In this chapter

• General framework
• Environmental and Community Considerations
• Taxes
• Listings

General Framework

Basic information

The mining industry is one of the most important economic activities in Peru. As an average of the last three years, mining has represented almost 10 percent of Gross Domestic Product and 60 percent of the country’s exports.

During the past decade, the mining industry has had an important role in the Peruvian economy through the creation of direct and indirect jobs and the growth of economic activity (including through tax revenues), enabling necessary and real social inclusion and the promotion of general welfare.

The Peruvian government has focused on improving the reputation of the mining industry as an activity that makes sustainable use of resources and the environment, including the preservation of water resources, the promotion of agriculture and good relations with stakeholders.

Regulatory framework

Peru´s mining regime is based on a civil law regime and relies on four legal instruments:

(i) The Political Constitution of the Republic of Peru
(ii) The General Mining Law
(iii) The Law for the Promotion of Investments in the Mining Sector
(iv) The Organic Law for the Sustainable Use of Natural Resources

The legal system in Peru is subordinated to the Constitution of Peru. In mining matters, article 66 of the Constitution establishes that natural resources, renewable and non-renewable, are patrimony of the Nation. The State is sovereign in their use. The conditions for their use and their concession to private individuals are established in the Organic Law. The concession grants its holder a real right, subject to said legal norm.

The Constitution also recognizes the function of the concession granted by the state to the private party to be able to exploit the resources, but does not expressly regulate this legal situation. Therefore, the General Mining Law regulates the entire mining procedure, from the time the concession is requested until it no longer exists.

Ownership of Mineral resources

According to the Political Constitution of the Republic of Peru, the Peruvian State is the absolute, exclusive and permanent owner of all natural resources located in the territory, this includes minerals.

The Peruvian State manages the exploitation of minerals through the mining concession system, granting mining rights to private parties. These mining rights constitute an exclusive right to carry out activities such as exploration, use and exploitation of mineral resources.

According to the General Mining Law, mining concessions constitute a different right from the surface land located over it. As a consequence, the owner of the surface land may be different from the titleholder of the mining concession. According to the Peruvian Civil Code, the right over the surface land comprises the right over the soil, over ground and subsoil (but not the natural resources contained in it). The owners of the surface land is not authorized to perform mining activities unless they have a valid mining concession granted by the Geologic Mining and Metal Institute (Instituto Geológico, Minero y Metalúrgico or INGEMMET), the government entity that runs the mineral concessions cadaster providing complete public information regarding mining concessions.

Titleholders of mining concessions can freely acquire surface lands located over the mining concessions. In the case of surface lands owned by native communities, it will be necessary to obtain approval from a qualified majority of the community.

For the purchase of surface land owned by the government, it is necessary to follow an acquisition process with the Peruvian State through the Superintendency of National Properties.

Foreign Investment

According to the Peruvian Constitution, foreigners have the same rights as Peruvians. The only exception is in the case of foreigners intending to acquire mining rights or properties located within 50 kilometers of the Peruvian border – in which case, they will not be able to acquire property or mining rights unless they previously receive express authorization through a Supreme Decree.

Role of the State

The Peruvian State’s role in mining is of a regulator and promotor of the activity subject to compliance with general mining and environmental law.

In a subsidiary way, according to the Peruvian Constitution, the participation of the Peruvian State in mining activities as a stakeholder is limited to a public interest that must be previously approved by a special law.

The Mines Ministry jointly with INGEMMET are the main Peruvian authorities that regulate mining activity in Peru.

Nature of Mineral Rights The mining concession regime has a constitutional basis but is also regulated by other laws, mainly the General Mining Law, which establishes four different types of mining rights as follows:

• a mining concession grants rights to execute mining activities of exploration and exploitation – it has the nature of an immovable right;
• a beneficiation concession grants the right to perform physical, chemical and physical-chemical processes to concentrate minerals or to purify, smelt or refine metals;
• a general labor concession grants the right to perform auxiliary mining services or activities such as ventilation, drainage, lifting or extraction to mining activities; and
• a mineral transportation concession grants the right to provide massive and continuous transport of mineral products by unconventional methods.

