Austrade Briefing

Opportunities in the Mining and

Oil & Gas sectors

Colombia & Peru

Crispin Conroy

Senior Trade Commissioner

August 2012

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Latin America & Australia

Peru

Australia

Pacific

Ocean

Atlantic

Ocean

Indian

Ocean

America

Africa

Europe

Asia Pacific

Ocean

Atlantic

Ocean

Colombia

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Neighbours across the Pacific!

Peru

Australia

Pacific

Ocean

Atlantic

Ocean

Indian

Ocean

America

Africa

Europe

Asia

Colombia

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Austrade Offices Americas

Opportunities

in Colombia

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Index

• Colombia at a glance

OVERVIEW OF THE MINING INDUSTRY

• Mining industry overview

• Mining potential

• Location of main mining projects

• Recent developments

• Opportunities for Australian companies

• Australian presence

• Challenges

OVERVIEW OF THE OIL AND GAS INDUSTRY

• Oil and Gas industry overview

• Opportunities for Australian suppliers

• Australian presence

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Colombia at a glance

• Population of 47 million: 4th most

populous in LA

• Capital city: Bogota, 8 million

• 5th largest economy in the region with

a GDP of $478 billion

• GDP growth rate: 5.9% (2011)

• Inflation rate: 3.7% (2011)

• Labor force: 22.45 million

Overview of the

Mining Industry

Colombia

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Mining industry overview

Financial and corporate services

21%

Other Services 17%

Manufacturing 15%

Retail, hotels and restaurants

13%

Transportation and communications

8%

Mining & Hidrocarbons

8%

Construction 7%

Agriculture 7%

Utilities 4%

GDP BY ECONOMIC SECTOR, 2011

(%)

Oil and derivatives

50%

Coal 14%

Coffee 5%

Nickel 1%

Industrial 19%

Agricultural 6%

Other transactions

5%

EXPORTS BY ECONOMIC SECTOR,

2011 (%)

No

t T

rad

itio

na

l E

xp

ort

s

Traditional exports

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Mining industry overview

Source: Intierra Resource Intelligence, July 2011

Companies

Total number of companies listed on a

stock exchange who are exploring/mining

in Colombia: .......................................72

Primary Listing Exchange Area

Canada................................................51

Australia .............................................. 5

London ............................................... 7

Brazil ................................................... 2

New York............................................. 4

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Mining industry overview

• Mainly underground mining

• Players: Few multinationals (large scale mining), many local

owners (small projects), informal mining

• Trend: join ventures between local and international groups

Mineral World

ranking production

Latin America

Ranking Exports

Characteristics

Coal 9th 1st 4th 96% thermal, 4% metallurgic Gold 21st 6th - Mainly alluvial extraction Nickel 9th 2nd 2n Cerromatoso, world’s 2nd largest producer Emeralds 1st 1st 1st 57% of world production

Colombia ranking by production

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Mining potential

Source: Ingeominas and Ministry of Mines

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Location of main mining projects

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Recent developments

• The government has classified 11 minerals as of

“strategic importance” for mining in Colombia

– gold, platinum, copper, phosphate ores, minerals, potassium,

magnesium ore, metallurgical and thermal coal, uranium, iron

and coltan.

• The government has defined 313 strategic mineral areas

totaling 2.9 million Has located in 15 departments (states)

• The mining areas will be awarded by auctions through an

objective selection processes to encourage healthy

competition between companies interested in these

concessions

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Opportunities for Australian companies

The Colombian government has prioritized the mining industry as one of it’s five

“locomotives” to boost growth and foster economic development.

For Juniors

• Opportunities in exploration can be found through:

– Auction of 313 mining blocks (first round will take place in February 2013)

– Joint ventures with companies that are currently operating (in any phase)

– Acquisition of existing mining titles

– Application for new titles (now operational with some restrictions)

• Preference for companies interested in long term investments (production) rather

than short term gains (speculation).

For METS

• Opportunities for exporters of equipment, services and technology across all areas

of the industry

• Setting up operations in Colombia is fairly simple. Companies already operating in

Latin America can explore setting up a local office / representative to target the local

market.

