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English LX

Compiled by Lic. Carob Romero V.

UNIT 2 - Week 5

LAWS AND REGULATIONS

Mining in Peru: overview

by Alberto Delgado and David Barocco, Miranda & Amado Abogados.

This article highlights some of the key legal issues commonly associated with the

exploration and extraction of mineral resources in Peru. These issues form part of any due
diligence exercise conducted by an investor proposing to acquire mining assets or an interest
in a mining project.

This article looks at mining investment, the legal system applicable to mining. various

mining laws, mineral ownership in, different types of mining tenements available, rights -

of miners to access land against landowners' rights, imposition of royalties and other taxes by
the various levels of aovernment, and rules and restrictions concerning foreign investment in
Peru.

To compare answers across multiple jurisdictions, visit the energy and natural resources
Mining Country O&A tool.

This article is part of the global guide to energy and natural resources. For a full list of content
visit www.praclicallaw.conVenerqy-quide.

Overview

1. What are the recent developments in the exploration and extraction of mineral resources in
your jurisdiction?

Peru is well recognised for having one of the largest mineral reserves in the world, which
underscores its potential for the development of large scale mining projects. The main metallic
minerals that can be found in Peru are, among others:

• Gold.

• Silver.

• Copper.

• Iron ore.

Zinc.

• Uranium.

• Tin.
The mining industry is the most important sector in the Peruvian economy, contributing
around 14, of GDP in 2017. The Ministry of Energy and Mines has estimated that the current
backlog of investment in exploration and exploitation projects is about USD58 billion.

As part of its strategy to promote investment in the mining sector, at the beginning of 2018
the Private Investment Promotion Agency (Pro(nversion) transferred to a private company
(winner of a public tender) the Michiquillay mining project, a copper deposit with ore
resources currently estimated to be 1,159 million tonnes. In addition, Prolnversion has
launched public lenders for the privatisation of two additional exploration projects (Jalaoca
and Colca).

Currently, the rnain mining p88(8818 )8881 8i888) in Peru are the:

• Las Bambas project. This is held by MMG, which has declared reserves of 7.2 million
tonnes of copper and 12.6 million tonnes of other mineral resources.

• Toromocho project. This is held by China., which estimates an annual production of:

1 million tonnes of coPPer concentrate;

c; 10,000 tonnes of molybdenum oxide; and

c; 4 million ounces of silver.

• Cerro Verde project. This is held by Freeport-McMoRan Inc and others, which has
concentrator facilities to process 360,000tonnes per day and an annual production of
approximately 600 rnillion pounds of copper and 15 million pounds of molybdenum.
Regulatory structure

Regulation

2. What is the regulatory frarnework for the exploration and extraction of mineral resources,

Regulatory framework

The state is the original owner of all natural resources (including minerals) located within the
territory, and is entitled to grant rights in favour of national and foreign individuals or
companies in accordance with the regulations applicable to each sector (Peruvian
Consti(ution).

Mining activities are principally regulated by the Single Organised Text of the General

Mining Law (Genera) Mining Law). The law provides that rnining activities of

reconnaissance and prospecting are free throughout the national territory, while exPlOration,
exploitation, general works, processing and mineral transportation activities can only be
performed if a mining nght (concession) is previously granlsd by the Peruvian state.

The mining industry in Peru is divided into four segments according to the respective capacity
for production and processing nt minerals'

• Large scale. Mining holders with a production and processing capacity greater than
5,000 tonnes per day

• Medium scale. Mini, holders with a production and processing capacity of between
350 and 5,000 TPD.
• Small scale. Mining holders with a production and processing capacitY 0, between 25
and 350 TPD

• Artisanal scale. Mining holders with a production and processing capacity up to 25


TPD.

The central government. through its cornpetent entities, is responsible for supervising the
activities performed by rnedium and large-scale miners, while the respective regional
government is responsible for the supervision of small and artisanal scale rnining activities (see
below. The reoulatory authorities).

Regulatory authorities

The mining industry is regulated by various authorities, each focusing on administrative.


environmental, health and safety, among other matters. The main agencies of the Peruvian
state which regulate mining activities are the:

Mining and Metallurgical Geological Institute (INGEMMET). INGEMMET is responsible for:

o granting title to mining concessions;

o the administration of the mining cadastre: and

o the collection of the licence fees and penalty payments.

