Power in the Andes: Uranium Mining in Peru

The Andean country’s national government is working on regulating transport and exports for uranium mining in Peru as the industry prepares to reap an energy-focused windfall in the country.

From the days of the Inca Empire when what would become modern day Peru was known to legend as a land of golden cities, mining has been a key part of the country’s economy, culture and identity. This remains true today as mining makes up 10 percent of Peru’s gross domestic product and mined resources make up 60 percent of the country’s exports. Peru is one of the world’s top producers of precious metals, copper, zinc, lead and more. If recent developments and legislation are any indication, a new and highly profitable mineral resource will soon be added to that list.

Uranium demand

An ongoing shift in the global energy sector away from fossil fuels is driving massive demand for uranium needed to fuel nuclear reactors around the world, and Peru just so happens to be sitting on untapped uranium resources. The country is now in the midst of putting through the legislation necessary to allow the legal transportation and export of uranium in a process that will make Peru one the next few South American countries to ever produce the valuable radioactive mineral. The nation is a founding member of the International Atomic Energy Agency — a requirement for any uranium producing or exporting nation — and has an independent nuclear agency, IPEN. Once production begins, Peru could become a large part of a non-carbon energy future.

The past decade has been tough for an already troubled global nuclear sector, but nuclear power and uranium’s fortunes are changing fast. As of December 2018, uranium values were at 29.00 per pound in the spot market. However, most uranium product trades through long-term contracts with utilities, with Cameco reporting a spot vs. real contract price of greater than $6 per pound while UR Energy is reporting greater than $8 per pound.

The global nuclear sector is going to grow fast in the coming years, however, particularly as the new nuclear energy reactors come online to feed the rapidly expanding Asian energy market. There are 71 nuclear reactors currently under construction in 12 countries, with China leading the way for nuclear adoption. According to FocusEconomics, uranium values will hit $33.50 per pound in late 2019. The shutdowns of several uranium producers in 2017 and 2018 have contributed to supply side concerns that will contribute to uranium’s rising value. As utilities inventories are reduced, BMO is forecasting a long-term incentive price of $55 per pound by 2023.

Peru’s resource industry is set to benefit greatly from that uranium demand. To date, no uranium has been exported from the South American nation, but Plateau Energy Metals‘ (TSXV:PLU) Macusani uranium project has a 2015 resource estimate of 51.9 M lbs U3O8 measured and indicated as well as 72.1 M lbs U3O8 Inferred. The 2016 preliminary economic assessment shows an after-tax net present value for the proposed uranium mine at US$603 million. Located in the Peruvian highland region of Puno, Plateau’s property, as of now, contains all of the known uranium deposits in Peru. Additionally, the company recently discovered that within its 930-square-kilometer land package, there is also the Falchani Lithium deposit that hosts high-grade lithium with a large enough footprint to place it in the world’s top five non-brine lithium projects. The company hopes to have its uranium project rapidly advanced to feasibility study and permitting over the next two to three years, with production on the horizon thereafter and its lithium project advancing to preliminary economic assessment by mid-2019.

Legal landscape for uranium mining in Peru

A future in uranium production has big implications for Peru’s economy, so it’s unsurprising that the Peruvian government has been highly supportive of the project. The country has long been supportive of mining activity in general. In 2017, the government’s Mines Ministry adopted legislation for a process to formulate previously informal mining operations.

Specifically for uranium mining, the Peruvian government has not wasted time ensuring that the proper framework be in place for uranium transport and exportation to support Plateau’s ongoing development. Upon discovering its uranium deposit, Plateau recognized that the country’s current lack of regulations for the transport and export of radioactive materials could represent a major legal barrier for the company’s plans. Fortunately, according to Peruvian President Martin Vizcarra, the country’s energy and mines minister was already working on developing the necessary regulations. Vizcarra told Reuters in August 2018 that the legislation would be passed within six months.

Peru’s mining industry attracts the world

There’s plenty of reason for mining companies to be interested in working in Peru. The country’s economy and political climate offers a level of stability above many of the jurisdiction’s South American neighbors. As the country’s largest industry, Peru’s mining sector is worth an estimated $59.5 billion. The country has enjoyed this political and social stability and steadily growing economy since the early 1990s and this is largely due to the government’s industry-friendly policy welcoming foreign investment.

The Peruvian government’s support for mining investment extends to its tax policy. Peru’s laws make no distinction between foreign and domestic companies, so a Canadian mining company is taxed the same as a Peruvian one and that national treatment is extended to foreign investors as well. Companies operating in Peru enjoy comparatively little taxation with a corporate tax rate of 29.5 percent.

A current focus for Peru’s mining sector is the development of the country’s infrastructure. A few large-scale infrastructure projects are being planned for the coming years, largely focused on transportation, and these projects will create opportunity for mining companies. They include a proposed railway for transporting mineral concentrates from Peru’s southern mining belt. In a recent interview, the Peruvian Minister of Energy & Mines, Francisco Ísmodes, declared that the country has identified a mining investment portfolio of US$58 billion. He also suggested that the government would be setting aside at least US$21 billion to invest in mining projects over the next three years.

Peru’s combination of economic stability and mining opportunity is paying off greatly. As of October 2018, the country has posted eight straight months of economic growth and saw mining investment jump by 6.3 percent from 2017 to August 2018 for a total of $395 million.

Takeaway

Just as demand for uranium is set to heat up, Peru is positioned to become a major global producer. The country has done well to establish itself as an attractive destination for foreign mining investment and the timely discovery and development of the country’s uranium resources could have the ability to ensure great benefits for mining companies and the nation of Peru alike.

This INNspired article is sponsored by Plateau Energy Metals (TSXV:PLU). This article was written according to INN editorial standards to educate investors.