Two major iron projects under way in the Arequipa region of Peru

While investors have typically been drawn to Peru by the fact that it is the world’s second-largest copper, silver and zinc producer, as well as the third-largest for tin, the country’s iron ore reserves have recently attracted China’s attention.

Foreign Interest

In the winter of 2017 China imposed restrictions on steel production to combat pollution in Tangshan – the city that makes the most of the building material – in a measure that initially boosted demand for higher grade ore. As a result, iron ore prices have risen by more than 50% since market lows recorded in early 2016. China’s interest in the mineral and its moves to secure supply are evidenced by the plans of Zhongron Xinda Group to invest $2.5bn in the Pampa de Pongo iron ore project in the Arequipa region of Peru. In October 2017 the local subsidiary of Zhongron Xinda, Jinzhao Mining Peru, submitted engineering studies to obtain permission from the Ministry of Energy and Mines (Ministerio de Energía y Minas, MINEM) to begin construction on the project. Building subsequently began in May 2018, two months after MINEM approved the company’s construction licence.

When speaking to local press in October 2017 Luis Ames Tocas, senior planning engineer of Jinzhao Mining Peru, touched on water utilisation – typically a point of contention with communities located near such projects. He explained that, in order to cover the mine’s large demand for water, the firm proposed the construction of a seawater desalination plant, which will employ reverse osmosis. The plant will be located at Marcona Port, with a pipeline running to the mine. In reference to the price of the mineral, Ames believed that the negative trend of recent years would not affect the development of the project. “This moment in time is good. We have found unemployed contractors and enough equipment for labour and energy projects. In addition, we expect the price of iron to recover in 2020,” he said.

The project is being executed in two stages. The first requires $1.3bn and entails the preparation and construction of the mine, while the $1.2bn second phase will see the construction of the desalination facility. Funds will be disbursed over the course of 2018 and 2019, with the third quarter of 2019 being the company’s target for the commencement of product commercialisation. The mine is expected to produce 22.5m tonnes of iron ore per year.

Production Expansion

The ongoing project by Jinzhao Mining Peru is certainly not the only initiative affecting the dynamics of the iron segment. Shougang Hierro Peru, a subsidiary of Chinese firm Shougang Group, is another iron-focused mining firm that is undertaking investments.

Raúl Vera, the general manager of Shougang Hierro Peru, told the audience at a mining conference in September 2017 that $1.5bn will be allocated to nearly double the capacity of the company’s mine in Arequipa and build a seawater desalination plant. He explained that the investment will also include a new tailings processing plant to extract more ore from the rock. “$500m is for the expansion of the plant, which will allow for a 10m-tonne increase of iron ore concentrates in addition to the 11m tonnes of concentrates that we currently produce,” Vera said. “The facility will become operational in the second half of 2018, as will the new seawater desalination plant.” According to Vera, the latter is key to production, since it will help improve the quality of the output. “We currently use seawater but now we are going to use desalinated water, which means that the product will have fewer impurities, thus improving its value and price,” he added.

In April 2018 Shoughang Hierro Peru was recognised in local media as constituting 24.7%, or $40m, of all infrastructure investment in the sector in the first two months of the year. Mining investment of all types totalled $525m over the same period.