The Mining Law Review: Peru
Historically, Peru has been and is a mining country. It has the largest reserves of silver, lead and molybdenum in Latin America, and it is in second place for reserves of copper, gold, and zinc in Latin America as well. Moreover, it is the second top producer of copper, silver and zinc worldwide and is in first place in production of gold, tin, lead and zinc in Latin America. Therefore, mining activity constitutes one of the main sources of revenue in the country. In 2019, mining represented approximately 10 per cent of the national GDP and approximately 60 per cent of the total value of Peruvian exports.2
These results have been possible thanks to the effectiveness of a regulatory framework, which for approximately 28 years has been mainly oriented to the promotion of investments in the mining sector to make new mining exploration projects viable and to ensure the development and execution of new mining units on a large scale throughout Peruvian territory.
This regulatory framework personified by the General Mining Law, which Consolidated Text was approved by Supreme Decree No. 014-92-EM, was reinforced by new regulations, principles and values established in the Peruvian Political Constitution of 1993, which sets forth a free market economic model, ensures equal treatment of national or foreign investments and unrestricted respect to private property.
However, despite the fact that the legal and political stability that Peru has been enjoying in recent decades has made the country an attractive destination for investment in mining – as reported in the last report of the Fraser Institute 2019, where Peru is positioned in 24th3 out of 76 jurisdictions worldwide – social and environmental conflicts related to extraction activities or the need to recognise the 'social licence' on a regulatory level are still part of a pending agenda.
Presently, because of the situation with the covid-19 pandemic, mining production has suffered a significant decrease, and the government is focused on making the Peruvian legal mining framework more attractive to promote new investments in the mining sector, as a strategy to overcome the current economic crisis.
ii LEGAL FRAMEWORK
The regulatory framework applicable to mining activity is comprised mainly of the following regulations:
- Political Constitution of 1993, Article 66;
- Organic Law for Sustainable Development of Natural Resources, Law No. 26821 (26 June 1997);
- Consolidated Text of the General Mining Law, approved by Supreme Decree No. 014-92-EM (3 June 1992) (General Mining Law) and its regulations;
- General Environmental Law, Law No. 28611 (15 October 2005);
- Law for National Environmental Impact Evaluation System, Law No. 27446 (23 April 2001);
- Law regulating Mine Closure, Law No. 28090 (14 October 2013); and
- Law of the right to prior consultation of indigenous or native peoples, recognised in Convention 169 of the International Labour Organization (ILO), Law No. 29785 (7 September 2011).
The main authorities related to the mining industry are as follows:
- The Geological, Mining and Metallurgical Institute, which is in charge of granting titles of mining concessions to conduct mining activities of exploration and exploitation.
- The Ministry of Energy and Mines, an entity in charge of formulating and evaluating national policies on sustainable development of mining activities. This Ministry, through its General Mining Bureau, is in charge of granting mining concessions to develop mining activities of benefit, transportation and general work.
- The National Service for Environmental Certification for Sustainable Investments (SENACE), an institution in charge of evaluating and approving larger environmental impact assessments of mining projects.
- The Agency for Assessment and Environmental Control (OEFA), a board in charge of promoting compliance with environmental regulations of the mining industry.
- The Supervisory Board for Investment in Energy and Mines (OSINERGMIN), an institution in charge of supervising that mining companies comply with safety regulations of mining infrastructure and operations.
The activities that qualify as mining activities are defined in the General Mining Law and are the following:
- Search: its purpose is to search for signs of mineralisation. To that effect, basic mining works are conducted.
- Prospection: this investigation will identify areas of potential mineralisation, using chemical and physical indications, measurements with instruments and accurate techniques.
- Exploration: search for and evaluation of mineral resources to find a new source of minerals or deposits that can be developed. Furthermore, its purpose is to demonstrate the dimensions, positions, mineral characteristics, reserves and values of mineral deposits.
- Exploitation: extracting minerals in a mineral deposit.
- General work: any mining activity that provides supplementary services, such as ventilation, dewatering, hoisting or extraction to two or more concessions of different concession owners.
- Beneficiation: group of physical, chemical or physical-chemical processes that are conducted to extract or concentrate the valuable parts of an aggregate of minerals or to purify, melt or refine metals. This activity comprises the following phases: mechanical preparation, metallurgical preparation and refining.
- Mining transportation: this comprises systems used by massive and continuous transportation of mining products using non-conventional methods such as conveyor belts or concentrate pipelines.
- Commercialisation: the commercialisation of mineral products is free. However, it is necessary to verify the lawful origin of the mineral.