Ministry of Energy and Mines (MINEM). MINEM is the Ministry focused on the general
regulation of mining activities a. on setting public policies. Additionally, it is the entity
responsible for:

o granting processing. general works and transporiation concessions. and

• most of the material permits for large and medium scale mining, including the
authorisation to start exploration and exploitation activities.

• Organisation of Supervision and Environmental Assessment (OEFA). OEFA is the entity


responsible for supervising a. imposing sanctions to titleholders of mining activities, in the
event of any failure to comply with the applicable environmental regulation.

Ownership

3. How are rights to the mineral resources held, and who holds those rights,

The Mining and Metallurgical Geological Institute grants concessions t private parties that
complete a simple application process. Mineral rights do not confer title over the surface land
and can only be exercised if an agreement with the landowner is reached, allowing the
investor to perform exploration and/or mining activities.

Authorisation

4. What are the key features of the leases, licences or concessions which are issued
under the regulatory regime? Can these rights be leased by the right-holder?

Under the General lvlining Law, concessions for mining activities are divided into four classes:
• Mining concessions. These grant holders the right to explore a. exploit (mine for or
produce) mineral resources within the area covered by the concession whose boundaries are
determined through Universal Transverse Mercator (UTM) co¬ordinates.

• Processing concessions. These grant holders the right to process. smelt or refine
minerals.

• General works concessions. These grant holders the right to carry out ancillary
services, such as ventilation. sewerage, hoisting or underground access, at one or more Min,
concessions.

• Mining transportation concessions. These grant holders the right to operate a


transportation system to transpon mineral products between one or more mining units and a
processing plant or refinery using:

0 conveyor belts;

o pipelines; and/or

o track cables.

Mining concessions are classified into metallic and non-metallic, and are granted in areas

consisting of a minimum of 100 hectares and a maximum of 1,000 hectares (concessions

located at sea can have an area of up to 10,000 hectares). Concessions can be

transferred, assigned or mortgaged. Any such transfer. assignment or mortgage must be


recorded at the Public Registry for to be enforceable against the Peruvian state and any third
parties. There is no as to the number of concessions that can be held by a single mining
company.

In addition to the mining rights and access to the surface land. holders must obtain various
permits in order to perform their operations, including the:

• Authorisation for water use.

• Authorisation to start activities.

• Certificate of mining operation.

• Certificate of inexistence of archaeological remains.

• Authorisation for the discharge of treated wastewater.

• Global authorisation for the use of explosives and related supplies.

• Licence for the handling of explosives.

• Operating licence for the storage of explosives.

Fees

From the year in which the mining application is made (and as a requirement for such
request), the mining holder must pay a licence to (Article 39, General Mining Law). This
payment must be made annually and is calculated per hectare of the relevant mining
concession, being:
• USD3 for mediurn and large scale.

• USD1 for small scale.

• USD0.50 for &tisane' mining.

Additionally, in the case of failure to comply with the minimum production or minimum
investment obligations (see below), the mining holder must pay a penalty. Mining concessions
oblige their holders to invest in the exploration and exploitation (production) of minerals.
Therefore, mining holders are obligeci to obtain, no later than by the expiration of the tenth
year calculated from the following year in which the title was granted (year 2018 for the
mining concessions granted before 2009), an annual production per hectare (minim(m
production) of

• For the medium and large-scale regime, no less than one tax It or UIT (for 2018,
USD1,300 approximately) in the case of metallic substances and 10, of the UIT in the case of
non-rnetallic substances.

• For the small-scale regime, no less than 10% of the UIT in the case of metallic
substances and 5, of the UIT in the case of non-metallic mining.

• For the artisanal-scale regime. no less than 5./0 UIT for any mineral.

In the event that minimum production is not reached by said tenth year, a penalty must be
imposed per year and per hectare for the equivalent to:

• As of the eleventh year, 2% of the minimum prociuction.

• As of the fifteenth year, 5% of the minimum production.

• As of the twentieth year, 10% of the minimum production.

