Canada's HudBay to invest $1 billion in Peru mine

LIMA (Reuters) - Canada's HudBay Minerals HBM.TOHBM.N plans to invest at least $1 billion to develop its Constancia copper project in Peru, the company's chief executive told Reuters on Monday.

The Constancia project, which also has gold, silver and molybedenum resources, should be able to produce 85,000 tonnes of the red metal per year starting in 2016, Chief Executive David Garofalo said in an interview.

HudBay’s board of directors looks set to approve the project in the first three months of 2012, which would allow construction to begin on the mine near the Andean City of Cusco.

“We’re expecting to have a formal decision on the project’s construction in the first quarter of next year,” Garofalo said on his way to the biannual Perumin industry convention in the highland city of Arequipa.

HudBay is also on the lookout for new investment opportunities in exploration-stage projects in Peru, Colombia and Chile, Garofalo said.

“We’re looking for deposits in those areas in particular. We’ve got significant experience and these three countries in Latin America have great potential in geological terms,” he said.

Referring to ongoing negotiations over a new royalty to be applied to miner’s operating profits in Peru, Garofalo said it was encouraging that there had been dialogue between the new leftist government and companies.

“This question of raising taxes isn’t only being raised in Peru. All countries with significant resources are talking about raising taxes on mining,” Garofalo said.

But he said the government should not be tempted to hike taxes excessively.

“It’s important that the government realize that it can’t overload the new projects because this could take away investor incentive,” he said.

President Ollanta Humala, a leftist who took office in July, was elected on promises to seek a greater contribution from the mining sector to develop new social programs in a country where one in three people are poor.

Miners and the government agreed the new tax should yield approximately $1 billion per year but the precise rates companies will be charged have not yet been set.

Mining is a vital industry in Peru and accounts for 60 percent of the country’s exports. Peru is the world’s No. 2 copper producer and No. 6 gold producer.

Writing by Caroline Stauffer; Editing by Bob Burgdorfer