Search, prospection and commercialisation activities are free and their execution does not require the granting of a mining concession. On the contrary, it is necessary to obtain a mining concession to execute activities such as exploration, exploitation, beneficiation, mining transportation and general work.
iii MINING RIGHTS AND REQUIRED LICENcES AND PERMITS
Renewable and non-renewable natural resources are patrimony of the nation and the Peruvian state has sovereignty over their development. In the case of mineral resources, these are granted to third parties through the system of mining concessions.
The mining concession grants its titleholder the right to explore and exploit metallic and non-metallic mineral resources that are found in a solid area of undefined depth, limited by vertical planes corresponding to the sides of a square, rectangle or closed polygon, whose vertices are referred to Universal Transversal Mercator coordinates under the Official World Geodetic System (WGS84).
A mining concession is granted to extensions of 100 to 1,000 hectares, in grids or set of grids bordering at least on one side, except for the maritime domain, where grids of 100 to 10,000 hectares can be granted.
Regarding obligations derived from granting a mining concession, the holders of mining activities are classified in three levels, which are described in general terms as follows:
- General regime: mining holders that possess more than 2,000 hectares of mining concessions or who have a production or benefit installed capacity exceeding 350 metric tons per day (MT/day); or who have a legal entity among their shareholders.
- Regime of the small mining producer: mining holders who have up to 2,000 hectares of mining concessions or who have a production or benefit installed capacity not exceeding 350 MT/day.
- Regime of the artisanal mining producer: mining holders who have up to 1,000 hectares or who have a production or benefit installed capacity not exceeding 25 MT/day.
The mining concession requires the titleholder to comply with two key obligations: annual payment for the good standing fee and compliance with minimum annual required production or minimum investment.
The annual payment for the good standing fee must be made up to June 30 of each year. The amount to be paid is calculated based on the number of hectares of the mining rights and the qualification of the level to which the concession owner belongs in accordance with the following table:
|Regime||Good standing fee|
|General (medium and large mining producers)||US$3 per year and per hectare|
|Small mining producer||US$1 per year and per hectare|
|Artisanal mining producer||US$0.50 per year and per hectare|
The obligation of minimum annual production consists of the investment for the production of mineral substances. For metallic substances, production may not be lower than the amount equal to a Tax Unit (UIT)4 per year and per hectare granted. For non-metallic substances, the minimum production amount is equal to 10 per cent of the UIT per year and per hectare granted.
For small mining producers, production may not be lower than the amount equal to 10 per cent of the UIT per year and per hectare granted in case of metallic substances; and to 5 per cent of the UIT per year and per hectare in the case of non-metallic mining substances.
For artisanal mining producers, production may not be lower than 5 per cent of the UIT per year and per hectare granted, whatever the substance of the mining concession.
Minimum annual production must be obtained no later than the expiry of year 10, counted from the year after the title of mining concession was granted. If the minimum annual production is not fulfilled under the above-mentioned rules, the mining concession will be subject to the payment of a penalty fee in accordance with the percentages and timelines established in Article 40 of the General Mining Law.
The titleholder of a mining concession will not be obliged to pay a penalty fee to the extent that the titleholder had invested no less than 10 times the amount of the penalty per year and per hectare, which corresponds to pay for the concession or administrative economic unit.
Mining concessions expire when the payment of the Good Standing Fee is not made in good time for two consecutive years, or after the thirtieth year expires, which is counted from the next year in which the title was granted, the mining holder has not been able to prove minimum annual production.
The areas corresponding to expired concessions or claims may not be requested, in whole or in part, by the preceding titleholder or its relatives up to the second degree of blood relationship or kinship, up to two years after being published as indictable.
Finally, as established by the Peruvian Political Constitution, foreigners may not acquire or possess mines within 50 kilometres of the borders, directly or indirectly, individually or as a corporation. Notwithstanding the foregoing, cases of public necessity are excluded from this restriction, which are declared by a supreme decree approved by the Cabinet.
ii Surface and mining rights
The mining concession is different real estate, separate from the plot of land where it is located. As a result of this difference, two rights in rem can coincide in the same area, whose ownership can belong to different people – on one side, the right in rem to extract metallic or non-metallic mineral resources from the subsoil and, on the other side, the right in rem on the surface.
In accordance with the General Mining Law and its regulations for mining procedures, for the execution of mining activities of exploration, exploitation, beneficiation, transportation or general work, it is necessary to have an authorisation of use of the surface plot from the owner of the plot of land.
