Peru forecasts moderate growth in gold output this year

Peru forecasts moderate growth in gold output this year

Lima (Platts)--7Jul2006

With prospects for gold prices their best since 1980, Peru's gold
producers continue to churn out the precious metal at a rapid pace.
Nevertheless, after more than a decade of nearly steady, strong growth in gold
production, the pace of growth this year will be more moderate due mainly to a
slowdown at Latin America's largest gold mine, Minera Yanacocha.

Yanacocha, owned by Denver-based Newmont Mining Corp and locally-owned
Compania de Minas Buenaventura, expects to turn out 2.6-mil oz in 2006, down
from a record 3.3-mil oz last year, said Carlos Santa Cruz, Newmont's vice
president for Latin America. Declining ore grades and difficulty in gaining
access to new land are the main factors in the decline. "We maintain our
forecast for 2006 production," Santa Cruz told Platts, when asked if buoyant
gold prices could alter original forecasts.

Canadian Barrick Gold's Lagunas Norte mine in La Libertad region is
slated to produce 1 million oz this year, Igor Gonzalez, Barrick's vice
president for South America said. Asked the reasons for the now higher
projection -- Lagunas Norte was originally slated to produce 800,000 oz in
each of the first three years of production -- Barrick spokesman Vince Borg
said that the company wants to produce the maximum as early as possible to
start recouping its investment. "We try, like others, to get as much
production as possible at all mines, and there can be some added production --
due to cutoff grades -- with the higher gold prices," Borg said.

Robust production at Lagunas Norte will offset declining output at the
Pierina mine in the Ancash region. Pierina's production estimate for 2006 is
500,000 oz. Gonzalez said the closure of Pierina, which started up in 1998, is
now expected to take place in 2009.

Besides Peru's two largest producers, some mid-sized companies plan to
boost output this year. Buenaventura, which in addition to its 43.65% stake in
Yanacocha, operates its own mines or acts as a partner in others, expects to
raise production this year by around 10%, compared with 2005. Later this year,
it will launch the Paracota mine, with expected 2006 output of 10,000 oz.
Meanwhile, Compania Minera Aruntani is expected to boost production by around
25% this year to 250,000 oz with its new Arasi project. Arasi was acquired in
2005 from Anglo Gold Ashanti, which estimated there were about 500,000 oz of
oxide gold resources in the project.

Another local mid-sized miner, Consorcio Minero Horizonte, expects to
increase production by around 7% this year, thanks to a project to deepen its
underground Parcoy mine in the La Libertad region and the launch of its Untuca
project in Puno, company general manager Felix Navarro said.

With these planned increases at the smaller mines and Lagunas Norte,
which completes a year in operation in August, Peru's outlook for production
is still moderately optimistic. "I estimate that we will see Peru's gold
production rise around 10% this year," an Ministry of Energy and Mines
official told Platts. In the first quarter of the year, Peru's gold output
rose 17.5% to 52.4 mt or 1.88 million oz. Peru churned out 207.8 mt in 2005,
up 20% from a year earlier, boosting Peru into fifth place among the world's
top producers ahead of Russia.

Peru led the region in exploration spending last year with $242 million
invested, according to Canada's Metals Economics Group. Another indicator of
mining activity is the number of applications for exploration rights. While
holding more or less steady in 2005 compared with 2004 -- with 5,052
applications covering 2.25 million hectares -- in the first quarter of this
year petitions jumped to 1,975, 97.3% more than a year earlier.

Despite moderate optimism about prospects for rising gold output this
year, gold production will fall in 2007 due to lower production forecasts at
Yanacocha and a leveling off of output at Barrick's Lagunas Norte. Santa Cruz
said Yanacocha's production will decline to 1.7 million oz, a 35% decline from
2006. "Unfortunately, we are not replenishing the ounces consumed at the rate
we would like," Santa Cruz told reporters at Peru's Seventh International Gold
Symposium in May. He said that Yanacocha, which launched operations in 1993
with output of 330,000 oz, had seen "an exponential curve" of growth over the
past 12 years. "This growth is not sustainable," he said. Yanacocha's reserves
currently stand at around 30 million oz.

--Mary Powers, newsdesk@platts.com

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