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Australian presence (Mining sector)

• Austrade is aware of less than 5 Australian companies with an

exploration activity in Colombia, but more than 10 are currently in an

exploratory phase, actively seeking projects.

• Other Australian companies are present in Colombia catering to the

mining industry, though the sector is mainly dominated by Canadian

or local companies.

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Challenges

Social License

• Social conflicts, active in almost every region in the country, represent

the main risk for mining investments.

• The majority of conflicts are related to the use and availability of water,

the fear of environmental pollution and the agreement on the value of

lands when projects require the resettlement of local populations.

• Prior Consultation Law with indigenous and afro communities

• Timeframe of application process and grant of environmental licenses

Overview of the Oil

& Gas Industry

Colombia

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Oil and Gas industry overview

• Ecopetrol estimates

Colombia’s potential

reserves at 47 billion

barrels of oil equivalent.

• A large part of the

nation’s territory has

not yet been explored.

• There also exists the

potential for important

additional discoveries

in existing fields, all of

them with proven

reserves in excess of

one billion barrels of oil

equivalent

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Oil and Gas industry overview

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Oil and Gas industry overview

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Oil and Gas industry overview

• Foreign Direct Investment

in the Oil & Gas sector

accounts for approx. 40%

of total FDI in Colombia

• The Oil & Gas sector has

been growing steadily at

rates above 15% per year

since 2008

• Exploration areas are

granted by auctions

offered through “Rounds”

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Opportunities for Australian suppliers

• Colombia’s oil goods and services sector

is concentrated mainly in drilling-related

services, machinery and equipment

supply, consulting and engineering

services, and geology and seismic

services.

• 23% of operating revenues generated by

the goods and services sector

correspond to companies offering

drilling, completion and work over,

while 22% of revenues come from

machinery, equipment and tool suppliers.

• Over the past 5 years, more than 200

companies were started for goods and

services related to oil and gas industry.

Of these companies, 41% are medium-

sized companies and 32% are large

companies, ranked by value of its

assets.

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Australian presence (Oil and Gas sector)

• Austrade is aware of only two Australian companies with exploration

activity in Colombia,.

• Other Australian companies are present in Colombia catering to the Oil

and Gas industry, though the sector is mainly dominated by American

and local companies and most recently, Venezuelan expertise.

Opportunities

in Peru

Mining Industry

Overview

Peru

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Population: 30 m. (2011)

Area: 1’285,216 sq km

Capital: Lima

President: Ollanta Humala

PERU: Basic Facts

Languages: Spanish, Quechua, Aymara, etc.

GDP: US$ 153 bn. (2011)

Real GDP growth: 7% (2007-2011 average)

Inflation: 3% (2007–2011 average)

US$ million

Mining US$ 53,391

Hydrocarbons US$ 9,000

Electricity US$ 6,000

Total US$ 68,391

Future Investment 2012-2020

Source: Mining and Energy Ministry, Perupetro, SNMPE

PERU: Regional hub in the South American Pacific area

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Mining contribution to the economy

Commerce 16.6

Agriculture 8.3

Construccion7.4

Electricity and water

2.2Fishing

0.4

Services 42.8

Manufacturing16.6

PERU: COMPOSITION OF PRODUCTION, 2010 (% of Gross Value Added)

Source: BCR

Mining and Oil5.8

Mining61%

Oil & gas9%

Fishmeal and fishoil

5%

Coffee and sugar

3%

Agricultural (non-

commodities)6%

Textile4%

Chemicals4%

Rest8%

Non-commodities

22%

EXPORTS BY ECONOMIC SECTOR, 2010(%)

Source: BCR

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• Latin America represents 27% of

global investment in exploration

(2010)

• Peru ranks 5th in the world and

2nd in Latin America for

exploration (dropped 2 positions

since 2009) and represents 5% of

the total exploration budget.

(US$534 million approx.)