The surface plot can belong to a private entity, a peasant community or to the Peruvian state itself. In the first case, it will be sufficient to execute a civil contract with the plot's owner, regulating the use of said property for mining purposes. In the second case, the titleholder of the mining concession must observe the provisions of the General Law of Peasant Communities, Law No. 24656. Finally, in the event that the surface plot belongs to the Peruvian state, the mining holder must initiate pertinent administrative proceedings, whether to acquire or use it, or, if it is the case, request the constitution of an easement for the development of investment projects in accordance with the provisions of Law No. 30327.
iii Additional permits and licences
The title of a mining concession does not constitute authorisation to conduct mining activities of exploration or exploitation. It is necessary to obtain a prior series of qualifying titles and administrative acts, including but not limited to, those mentioned below:
- approval of the environmental management instrument;
- certificate of non-existence of archaeological remains;
- authorisation of use of the surface plot from the owner of the plot of land; and
- other licences, permits and authorisations that are required in the effective legislation in accordance with the nature and location of the activities to be conducted.
Once the title of the mining concession of exploration and exploitation is issued and the remaining qualifying titles are obtained, the titleholder of a mining concession may ask the General Mining Bureau of the Ministry of Energy and Mines for the following authorisations to start operations, which are evidence of it being a holder of legal mining activity.
|Exploration||Authorisation for start or restart of activities of mining exploration|
|Exploitation||Authorisation for start or restart of activities of mining exploitation|
|Beneficiation||Title of mining concession of benefit and authorisation of operation|
|Transportation||Title of mining concession of mining transportation and authorisation of operation|
|General work||Title of mining concession of general work and authorisation of operation|
iv Closure and remediation of mining projects
The last phase of a mining project is mine closure. During this period, the holder of the mining activity must execute the mine closure plan, an environmental management instrument previously approved by the competent environmental authority, which includes the technical specifications of how the progressive recovery of the project site will be conducted, direct and indirect costs to be incurred, a post-closure monitoring plan and measures to ensure that the area affected by the mining project may recover similar conditions to those found before the mining activity.
Once the closure phase is completed, the post-closure phase must be executed, which includes adopting measures for environmental treatment or monitoring to ensure that closure activities prolong over time. This phase cannot be developed in a period shorter than five years after the closure plan is concluded.
The cost of the execution of closure and post-closure activities will be paid by the holder of the mining activity. To ensure that it will comply with its obligations, a financial guarantee must be created to pay for the costs of the remediation measures of the closure and post-closure periods.
iv ENVIRONMENTAL AND SOCIAL CONSIDERATIONS
i Environmental, health and safety regulations
Environmental management during the phase of mining exploration is regulated by the Environmental Regulations for Activities of Mining Exploration, approved by Supreme Decree No. 019-2020-EM. Environmental management for activities of exploitation, beneficiation, general work, transportation and mining storage is regulated by similar regulations approved by Supreme Decree No. 040-2014-EM. The purpose of both regulations is that the mining activities are conducted protecting the constitutional right to enjoy a balanced and appropriate environment for the development of life, considering free private initiative and sustainable development of natural resources.
Regarding occupational safety and health, the Occupational Safety and Health Law, Law No. 29783, is the general legal provision, whose purpose is to promote a culture of prevention of occupational risks in the country. At a sector level, the occupational safety and health for mining activities are regulated by the Regulations for Occupational Safety and Health in Mining, approved by Supreme Decree No. 024-2016-EM, a legal provision whose purpose is to prevent incidents, dangerous incidents, occupational diseases and occupational accidents in mining activities.
Compliance with the obligations contained in the above-mentioned regulations is controlled by the Ministry of Labour and Employment Promotion, the Ministry of Energy and Mines, the National Superintendency of Labour Control and OSINERGMIN.
ii Environmental compliance
The execution of public or private investment projects that comprise extraction activities that are prone to causing significant negative environmental impacts and will conducted inside national territory, including areas of maritime domain, must have an environmental certification, which is granted once the evaluation procedure of the environmental management instrument is completed by the competent environmental authority.
Environmental management instruments or environmental studies are classified in the following categories:
- Category I: Environmental Impact Statement, an environmental management instrument applicable to mining projects that could generate mild negative environmental impacts;
- Category II: Semi-Detailed Environmental Impact Assessment, a study applicable to mining projects that could generate moderate negative environmental impacts; and
- Category III: Detailed Environmental Impact Assessment, a study applicable to mining projects that could generate highly negative environmental impacts.
For the evaluation and approval of environmental management instruments of categories I and II, the competent environmental authority is the Ministry of Energy and Mines. The competent authority for the evaluation and approval of environmental impact assessments of category III is the SENACE.
In the case of small-scale miners and artisanal miners, the environmental management instruments applicable to their mining projects are evaluated and approved by regional governments in whose jurisdictions the projects are located.