If the mining holder invests no less than ten times the amount of the corresponding penalty for
the relevant mining concession (minimum investment), the application of the penalty is
avoided.

Lease/licence/concession term

Mining concessions are granteci without a term or time limit, and can be held indefinitely,
provided that the obligations thereunder are discharged by the mining titleholder (for
example, failure to pay the licence fee and penalty, if applicable, for hvo consecutive years
implies the termination of the mining concession). However, if the minimum production is not
reached y the end of 30 years (counted since the following year in which the title concession
was granted), the termination of the mining concession must be declared by the Mining and
Metallurgical Geological Institute.

Liability

According to the General Environmental Law, any person or cornpany who causes damage to
the environment or to the quality of life. health or assets of one or more individuals. by means
of the use or exploitation of an asset or by the execution of an activity, must assume all the
costs related to prevention and mitigation measures (cost internalisation principle).

Restrictions
Any person or company, whether national or foreign (subsidiary or branch). may request a
mining application or directly acquire a mining concession from a third party that is already a
titleholder. As an exception to the general rule, foreign nationals or companies owned by
foreign nationals must obtain a special authorisation to be able to acquire mining concessions
(or other assets) within 50 kilometres of the borders (see Question

There are certain pre-determined natural protected areas within the Peruvian territory.

The regulation of said areas establishes several categories, allowing ciifferent degrees

of activities within the relevant area and the associated buffer zone, as more specifically

determined by the internal master plan for each area. Therefore, mining activities are
nohibited or materially restricted in some of these areas.

5. How are such leases, licences or concessions awarded?

Mining concessions are granted by the Mining and Metallurgical Geological Institute, while
processing, general works and mining transport concessions are granted by Ministry of Energy
and Mines.

The administrative procedure to request a mining concession takes around four months, which
can be extended for a few additional months if there are objections from the owners or
possessors of surface areas (despite the fact they do not have a legal right to object, given the
title over land is separate from the title to a concession) or if there is an overlap with protected
areas.

Environment

6. What are the main ongoing requirements for environmental protection?

The regulation on environmental protection on mining activities is provided principally by the


Regulations for the Protection of the Environment applicable to the development of Mining
Exploration Activities (Supreme Decree 042-2017-EM) and Environmental Regulations for
Mining and Metallurgic Activities (Supreme Decree 040-2014-EM). These regulations establish
the standards for the protection of the environment that have to be accomplished in the
corresponding environmental and social manaaement instrument (ESIA) for exploration and
exploitation, including the environmental obligation and commitments of the mining holders.
Currently, the ESIAs for medium and large scale projects are approved by the General Bureau
of Environmental Mining Affairs of the Ministry of Energy and Mines (MINEM) in the case of
exploration and by the National Service of Environmental Certification for Sustainable
Investments (SENACE) in the case of production; while the ESIA for small and artisanal scale
activities are approved by the regional governments.

Social and community aspects have a special chapter under the ESIA. The process for the
elaboration of an ESIA includes a public or citizen participation programme which has to be
undertaken by the sponsor of the project. Considering the importance of the "social licence'
for the development of a mining project, the Peruvian state has implemented (by means of
Legislative Decree 1334 and Supreme Decree 023-2018) the Fund for Social Advance (FAS) that
will be used as a prior step towards avoiding or mitigating the risk of social opposition to a
project. By using the FAS, the general public will receive benefits from the presence of a
mining project in their neighbourhood before
the actual investment is carried out. This government programme is still in its early stages and
we are yet to see the degree of success of its implementation.

Regarding mine closure. Law 28090 states that holders of mining rights must submit a Mine
Closure Plan before MINEM. which contains the activities to be carried out (before. during and
after the closure of operations) to rehabilitate the area used or disturbed by mining activity.
The closure activities must be guaranteed by financial assurances, such as:

• Surety bonds.

• Performance bonds.

• Trusts.

This is supported by certain regulations that are principally focussed on compliance with
environmental standards and the treatment of the abandoned mine sites.

