ay acucho Huancavelica Madre de Dios Ucay ali Moquegua Tacna Apurímac

95 %

GDP: SECTORAL SHARE IN 2022*

1/ Fishing and Electricity. Source: BCRP.

• Accumulated last four quarters as of third quarter 2022. Mining includes hydrocarbons.

TAX REVENUES RELATED TO MINING OUTPUT (%

OF TAX REVENUES)

TAX REVENUES RELATED TO MINING OUTPUT

(MILLIONS OF PEN)

Importance of mining: direct impact on tax revenues

Source: SUNAT and BCRP. 1/ In 2021, extraordinary tax revenues were registered from the mining sector, amounting to PEN 6.2 billion (0.7% of GDP), which correspond to the payment of tax debts by four important mining companies and revenues associated with controlling shares held by SUNAT. Source: SUNAT. 2017 2018 2019 2020 2021 2022

1. Tax revenues 3,273 5,411 3,292 2,597 16,739 13, Income tax 2,569 4,552 2,707 2,151 8,538 11, Payments on account 1,727^ 2,585^ 2,036^ 1,573^ 5,220^ 6, Regularization 842 1,967 672 578 3,318 5, IEM (mining tax) 638 770 545 430 1,802 1, Levy 66 88 40 16 199 168 Other 1/^ 6,
2. Non-tax revenues 1,070 1,247 1,470 1,203 3,572 2, Royalties 1,070 1,247 1,470 1,203 3,572 2, Total (1+2) 4,343 6,658 4,762 3,800 20,310 15, % of GDP 0.6 0.9 0.6 0.5 2.3 1.

Recent trends

and short-term outlook

MINING ACTIVITY CYCLE: INVESTMENT AND OUTPUT

(IN REAL TERMS, CUMULATIVE OVER THE LAST FOUR QUARTERS, INDEX 100 = 1Q10)

Pandemic

INVESTMENT BOOM

Quellaveco (USD 5.3 billion) Mina Justa (USD 1.6 billion) Torom ocho expansion (USD 1.3 billion) Marcona expansion (USD 1.1 billion) Quecher Main (USD 300 million)

2022 marked the end of a boom in mining investment, which should soon give

way to a new period of expansion in output

Source: BCRP, MINEM, and BBVA Research.

OUTPUT BOOM INVESTMENT BOOM

Investment projects (USD 19.4 billion) Las Bam bas (USD 10 billion) Cerro Verde (USD 4.6 billion) Torom ocho (USD 3.6 billon) Toquepala expansion (USD 1.2 billion) Investment projects (USD 9.6 billion)

MINING OUTPUT

(% YEAR-ON-YEAR CHG.)

MINING OUTPUT BY METAL

Quellaveco began commercial operations in September 2022 Gold-bearing units w ith an exhaustion trend Ore grades decline Forecast Going forw ard, it is assumed that social conflict w ill recede. Despite this, in the baseline scenario, mining output in 2023 is still slightly below pre- pandemic levels.

Going forward, however, mining output will increase with the start of

operations at Quellaveco and on the assumption of some normalization at

other mines

Source: BCRP, MINEM, and estimates from BBVA Research as of 2023. COPPER (MILLIONS OF MT) GOLD (KG) ZINC (MILLIONS OF MT) +8.9%

- 4.7% - 3.8%

MINING: DIRECT CONTRIBUTION TO GDP GROWTH

(IN PERCENTAGE POINTS OF GDP)

Full year of Quellaveco output Total GDP

(chg. %)

Assumes that the new mining units reach full production capacity in 2024 and that social conflict will diminish

This expansion of mining output will be one of the main drivers of Peruvian

GDP growth in 2023 and 2024

Source: BBVA Research estimates. 2.7% (^) 2.5% 2.4% Downwar d bias Downward bias Upward bias

INVESTMENT IN MINERAL EXPLORATION

(MILLIONS OF USD)

INVESTMENT IN MINERAL EXPLORATION

(NOMINAL USD, CHG. %)

FACTORS DISCOURAGING INVESTMENT IN MINERAL EXPLORATION Social conflict Political instability Regulatory environment Regulations on Environmental Protection for Mineral Exploration Activities (which went into effect in 2019) establishes environmental requirements for conducting exploratory drilling that would be excessive. Prior consultation for exploration. It is difficult for communities in the vicinity of explorations to be adequately informed about exploration projects that have only partial data. In addition, since they are explorations, they may not be able to be expanded in the end.

Investment in mineral exploration, in particular, has been relatively subdued

despite the climate of attractive metal prices

Source: MINEM and estimates from BBVA Research for 2022. 2017 2018 2019 2020 2021 2022 31% - 13% - 18% - 39% 56% 24%

For example, according to the director of the Peruvian

Institute of Mining Engineers:

INVESTMENT IN MINING

(BILLIONS OF USD)

INVESTMENT IN MINING (NOMINAL USD, CHG. %)

San Gabriel, Corani, Magistral

In this context of low investment in exploration, the development of new

mining units (and thus total mining investment) will decrease in the future

New units in construction

INVESTMENT IN MINING (% OF GDP)

Source: MINEM and estimates from BBVA Research as of 2022.