POLITICAL ECONOMY

S&P bullish on Peruvian mining investment, despite Conga setback

If the majority of Peru's announced copper mining projects come to fruition, Standard & Poor's predicts the nation's copper exports will triple in four years.

RENO (MINEWEB) - 

Despite the suspension of Peru's largest mining project-Newmont's Minas Conga in the Cajamarca region-Standard & Poor's is confident that significant investments in mining, oil and gas, infrastructure, and electricity will continue in Peru.

In a recent analysis, S&P Credit Analysts Richard A. Francis and Joydeep Mukheriji suggested "if the majority of the announced investment projects in the copper mining sector are completed, copper export volumes would triple by 2016."

"Copper represents nearly a quarter of Peru's exports currently," they noted. "Although half of the expected investment over the next three years in the mining sector, we expect other large projects in the areas of infrastructure, oil and gas, and electricity as well. These investments are likely to underpin economic diversification and employment growth."

S&P revised its outlook for the Republic of Peru from stable to positive. At the same time, the credit ratings agency also affirmed its ‘BBB+/A-2' forex rating and ‘BBB+/A-2' local currency sovereign credit ratings on Peru.

In their analysis, Francis and Mukheriji said their ratings on Peru that broad fiscal and monetary policy continuity under President Ollanta Humala will support economic policy flexibility and growth.

While the Humala Administration emphasizes social inclusion and plans to increase social and infrastructure spending, as well as public sector wages, S&P observed "the government has also signaled its intent to implement these priorities gradually and with a prudent fiscal approach by tying the expenditures to increases revenues, partly from the mining sector."

S&P said its positive rating outlook reflects the possibility of an upgrade of the sovereign during the next two years "if the majority of the large announced investments are completed, underpinning growth prospects and high export volumes, which would mitigate a possible fall in metals prices."

"Conversely, we would consider revising our rating outlook to stable if political risks arising from the large informal economy, widespread poverty, and significant income disparities significantly dampen the investment climate or result in the adoption of populist economic policies that would erode the gains in macroeconomic stability of the last decade," S&P concluded.