Peru is a signatory of the International Labour Organisation Convention 169 in connection with
prior consultation of indigenous peoples. Under the Law 29785 and its regulations (Supreme
Decree 001-2012-MC), in order for a mining project to obtain the authorisation to start
activities in an area that has the presence of indigenous peoples (a subject that should be
consulted with, and determined by. the Ministry of Culture), the government must perform a
prior consultation process to provide adequate information and collect the views of said
indigenous peoples whose collective rights may be impacted by the mining project. The
process does not provide a veto right to the indigenous peoples, but they may challenge the
result of the consultation.

Health and safety

7. What are the main ongoing requirements for compliance with health and safety
regulations?

In 2016, the new Mining Regulation on Occupational Health and Safety (Supreme Decree 024-
2016-EM) was enacted, which aims to promote the prevention of occupational hazards (for
example, accidents at work and occupational diseases) in the mining industry. The main duties
of the mining holders include:

• The formulation of an Annual Occupational Health and Safety Programme and an


Annual Training Programme.

The obligation to provide protective equipment to all workers.

Keeping updated records of incidents.

The entities responsible for the supervision of health and safety in mining activities are the:

• General Mining Bureau of the Ministry of Energy and Mines.

• National Superintendence of Labour Inspection (SUNAFIL).

• Supervisory Agency for Energy and Mining Investment (OSINERGMIN).

Foreign ownership

8. Are there any restrictions concerning the foreign investment in and ownership of
companies engaged in the exploration and extraction of mineral resources in your jurisdiction?
Under the Peruvian Constitution. foreign companies and individuals (including Peruvian-
domiciled companies ultimately owned by foreign investors) must not hold mines, lands,
forests, water resources, fuels, energy sources, concessions over property located within 50
kilometres of any of Peru's national borders, by any direct or indirect title, unless by reason of
public necessity declared by Supreme Decree.

Processing and sale of mineral resources

9. Are there any restrictions or limitations on the processing of extracted mineral


resources?

It is necessary to obtain a processing concession (granted by the Ministry of Energy and Mines
(MINEM)), for the development of mineral beneficiation activities. Important requirements to
request this permit are to have an approved environmental and social management
instrument (ESIA) and to accredit sufficient surface rights over the land where the processing
plant will be located.

In order for contractors, that is, third parties other than mining holders. to carry out
exploration, development, exploitation and beneficiation mining activities in Peru, they must
be registered before the Registry of Mining Contractors administered by the MINEM.

There are no restrictions or limitation on the import of equipment and machinery for the
mining industry. However, there is a specific regulation on the import of chemical inputs and
supervised products and explosives.

10. Are there any restrictions or limitations on the processing of extracted mineral
resources?

It is not required to hold a concession, or any other mining right, for the commercialisation of
mineral products, including import and export.

Ministerial Resolution 249-2012-MEM-DM creates the Special Register of Gold Traders and
Processors as part of the public policies for the formalisation of illegal miners. The regulation
provides that persons or companies that are focussed on the purchase or refining of gold must
be registered and must also keep a detailed record of their suppliers and the destination of the
gold.

Tax

11. What payments, such as taxes or royalties, are payable by interest holders to the
government,

The main taxes and royalties that are specific to mining activities (that is, other than corporate
income tax and other taxes of general application) are the:

• Mining royalty, based on the operating profit margin.

• Special mining charge, voluntarily agreed in projects that are subject to a stability
agreement and based on operating profits.

• Special mining tax, based on the operating profit derived exclusively from the sale of
metallic resources.

These payments are deductible as expenses for income tax purposes.


Additionally, mining holders rnust pay a contribution in favour of the Organisation of
Supervision and Environmental Assessment (OEFA) intended to finance environmental
inspections and supervision in general. Mining companies must also comply with the general
taxes applicable to businesses in Peru (for example, income tax and value added tax, among
others).

Foreign investors can obtain investment guarantees through legal stability agreements under
the general regime (Legislative Decree 662 and Legislative Decree 757), as well as through
mining guarantee agreements that rnay be executed pursuant to the General Mining Law.

Under the general regime, foreign investors are granted the following guarantees:

• Stability of the income tax regime.

• Free disposal of foreign currency.

• Free remittance of profits, dividends, capital and other income.

• Favourable exchange rate in the market.

Non-discrimination of treatment between foreign and domestic investors.

