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Peru’s gold production slump (from IKN56)

Here’s one small snippet from IKN56, out yesterday, that covers the gold production slump seen in Peru right now. This comes from the ‘Regional Politics’ section of the Weekly that’s not company specific, but keeps readers up to date with macro developments in regional mining.

Peru’s gold mining production slump

Here’s one for the Peak Gold proponents amongst you. The chart below shows monthly production of gold in Peru 2005 to date, measured in kilograms of fine gold. We see that, apart from a peak in late 2005 and a plateau aound 17,500kg/month that lasted through most of 2006, the average monthly output of all the mines in Peru (that include Yanacocha, Lagunas Norte, Pierina, other large scale mines with gold as by-product, medium and smaller-scale dedicated precious metals miners, informal gold mining etc etc) has fluctuated quite closely around the 15,000kg/month level…until very recently, that is.

The monthly results in 2010 have been as follows, according to the Ministry of Energy and Mines (MEM) official numbers:

  • January 2010: 15,803kg gold (a normal month)
  • February 2010: 14,809kg gold (slightly low)
  • March 2010: 13,637kg gold (low)
  • April 2010: 12,534kg gold (very low)

Just how low was that April month? It’s the third lowest since the end of 2002, with only March 2003 (12,163kg) and June 2007 showing lower numbers (and the 11,577kg in June 2007 was due to strike action in the June/July period of that year). The biggest culprit for the loss of production is Yanacocha, which has produced 21.29% less in the Jan-April 2010 period compared to the same four months of 2009 and its April production alone down by 37.29% YoY. Yanacocha is a big part of the Peru production deal, as of the 59,101kg of gold produced by Peru so far this year 21,364kg have come from that single mine (36.1% of the total).

However, we get to hear little about the overall drop in production out of Peru because the rise in gold prices has successfully masked the weakness in production (thus allowing its government to crow loudly about good things and ignore bad things). This chart below shows the gross monthly value of gold production in the same period, calculated by taking the Kg production figures for each month in question and multiplying by the average London PM fix for each month, data supplied by Kitco dot com.

The story is very different. The value ebbs and flows intra-annually but the overall rise in gold production by value is crystal clear, as in just five years values of gold produced have more than doubled. We also remind readers that nearly all Peru’s gold is exported, with the major destinations Switzerland and Canada, so what you see above has made an enormous difference to the export tallies for Peru (and also to tax revenues). However, even the current U$1,200/oz+ prices fetched at market cannot hide the sharp drop in Peru production for 2010, with gross metal values now down to under early 2009 levels.

Signs of creeping Dutch Disease in Peru? Possibly, as the production base declines and exports, fiscal revenues, growth etc becoming ever more reliant on the prices fetched on the world commodities market. The ongoing evolution in Peru’s two majors exports, gold and copper, should be watched carefully, as they underpin the growing market acceptance of the so-called Peru economic miracle.

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