According to the General Mining Law a mining concession is irrevocable as long as the titleholder fulfills the legal obligations required to maintain it in force. However, the titleholder must comply with each obligation in order to maintain the mining concession.

Granting of Mineral

Rights Individuals or entities are entitled to apply for mining rights from INGEMMET and in certain specific cases through the Mines Ministry (beneficiation, labor and mineral transportation concessions).

Validity Fee:

Article 39 of the General Mining Law provides that the titleholder of a mining concession is required to pay a validity fee of US$ 3.00 per year and per hectare granted. The amount of such fee can be reduced depending on the nature of the titleholders (small, artisanal).

Validity fees must be paid annually to maintain mining concessions in force. The mining concessions will be declared extinguished as a consequence of a failure by a titleholder to pay the validity fee for two years (consecutive or not).

Minimum Annual Production or Investment:

The General Mining Law obliges mining concessions holders to move into production. Under the general regime, production needs to be reached by the titleholder of a mining concession by the first semester of the eleventh year from the date the mining concession was granted. The minimum mining production is equivalent to one (1) Tax Unit (approximately US$ 1,320.00 dollars) per hectare per year.

If the holder of a mining concession cannot reach the minimum annual production by the first semester of the eleventh year from the date which the concession was granted, the holder will be required to pay a penalty equivalent to 2 percent of the applicable minimum production per year per hectare until the fifteenth year. If the holder cannot reach the minimum annual production by the first semester of the sixteenth year from the date which the concession was granted, the holder will be required to pay a penalty equivalent to 5 percent of the applicable minimum production per year per hectare until the twentieth year. If the holder cannot reach the minimum annual production by the first semester of the twentieth year from the date which the concession was granted, the holder will be required to pay a penalty equivalent to 10 percent of the applicable minimum production per year per hectare until the thirtieth year. Finally, if the holder cannot reach the minimum annual production during this period, the mining concession will automatically expire.

Notwithstanding the aforementioned, a titleholder could be exempted from paying a penalty if it proves to the mining authority a minimum investment of no less than ten (10) times the amount of the penalty per year and per hectare that needed to be paid for the mining concession.

Security of Tenure

The General Mining Law provides that mining concessions can be extinguished only by expiration (as a consequence of a failure by a titleholder to pay the mining validity fee and/or penalties for two years (consecutive or not), abandonment (as a consequence of the breach of the mining procedural rules applicable to a mining claim), nullity (in case a mining concession was claimed by an individual or entity that have restrictions according to the mining law), resignation (in case the titleholder requests the extinction of the mining right), cancellation (in case mining concession overlaps with priority rights, or when the right is unassailable), and a long period of non-production (30 years since the tittle was granted).

Titleholders has the exclusive right to perform exploration and/or exploitation activities on their mining concessions. Titleholders are able to assign such concessions in favor of a third party in order that they can perform such activities in the mining concessions. Finally, titleholders are able to sell or transfer such mining concessions in favor of third parties.

Please consider that surface lands are not part of the mining concession, and it is necessary to obtain a permit from the owner of such surface land to start activities. However, if such permit is resisted by the surface landowner, it is possible to request a mining easement before the Peruvian State.

Environmental and Community Considerations

Environmental Protection and Licensing

The main environmental laws are the following:

• Law No. 28611 (General Environmental Law);
• Law No. 27446 (Law of the National System of Environmental Impact Assessment);
• Supreme Decree No. 042-2017-EM (Environmental Regulation for Mining Exploration Activities); and
• Supreme Decree No. 040-2014-EM (Regulation of Protection and Environmental Management for the Activities of Exploitation, Benefit, General Labor, Transport and Mining Storage).

The principle regulatory bodies that administer these laws are the Ministry of Energy and Mines (Ministerio de Energías y Minas or MINEM), the Assessment and Environmental Control Agency (Organismo de Evaluación y Fiscalización Ambiental, or OEFA), the National Environmental Certification and regional governments as an environmental controlling entity.

