LIMA, Feb 20 (Reuters) - Peru will accept bids and award a contract to develop the estimated $2 billion Michiquillay copper mine on Tuesday in the first major auction from the world's No. 2 copper producer in at least a decade.
The auction was delayed twice last year, in part due to political turmoil in Peru. The bids will be a gauge of investor confidence in President Pedro Pablo Kuczynski, a former Wall Street banker who was nearly impeached in December.
London-based miner Anglo American Plc returned its contract for operating Michiquillay to Peru in late 2014 due to capital constraints. The company had estimated it would produce some 200,000 tonnes of copper per year.
Peru's government says the project holds an estimated 1.159 billion tonnes in copper resources and will need investment of around $2 billion to develop.
The Proinversion agency that will manage the auction said in November that 10 companies, including firms from China, Britain and the United States, had presented pre-registration documents to participate.
Peru-based Buenaventura said last year it was interested in bidding on the contract as did Southern Copper Corp. Southern's chief executive told Reuters in September that Michiquillay has arsenic impurities, requiring a "slightly higher" investment to clean up the area.
The auction is to kick off at 11:30 a.m. (1630 GMT) in Lima.
Peru has seen private investment fall as companies steer away from infrastructure projects due to corruption investigations. The country plans to tender some 15 projects that would cost up to $10.35 billion in 2018, according to Proinversion.
Analysts say Michiquillay could add 0.5 percentage point to Peru's annual economic growth in coming years, after feasibility and environmental impact studies are complete.
Developers of Michiquillay, however, will need to find a way to appease nearby villagers in the Cajamarca region, which is prone to conflicts over natural resources.
"It is an interesting deposit with great development possibilities and good technical conditions, but it will be important to have agreements with communities," Carlos Gálvez, the director of the National Society of Mining, Petroleum and Energy, told Reuters.
The government has assured villagers near Michiquillay that the project would not affect their water supplies. (Writing by Caroline Stauffer; Editing by Leslie Adler)