Once the environmental certification is granted, the mining holder is obliged to comply with obligations and technical specifications established therein. To that effect, OEFA is the competent entity to issue regulations for the environmental control and verification of compliance with controllable environmental obligations of the holders of the mining industry that belong to the general regime.
Based on their jurisdiction, the competent regional governments are in charge of the environmental control of mining activities conducted by small-scale miners and artisanal miners.
iii Third-party rights
In September 2011, the Law of the Right to Prior Consultation of Indigenous or Native Peoples was published, which is recognised in Convention 169 of the ILO, Law No. 29785. Said legal provision recognises the right of indigenous or native peoples to be consulted previously about legislative or administrative measures that affect directly their collective rights, physical existence, cultural identity, life quality or development.
Prior consultation is implemented by the state and its purpose is to reach an agreement between the state and indigenous or native peoples about a legislative or administrative measure that could affect the exercise of their collective rights directly.
In mining, administrative measures that are subject to prior consultation are authorisations for the commencement of activities of exploration, exploitation, granting or amendment of concessions of beneficiation and granting of concessions of mining transportation or general work.
iv Additional considerations
Because of the covid-19 pandemic, the government of Peru declared a state of emergency on 15 March 2020. Since then, economic activities were drastically limited to those deemed as essential. In the mining sector, only critical operations were allowed to continue during March, April and up to mid-May. Mining activities got back to normal progressively according to three stages set depending the strata mentioned above: (1) first stage in mid-May for some large-scale operations; (2) second stage in June for the rest of the large–medium operations and for medium-scale mining units; and (3) third stage in July for small, artisanal and informal mining activities. Reactivation in the mining industry was subject to strict sanitation protocols to prevent the spread of covid-19 among the mining workers and rural communities around the mining units.
Another consideration is that, although the mining regulations do not regulate a procedure to obtain a social licence, this term is still used widely in the mining industry, which refers to the acceptance of the development of a mining investment project by a local community or stakeholders.
The social licence is not equal to the prior consultation process, the citizenship participation process or the environmental certification; it is not an authorisation, permit or licence established within the Peruvian legal system either. However, mining companies have to work on it to ensure a successful project.
V OPERATIONS, PROCESSING AND SALE OF MINERALS
i Processing and operation
The regulations on safety of mining infrastructure and the development of basic safety conditions in the operations are contained in the above-mentioned Regulations for Occupational Safety and Health in Mining, approved by Supreme Decree No. 024-2016-EM.
Currently, holders of the mining activity have the right to contract specialist companies for the execution of works of exploration, development, exploitation and mining beneficiation. These companies must be registered in the Register of Specialised Companies of Mining Contractors, which is administered by the General Mining Bureau of the Ministry of Energy and Mines.
ii Sale, import and export of extracted or processed minerals
The commercialisation of mining products is free, internal and external, not being necessary to grant a mining concession or an additional qualifying title. However, the acquirer of mining products is obliged to verify their lawful origin.
iii Foreign investment
The main source of direct foreign investment in the country comes from the mining industry. To promote foreign investment, effective mining laws establish three regimes of tax stability for the holders of mining activities according to the following conditions:
The holders of mining activities that initiate or are carrying out operations higher than 350 MT/day and up to 5,000 MT/day or those that make an investment equal to US$20 million will enjoy tax stability that will be guaranteed to them through a contract executed with the state for a term of 10 years, counted as from the fiscal year in which the execution of the investment is proven.
The holders of mining activities with an initial capacity of no less than 5,000 MT/day or of expansions destined to reach a capacity of no less than 5,000 MT/day, which present investment programmes of no less than US$1 billion for the commencement of any of the mining activities; or, when dealing with investments in existing mining companies, a minimum investment programme of US$250,000 will be required; and exceptionally, those that invest at least US$250 million in state-owned companies subject to a privatisation programme will enjoy tax stability, which will be guaranteed to them through a contract executed with the state for a term of 12 years, counted from the fiscal year in which the execution of the investment or the expansion is proven.
Holders of mining activities with an initial capacity of no less than 15,000 MT/day or of expansions conducted to reach a capacity of no less than 20,000 MT/day, and those that initiate or carry out mining activities that present investment programmes of no less than US$500 million will enjoy guaranteed tax stability through a contract executed with the state for a term of 15 years counted from the fiscal year in which the execution of the investment is proven. Exceptionally, people who invest no less than the equivalent in domestic currency of US$500 million will also have the right to this contract.
Mining activity is subject to the same taxes applicable to any other economic activity in Peru and other additional charges inherent to the industry.