To initiate mining activity, the titleholder must have in force the corresponding environmental certification, as well as the licenses, authorizations and permits required under relevant legislation.

The environmental certification is classified into the following categories:

• An Environmental Impact Statement (Declaración de Impacto Ambiental or DIA) includes the projects where execution will not generate a significant negative impact on the environment. This environmental certification is obtained automatically;
• A semi-detailed Environmental Impact Study (Estudio de Impacto Ambiental Semi Detallado or EIAsd) includes the projects where execution can cause a moderate environmental impact for which negative effects can be eliminated or minimized through the adoption of simple applicable measures. In can take can take from six to eight months to obtain this environmental certification; and
• A detailed Environmental Impact Study (Estudio de Imacto Ambiental Detallado or EIAd), which includes the projects where characteristics, scope and location could produce a significant environment impact requiring a deep analysis of those impacts. To obtain this environmental certification could take up to 12 months.

In order to perform mining activities a titleholder must obtain all the permits, license and authorizations required by the law. The principal permits and authorizations required are the following:

• Authorization to use or acquire the surface land where the mining concession is located.
• Environmental Certification according to the size of the mining project.
• Water License, Permission or Authorization to use the water.
• Authorization to initiate mining activities granted by the MINEM.

Environmentally Protected Areas

Investors interested in undertaking mining activities in Peru must respect protected areas as nominated by the Peruvian government. The treatment of protected areas is governed by special regulations depending on their nature.

Communities

The main community engagement laws are rural community law, civil participation law and prior consultation law (based on the Indigenous and Tribal Peoples Convention (ILO Convention 169).

The principal regulatory entities are the Ministry of Energy and Mines and the Ministry of Culture.

Consultation and Indigenous Rights and Native Title

The protection of rights of indigenous and tribal people does not affect the acquisition or exercise of mining rights. However, the Peruvian government has adopted the Indigenous and Tribal Peoples Convention (ILO Convention 169) by which title holders shall consult indigenous communities domiciled in areas located in projects prior to start activities. The government controls the process of prior consultation. The principal regulatory entities are the MINEM and the Ministry of Culture.

For such purpose, it is necessary to first determine, by a characterization process, whether the stakeholders are indigenous or tribal people, and if the answer is affirmative the prior consult process is mandatory before starting mining activities.

Taxes

Duties, Royalties and Taxes

The mining industry is subject to the general tax system . Peruvian companies have to pay the following taxes (established by the Central Government): (i) Cor¬porate Income Tax (CIT), at the rate of 29.5 percent on net income; (ii) VAT, at the rate of 18 percent on the value of taxable transactions ; (iii) Excise Tax, depending on the kind of product acquired, different rates may apply; (iv) Customs duties: 0 percent, 4 percent, 6 percent, and 11 percent, depending on the kind of good imported; (v) Temporary Tax on Net Assets: 0.4 percent on net assets, for the excess of S/1,000,000 (approximately, US$400,000); and, (vi) Financial Transactions Tax: 0.005 percent on debit and credit transactions made through banks in Peru.

In addition, Local Governments collect the following taxes, among others: (i) Real Estate Tax: between 0.2 percent and 1 percent of the property value; (ii) Real Estate Transfer Tax: 3 percent of the purchase price or the self-appraisal value (the higher one) after deducting 10 Tax Units (approximately, US$12,000.00); and, (iii) Local (municipal) contributions and fees in exchange for the provision of certain public services to taxpayers. The holders of mining activities are taxed with local taxes applicable only in urban areas

There are also specific taxes on the mining industry:

• Special Mining Tax: Between 2 percent and 8.4 percent, depending on the operating margin of profits obtained quarterly, generated from selling mineral resources. The amount effectively paid is a deductible expense for Income Tax purposes.
• Supplemental Retirement Mining Fund: 0.5 percent on the company’s taxable income.
• Regulatory Contribution to Supervisory Agency of Investments in Mining and Energy (OSINERGMIN): 0.14 percent for fiscal years 2020 to 2022. These rates apply on monthly sales related to mining activities, before VAT.
• Regulatory Contribution to the Environmental Evaluation and Enforcement Agency (OEFA): 0.10 percent for fiscal years 2020 to 2022, applicable on monthly sales related to mining activities, before VAT.
• Surcharges related to energy (electricity) supply (calculated by OSINERGMIN).