• Of the top 10 countries globally, five

are Latin American; Mexico, Peru,

Chile, Brazil and Argentina

• Colombia is fastest growing in

exploration investment

Source: MEG 2010

Exploration investment – Peru ranks 5th

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Peru’s mineral production - ranking

• Mining units: 80% underground and 20% open pit

• Production: 90% open-pit, 10% underground

• Players: Multinationals (gran mineria) and local family conglomerates

(mediana mineria)

• Trend: joint ventures between local and international groups

Ranking World Latin

America

Gold 6th 1st

Silver 2nd

2nd

Copper 2nd 2nd

Lead 4th 1st

Tin 3rd 1st

Zinc 2nd 1st

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Source: Mining and Energy Ministry (e) Estimate by SNMPE

494 746

1,102 1,140 1,253 1,500 1,320

611 500 1,015 1,086

1,610 1,249

1,708

2,821

4,066

7,202

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Mining Investment, 1995-2011

Total = US$ 29,423 million

Investment

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Investment Framework

• Peruvian law applies equally local and foreign investors.

• Investment in public infrastructure may be deducted from income tax.

• There are no restrictions on transferring abroad profits, dividends and

financial resources.

• Possibility of signing agreements with the government on tax stability

(duration between 10 to 15 years).

• Freedom to commercialize mining products in the domestic market and

abroad.

• Special benefits for companies doing exploration:

Refund of VAT (16%) and municipal promotion tax (2%) paid on goods and

services used in exploration.

• Income tax: 30% Value Added Tax: 18%.

• Mining fiscal framework: taxes on operating income

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Raising Capital - Lima Stock Exchange - MILA

• Lima Stock Exchange has a Venture Exchange

(BVL Jr.) where they are 15 junior companies

listed

• Most of this companies are Canadian juniors

• Many companies have been very succesful in

raising capital for their projects in the BVL.

Example – Rio Alto, Minera IRL

• MILA (Mercado Integrado Latinoamericano)

Integration of Chilean, Colombia and Peruvian

equity markets (Operations started May 30,

2012)

• www.milamercadointegrado.com

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Mining contribution to the country

• Generating formal and well-paid jobs.

• Generating decentralized development.

• Paying taxes.

• Working with social responsibility (supporting

productive development, education and health)

• Working with environmental responsibility (respecting

rules)

• Supporting the fight against poverty, illiteracy,

malnutrition, etc.

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Estimated investment in mining projects exceeds US$53 billion for the next years

EIA: Environmental Impact Assessment

8

11

1

2747 Projects with approved EIA

Mine expansions

Projects in

exploration stage

Projects with EIA under

evaluation

Mining Investment Commitments

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Source: Mining and Energy Ministry.

Mining Portfolio Structure

(Share)

Copper

67%

Gold

16%

Investment – by mineral

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Peru: country of geological wealth

• Only 1.05% of this area is being used for exploration and exploitation.

• The remaining 12.95% represents an opportunity for mining investors interested in developing projects in Peru.

• “Australian mining value chain”:

Miners > Engineering firms > suppliers

Source: INGEMMET, MEM, 2010

Peruvian Territory Hectares %

Total Area 128,000,000.00 100%

Natural Protected Area 38,169,231.97 29.7%

Areas with Mining Activities Hectares %

Concessions 14%

Production 999,185.75 0.78%

Exploration 344,356.21 0.27%

Oil and gas sector Peru

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Oil and Gas

• PERUPETRO is the National Agency of Hydrocarbons

a State company, responsible for promoting, negotiating,

underwriting and monitoring contracts for exploration and

exploitation of hydrocarbons in Peru.

• Most recent discovery: Setuche basin – Talisman

(Block 64) Marañon, Loreto (2009). Production is

estimated in 5,000 barrels per day.Still drilling.

Most important oil and gas companies operating in Peru:

• Pluspetrol – block 8 - produces 9,782 oil barrels per

day and block 1AB- produces 17,481 barrels per day.

• Savia - block Z 2B - produces 14,000 barrels per day.

This company also has 11 offshore blocks on the

Peruvian coast.

• Pacific Rubiales - just aquired 49% of the block Z-1

from BPZ and payed US$150 cash plus exploration

costs for US$185 millones.

•

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Australian oil and gas companies

• Australian presence it pretty small

• Karoon Gas has block 144 in the Peruvian jungle and block Z-38

offshore

• Woodside has 20% equity in block 108 located in the Peruvian

jungle, Pluspetrol has 50% y Reliance 30%

Challenges for the

extractive industries

Peru

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Challenges – Social License, workforce…

• Social conflicts, active in almost

every region in the country, represent

the main risk for mining investments.