Mining guarantee agreements grant tax, exchange and administrative stability for a specific
mining project in favour of the investor (Article 72, General Mining Law). Under

this specific regime for mining, the income tax rate (currently levied at a 29.5% rate) is
stabilised at the rate applicable at the time of the execution of the agreement plus 2% (Law
27343).

12. Does the government derive any other economic benefits from the exploration and
extraction of the mineral resources,

The Canon Law (Law 27506) provides the benefit and participation of regional and 'cal
governments in the revenues obtained by the state from taxes and other revenues paid by
companies engaged in extractive industries, including mining. The exclusive purpose of the
Canon Law is to finance infrastructure projects for the benefit of local communities.

For mining, the central government delivers 50% of the total revenue obtained from income
tax to the competent regional and local governments in the areas where the rnining activities
are pertorrned.

Also. with regards to the redistribution of benefits obtained by the central government.
pursuant to the Mining Royalty Law (Law 28258), the revenues obtained from the royalty
payments are distributed to the authorities of the districts where the mines are located,
provincial municipalities, regional governrnents and public universities of the respective region
pursuant to applicable regulations

13. What taxes and duties apply on the import and export of mineral resources,

Export of mineral products is nol subject to any tax or duty. while the importation of mineral
resources is subject to the general taxes and standards applicable on importation of products.

Reform

14. Are there any plans for changes to the legal and regulatory frarnework?
Currently, all proposals of reform uncier evaluation are focussed on the promotion of, and
incentives for, the mining industr,

On 18 April 2018, the Framework Law on Climate Change (FLCC) was enacted. According to the
FLCC, authorities in charge of the evaluation of the ESIA must evaluate the risks to the
environment and the climate changes that may be caused by the investment projects
(including any mining project). The regulations on the FLCC containing the guidelines 191 08
climate analysis on mining project are pending approval. The Ministry of Environmenthas a
term of 120 working days (from the date when the law was enacted) for the approval of the
FLCC regulations.

The regulatory authorities

Mining and Metallurgical Geological Institute (Institut° GeolOgico, Mine) y MetalOrgico)


(INGEMMET)

Main activities

• Administrating geological inforrnation and the mining cadastre.

• Evaluating mining applications and granting mining concessions.

• Terminating mining applications and concessions.

• Constituting, by request or ex officio. mining legal societies.

• Elaborating the national mining map.

W www.inoemmet.qab.pe

Ministry of Energy and Mines (Ministerio de Energia y Minas) (MINEM) Main activities

• Development and direction of the national mining policy.

• Promoting investments in the mining sector.

• Exercising administrative authority in the energy and mini, sector.

• Elaborati, and evaluating the milling and energetic resources inventory.

• Granting concessions for the development of mining-energetic activities.

• Concluding contracts for the development of mining-energetic activities. W


www.minem.00b.pe

General Mining Bureau a the MINEM (Direccion General de Mineria del MINEM) (DGM)

Main activities

• Proposing technical and legal regulations for the mini, sector promoting technificalion
and sustainable development.

• Granting processing concessions, general works concessions and mining transportation


concessions and approving their modifications.

• Distributing the licence fee a. the penalties.

• Authorising the start or restart of mining metallurgical activities.


• Granting mining operation certificates.

• Approving and executing contracts of exploration investment for the refund of the
general sales tax and the municipal promotion tax.

• Giving an opinion on the acquisition of mining properties and investments by foreign


nationals in the border zones.

W www.minem.cob.pe/ detalle.php,idSector=1&iciTitular=160,SidMenu=sub149&idCat eo=16

General Bureau of Environmental Mining Affairs of the MINEM (Direccion General de Asuntos
Arnbientales Mineros del MINEM) (DGAAM)

Main activities

• Forrnulating policies for environmental protection in the mining sector

• Elaborating a. approving normative projects related to conservation and protection of


the environment.

• Ruling on the evaluation of the environmental impacts related to the sector.

• Evaluating a. approving environmental studies.

• Promoting areas of mining environmental conservation and amending areas with


mining environmental liabilities.

• Approving social and environmental technical guides.