Mining companies must also pay a legal mining royalty (LMR). The LMR is the economic consideration that those who carry out mining activities pay the State for the exploitation of metallic and non-metallic mineral resources. It is calculated based on the quarterly operating profit margin generated by the sale of mineral resources applying a rate that fluctuates between 1 percent and 12 percent. The amount effectively paid is a deduction for Income Tax purposes.

Incentives

There are different tax benefits and incentives to consider. For example, companies in general (not just mining companies) can apply to several VAT refund regimes. However, Law 27623 regulates a special regime for the mining sector. Mining companies that are in exploration phase can request a refund of the VAT applied on their purchases. The companies must enter into an Exploration Investment Contract with the Peruvian State, for an amount of not less than US$500,000.

Furthermore, the General Mining Law regulates the possibility of signing tax-stability agreements with the Peruvian State. Through these agreements, the Peruvian State guarantees, among other topics, tax stability for 10 years or more. To access these agreements, among other conditions, an investment of at least USD 20 million is required.

Transfer Tax and Capital Gains

The transfer of property of a mining project is subject to the general Income Tax regime. Therefore, the seller must pay Income Tax over the profit made at the applicable rate.
With respect to the transfer of mining concessions, specifically, VAT does not apply.

The holders of mining properties are taxed by local taxes applicable in urban areas. But the Real Estate Transfer Tax is not applied on the sale of properties which are in mining concessions located in rural areas.

Listings

Listing requirements of mining or mineral companies in your local stock exchange or in international stock exchanges

The principal sources of financing for mining activities are the private banking system and the public stock market, Lima Stock Exchange (Bolsa de Valores de Lima or BVL).

During the past few years, the BVL has been very active in attracting and listing junior mining companies. Several Peruvian investors have participated in the negotiation and creation of shares and have actively participated in different private or public placements made by these companies.

All companies applying for listing under the Junior segment of the Lima Stock Exchange must present all documents using an authorized sponsor.

According to market regulations all the documentation to be provided to the BVL for listing purposes must be translated into Spanish (simple translation).

The information that must be filed includes:

• Description of the company (legal name, date of incorporation, country of origin, domicile, main products or focus, shareholders equity in original currency and US$; detail of issued warrants and options, including: i) number of warrants and options outstanding, ii) expiration date, iii) strike prices, iv) names of the beneficiaries of the securities in the case of members of the board, management, consultants or related parties.
• Information regarding the securities (face value - if applicable, rights conferred to the holder, ISIN code – International Securities Identification Number, Ticker, Exchanges on which it is listed, number of issued shares, dividends or other benefits).
• Information regarding the “representante bursátil” (legal representative appointed by the company to officially represent it before BVL and the Superintendency of Capital Markets or Superintendencia de Mercado de Valores or SMV). Such person must be authorized or empowered to proceed with the listing process (may be the same person).
• Information regarding the properties (sworn declaration concerning the possession and/or title, either directly or indirectly, of the mineral properties).
• Information regarding the promoters, managers and directors.
• Board Resolution approving the listing on the BVL.
• Board Resolution declaring the submission to the rules of the BVL.
• Sworn declaration concerning the information available in the original market and information available to the public through a webpage or other online means.
• Digital certification contract for the encrypted transmission of data to the BVL and SMV (MvNet system). This service is provided by COSAPI DATA and is renewed annually.

For the listing is necessary to have a website in both English and Spanish. All information provided to the market since the listing date must also be included on the company website in English and Spanish simultaneously.