CONDUCTING MINING ACTIVITIES IN PERU: GENERAL LEGAL FRAMEWORK AND INVESTOR INCENTIVES

• Jurisdiction: United States

46 Rocky Mt. Min. L. Fdn. J. 99 (2009)
Chapter 3
CONDUCTING MINING ACTIVITIES IN PERU: GENERAL LEGAL FRAMEWORK AND INVESTOR INCENTIVES
Emil Ruppert Yáñez ^*
Partner; Rubio, Leguía, Normand & Asociados
San Isidro, Lima, Peru
Email: eruppert@erubio.com.pe
Phone: (511) 442 4900

Copyright © 2009 by Rocky Mountain Mineral Law Foundation; Emil Ruppert Yáñez

[Page 99]

I. INTRODUCTION

Peru is a country widely recognised for its natural resources. Mineral resources and the mining industry have historically been one of the main sources for economical development in Peru, given the country's ever expanding mineral potential. Therefore, providing a legal framework that promotes local and foreign investment in the mining sector and creating regulations that facilitate participation has been a long time priority in our national agenda.

Our country's longstanding mining tradition dates back to the pre-Inca civilizations that used gold and silver to handcraft jewellery and bronze to fabricate tools. Experts generally attribute the beginning of mining activities to the Chavin culture, dated around 900 and 500 B.C. Nonetheless, it was the Incas who are renowned for exploiting mining fields throughout their territories, which included fields in Peru, Bolivia and parts of Chile. Likewise, the Incas are attributed with the first underground mines.¹ Mining activities however did not acquire the economic relevance they have today until after the Spanish conquest of the Inca civilization, during which large scale industrial mining production rapidly expanded. Mining activities in Peru during the Spanish rule begun approximately in 1537, and were first focused only on gold and silver extractions. During Spanish rule, the first mining cities were developed in Peru and the rest of the Incan Empire.

Since those faraway times, mining activities in Peru have been of the greatest economic relevance, and the industry has advanced and grown hand in hand with the country. Today, Peru can claim to have several of the

[Page 100]

most productive and modern mines in the world, and yet enormous potential for growth remains.

During the fiscal year 2008, Peruvian exports rose to US$ 31,594 million, of which US$ 18,656 million were mining exports, a 7.7% increase with respect to year 2007. Copper production increased 6.52% amounting to 1,267,867 metric tonnes, while gold and zinc production also increased 5.66% and 10.96% with respect to the previous year, amounting to 179.87 metric tonnes and 1,602,597 metric tonnes, respectively.

The aim of this article is to provide readers with a general overview of the legal framework of the Peruvian mining sector. Specifically, this article will review the principal requirements and obligations established for individuals looking to participate in the mining sector by acquiring already existing mining concessions or by requesting the recognition of new mining concessions in Peruvian territory. Likewise, we shall deal with the main environmental and tax considerations applicable to the sector and provide a brief review of the investment incentives granted by the government.

II. LEGAL FRAMEWORK FOR MINING ACTIVITIES

II.1 General Provisions

According to the Peruvian Constitution enacted in 1993, mineral resources are property of the Nation. The Government may establish by law the conditions for granting exploitation rights and titles to individuals and legal entities.

The Peruvian legal system is a civil law system. The Constitution establishes its main principles and under it there is a complex framework of laws and regulations. Also, in addition to national authorities, there are regional and local authorities who have lawmaking attributes as well as political, economic and administrative independence within their territorial jurisdiction. Said attributes, however, are limited to regulating and granting permits, licences, authorizations and rights over services and matters over which they have legal jurisdiction.