The mining royalty is what titleholders of mining concessions and assignees pay to the state for the exploitation of metallic and non-metallic mineral resources in favour of regional governments, local governments and national universities of the jurisdiction where the extraction activity is conducted.
The royalty to be paid is determined quarterly. A rate established by the Law is applied on the quarterly operating profit of the subjects of mining activity, based on the operating margin of the trimester.
For the holders of mining activities that belong to the general regime, the amount to be paid as mining royalty will be the greater amount that results from comparing the result of applying the effective rate on the quarterly operating profit and 1 per cent of the revenue generated for the sales made in the calendar trimester.
The companies that engage in mining activities are charged with the income tax of third category. In this way, for domiciled subjects, the income tax will be determined applying a rate of 29.5 per cent on the net income.
Special mining tax
The titleholders of mining concessions and assignees that engage in mining activities of exploitation of metallic mineral resources are obliged to pay a special tax that levies the operating profit from the sales of metallic mineral resources as they are, as well as profit from self-consumption and unjustified removal of the property.
This tax is determined quarterly. A rate established by the law is applied on the quarterly operating profit of the subjects of mining activity, based on the operating margin of the trimester.
Special mining contribution
It is an originating public resource from the exploitation of non-renewable natural resources that is applicable to subjects of the mining activity based on the execution of agreements with the state in respect of projects, for which the effectiveness of contracts of guarantees and measures to promote investment is kept.
The tax obligation is the result of applying a rate effective in accordance with the provisions of Exhibit II of Law No. 29790 on the quarterly operating profit of the subjects of mining activity, which is established based on the operating margin. It takes place every three months at the closing of each trimester.
Legislative Decree No. 892 sets forth that employees subject to the employment regime of private activity have the right to participate in the profits of the companies that engage in activities that generate third-category income.
Therefore, mining companies are obliged to distribute 8 per cent of the taxable annual income, before taxes, in favour of their employees, with a maximum limit per employee equal to 18 monthly salaries.
vi Other fees
Contribution for regulation
OSINERGMIN and OEFA's duties of supervision and control are funded with the contribution for regulation established in Law No. 27332.
The regulation contribution for 2020 relating to the OSINERGMIN, charged to holders of activities under the general regime, amounts to 0.14 per cent of their monthly invoicing, after deducting VAT and the Tax of Municipal Promotion.
The contribution for regulation that corresponds to the OEFA, charged to the holders of activities of the general regime, for 2020, amounts to 0.10 per cent of their monthly invoicing, after deducting VAT and the Tax of Municipal Promotion.
VII OUTLOOK AND TRENDS
In 2012, the Peruvian government started an interdiction process into mining activities executed without qualifying titles and administrative acts or conducted in forbidden areas on Peruvian territory. Simultaneously, it started a macro process of mining formalisation aimed at small-scale miners and artisanal miners, so that within two years they will comply with the required legal requirements for commencement of mining exploitation activities or the title of concession of benefit and authorisation of operation, respectively.
The two-year term expired in April 2014. From that date, the formalisation process has been constantly postponed until a new milestone was established for December 2021, according to Law No. 31007.
To complete the mining formalisation, the miners in process of formalisation must fulfil the following requirements:
- obtain the approval of the environmental management instrument for the Formalisation of Small-Scale Mining and Artisanal Mining Activities or of the Corrective Environmental Management Instrument;
- prove ownership or obtain the authorisation of use of the surface plot;
- prove ownership, obtain an assignment contract or a contract of exploitation in respect of the mining concession, where the informal mining activity is being executed; and
- submit a sworn statement indicating that there are no archaeological remains in the area where the informal mining activity is being developed.
The main obstacles to formalisation are still the execution of contracts of mining concession or contracts of exploitation with the titleholders of mining concessions and obtaining the authorisation of use of the surface plot from the property owner.
New legislative amendments
At the time of writing, the Peruvian government had announced that it is working towards a new General Mining Law that guarantees that mining activities are executed in harmony with the environment and under the principles of sustainable development. Additionally, there is a need to develop a specific regulatory framework that allows the exploitation of radioactive minerals and lithium, and some fixes to the regime of contracts of tax stability and investment contracts in mining exploration.
1 Daniel Palomino is a partner and Tony Bustamante is an associate at Estudio Muñiz, Olaya, Melendez, Castro, Ono & Herrera Abogados (Munizlaw).
2 Mining Annual Report 2019, Ministry of Energy and Mines, www.minem.gob.pe/minem/archivos/file/Mineria/PUBLICACIONES/ANUARIOS/2019/AM2019.pdf.
3 Fraser Survey 2019, Fraser Institute.
4 The value of a Tax Unit in 2020 amounts to 4,300 Peruvian soles.