• The majority of conflicts are related

to the use and availability of water,

the fear of environmental pollution

and the agreement on the value of

lands when projects require the

resettlement of local populations.

• Bureaucratic limitations pose a

challenge in the promotion of

investment projects.

• Lack of skilled labour to face new needs of the industry

Opportunities for

Australian companies

Peru

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Opportunities

• High level of investment offers

business potential for exporters

of mining equipment, services

and technology across all facets

of the industry.

• The Peruvian mining community

is determined to develop a

world-class mining industry.

• Particular attention is being

placed on the environmental,

community relations and safety

aspects of the industry.

• Training is also highly requested

Infrastructure

20%

Explotation

18%

Exploration

15%

Mining Equipment

13%

Preparation

13%

Processing Plant

equipment

10%

Other

11%

Companies investment by category (2010)

Source: MEM 2011

Peru & Australia

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Australian presence (Mining sector)

• Estimated Australian investment in Peru of US$1.7 billion, placing Australia among Peru’s top 10 investors.

• + 56 Australian companies in the mining and resources sector doing business in Peru.

• 21 companies have a project, 18 an office/investment and 13 have a distributor.

• Other Australian companies are selling their products and services from

other markets, especially Chile and the USA

• + 8 Australian juniors exploring in Peru, but number is increasing

BETHANIA MINERA IRL

LAS BAMBAS XSTRATA COPPER

ANTAPACAY XSTRATA COPPER

Mining

Energy: Oil & Gas

Energy: Geothermal SHEER ENERGY

Block Z34

SARA SARA GLOBAL GEOSCIENCE

MANCHA PAMPA

GLOBAL GEOSCIENCE

GUADALUPITO

LATIN RESOURCES

MARIELA LATIN RESOURCES

APURIMAC FERRUM

STRIKE RESOURCES

NANGALI INDO MINES

SHEER ENERGY

Block XXI

CHINGUELA INDO MINES LA GRANJA

RIO TINTO

ROSAHULCA GOLD MINES OF PERU

OLLACHEA MINERA IRL

KAROON GAS

Block Z38

CHOCOPATA HOT ROCK

QUELLAAPACHETA

HOT ROCK ILO

LATIN RESOURCES

HUAQUIRCA MINERA IRL

LOS CALATOS METMINCO

ANTAMINA BHP BILLITON, XSTRATA COPPER,…

COASA ALARA RESOURCES

CRUCERO ALARA RESOURCES

WOODSIDE

Block 108

TRUJILLO ENVIRO GOLD

STA. ROSITA PROMESA

CERRO CURUNDAY PROMESA

CORIHUARMI MINERA IRL

RUPHA HOT ROCK

LOS LAVANDEROS

GLOBAL GEOSCIENCE

TORRECILLAS MUNDO MINERALS

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Mining for Development Initiative

Aims to draw from Australia’s government, industry and academic expertise and experience to help build a sustainable mining sector, making better use of revenues while improving socially and environmentally sustainable development.

International Mining for Development Centre IM4DC

• IM4DC is a key element of Australia’s Mining for Development Initiative

• Partnership between the Australian Government, the University of Western Australia and the University of Queensland

• $31 million for practical, advisory, education and training services to developing countries

• 1,870 training places in Australia and in developing countries, and 24 research fellowships.

Mining and Education

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Conclusions

• Peru is a highly diverse country with

many investment opportunities.

• Continuous economic and political stability for more than 15 years.

• Continuous and significant economic growth for the past 13 years.

• Significant efforts are being made to promote mining projects.

• Geological wealth

*Source: SNMPE – National Society of Mining Petroleum and Energy

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Austrade’s role and support for investors

• Market briefings

• Visit programs, including meetings the government officials.

• Partner search

• Refferals on legal and tax, recruitment, community relations, etc.

• Networking activities - Australian Business Network

• Introduction to other Australian investors to get first hand information from

them, etc

More information

Monica Ramirez

Monica.Ramirez@austrade.gov.au

Tel: +57 1 3484258

+57 310 2577612

Bogota, Colombia

Ines Fernandini

Ines.Fernandini@austrade.gov.au

Tel: +51 1 205-4003

Lima, Peru