The principal provisions regarding the performance and development of mining activities in Peru are consolidated on the Single Revised Text of the General Mining Law approved by Supreme Decree Nº 014-92-EM, hereinafter referred to as the "General Mining Law". In particular, the General Mining Law recognizes the following as mining activities: (i) geological survey, (ii) prospecting, (iii) exploration, (iv)

[Page 101]

exploitation, (v) beneficiation,² (vi) general mining labour,³ (vii) mining transport⁴ and (iii) commercialization.⁵

The General Mining Law does not require any special title for the performance of geological surveys, prospecting and commercialization activities other than compliance with general environmental and property laws. On the other hand, exploration, exploitation, beneficiation, general mining labour and mining transport activities can only be performed by individuals or legal entities that have obtained a concession. Concessions are granted for specific areas and therefore a new concession title must be obtained when the activities are to be carried out in different areas. In that sense parties looking to perform the aforementioned activities must procure the awarding of one or more of the following: (i) exploration and exploitation concession, (ii) beneficiation concession, (iii) general mining labour concession, or (iv) mining transport concession.

Concessions are granted to individuals or legal entities, whether national or foreign, without any distinction or privilege. The only exception is established by the Peruvian Constitution which bans foreigners from acquiring mines, whether individually or as a partner or shareholder of a company, directly or indirectly, within fifty kilometres from the borders under penalty of losing the right acquired illegally. The illegal acquisition is considered to be legally void. Exceptionally, through a Supreme Decree approved by the Council of Ministers obtained prior to the acquisition, this prohibition may be withdrawn provided that the matter is considered to be of public need. Concessions may not be granted in urban areas, unless expressly authorized by law.

The exploration and exploitation concession (hereinafter referred to as the "mining concession" is granted for an indefinite period of time and for a minimum of 100 hectares. The mining concession qualifies as an in rem right to the extent that its holder fulfils the obligations required to maintain the validity thereof and grant its holder the right to explore and exploit mineral resources within a space of indefinite depth, limited by vertical planes corresponding to the sides of a square, rectangle or closed polygon, whose vertices are referred to Universal Transversal Mercator (UTM) coordinates. The mining concession however, does not grant its holder rights over surface land so

[Page 102]

concessionaires are required to acquire said surface rights directly from the State or from private parties in order to carry out their activities.

The separation of surface rights and mining rights has been a source of social unrest for decades and is one of the key aspects investors should consider when investing in mining activities in Peru. Although the General Mining Law provides that mining concessionaires may request the Ministry of Energy and Mines to establish permanent easements over the surface land owned by third parties, very few, if any, concessionaires have attempted to obtain surface rights forcefully, given the social implications. Usually, mining concessionaires reach settlements with private owners or peasant communities by which they agree to pay determined amounts for the land and provide jobs for community members as well as build essential schooling or recreational facilities. Settlements with individual owners and peasant communities vary from location to location and may also depend greatly on the relationship established with the previous concessionaire.

The beneficiation concession grants its holder the right to extract or concentrate the valuable part of an aggregate of rootless minerals and/or to melt, purify or refine metals, by means of a set of physical, chemical and/or physicochemical processes.

The general mining labour concession grants its holder the right to provide ancillary services to two or more mining concessions. Mining concessionaires do not require a general mining labour concession to perform activities within the areas of their own mining concession. This type of concession is thought for companies looking to provide services related to exploration and exploitation activities.

The mining transport concession grants its holder the right to install and operate a non-conventional mass continuous transport system for mineral products between one or various mining centres and a beneficiation plant or port, or a refinery or in one or more sections of these routes. Given the cost of building non-conventional mass continuous transport systems such as mineral ducts, mining transport concessions are usually requested directly by mining concessionaires or by a corporation which has already reached an agreement with a mining concessionaire to render transportation services. There is no legal provision in place which forces a mining concessionaire to procure the services of the mining transport concessionaire if one should be near the area of its concession.

[Page 103]

II. 2 Acquisition of Mining Concessions

Individuals and legal entities may acquire mining concessions on Peruvian territory by one of the following methods: (i) request the competent mining authority to recognise and grant a new mining concession on an area not previously occupied or, an area that being previously occupied is considered free due to non compliance with legal requirements by a previous concessionaire; or, (ii) acquire an already existing mining concession from a third party.

As mentioned before, our Constitution prevents...