W www.minem.qob.pe/ deta//e php,Sector=4&idTitular=66&idMenu=sub578,idCatea =66

Environmental Supervision and Enforcement Agency (Organism° de Eyaluacien y Fiscalizacion


Ambiental) (OEFA)

Main activities

• Monitoring and controlling environmental regulations.

• Supervising and verifying compliance with environmental regulations.

• Verifying the performance of national, regional and local environmental regulators.

• Supervising and sanctioning failures to comply with environmental obligations.

• Implementing the environmental inspection regime.

W www.oefa.00b.pe

National Service for Environmental Certification of Sustainable Investments (Servicio National


de Certificacion Ambiental para Inyersiones Sostenibles) (SENACE)

Main activities

• Approving detailed environmental impact assessments classified as category III.

• Managing the national registry of environmental consultants and the administrative

register of environmental certifications frorn national or multi-regional scope.


• Implementing the New Proceeding for the Approval of the Environmental Certification
(Ventanilla Unica As Certification Ambiental) in the proceedings for approving detailed
environmental impact assessments classified as Category Ill.

• Evaluating and approving the Global Environmental Cerlification, including its updates,
modifications and extensions.

W www.senace.qob.pe

Contributor profiles Alberto Delgado, Partner

Miranda Amado Abogados

+511 610 4746

+511 610 4748

adeloadoPma firma. corn.. wwwmafirma.com.pe

Professional qualifications. Peru, Lawyer, 1997

Areas of practice. Mining; project development; natural resources; environmental.

Recent transactions

• Advising in the financing for the acquisition and project finance of the Las Bambas
copper mine. The amount of the deal was USD7 billion, considered the largest financing in
Peruvian history.

• Advising Rio Tinto in the planning and management of surface land access for the La
Granja project. The estimated total investment of the project is USD3 billion.

• Advising Mitsubishi Materials Corporation in the investment of USD37.67 million in a


Peruvian subsidiary of AQM Copper, holder of the Zafranal project located in the south of
Peru.

Languages. Spanish, English

Professional associations/memberships. Lima Bar Association; Prospectors and Developers


Association of Canada (PDAC).

Publications

Pasos hacia . modemizaciOn de la gest., ambiental en el pais; Desde Adentro magazine (2009).

Co-authored with Luis Marcelo de Bernardis: New General Environmental Law Comes Into
Force; International Law Office 07007(177 (2005).

El Estado y los conflictos en la mineria; Desde Adentro magazine (2004)

Una regla tiara para Is inscription de contr... rnineros; Themis magazine. (2004). ,COmo hacer
mas eficiente el mercado . concesiones mineras?; ADVOCATUS magazine (2002).

A Comparative Study on Security of Tenure under Argentine, Chilean and Peruvian Mining
Legislation, Centre for Energy, Petroleum and Mineral Law & Policy, University of Dundee
(LL.M.) (1999).
• Co-authored with Athena Bendez, Consul. previa: ,problema de todos?; Rum.) Minero
magazine (2013).

• ,Se deben entregar acciones en las mineras a .s comunidades? El sabelotodo la clase


ahora parte y repartee Rumbo Minero magazine (2016).

David Baracco, Associate Miranda & Amado Abogados

+511 610 4689

+511 610 4748

dbaracco(.mafirma.com.oe www.mafirma.com.pe

Professional qualifications. Peru, Lawyer. 2014

Areas of practice. Mining; project development; natural resources.

Recent transactions

• Advising Minera Las Barnbas SA in certain regulatory aspects related to the


transportation of copper concentrates from the Las Bambas mine.

• Advising Rio Tinto in the management of surface land access to the La Granja project.
The estimated total investment of the project is USD3 billion.

• Advising Great Panther Silver Limited in the acquisition of the Peruvian subsidiary of
Nyrstar International BV. holder of the Concancha Mine Complex.

Languages. Spanish, English

Professional associations/memberships. Lima Bar Association. Publications

• Mineria y propiedad superficial: Lecciones que deben ser aprendidas; Rumbo Minero
magazine (2016).

• Proyecto del Nuevo Reglement° Ambiental de pars las Actividades de ExpioraciOn


Minero: en la Biisqueda de Dinamismo: Miranda & Amado Abogados bloc (2017).

• Michiquillay: Impulso Urgente; Comercio newspaper (2018).

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