Eight potential bidders included companies from the US, Canada and Peru, but none made offers for the deposit, which had a $10 million minimum price and another $10 million investment commitment over five years, according to a statement from the unit's privatisation commission.

The government may now lower the minimum price by about 15 per cent in a new auction, the statement said.

The auction had followed the withdrawal of Canada's Barrick Gold Corp from the project in August last year after it decided not to use a $202 million buy option on the asset.

The government said that exploration results show Quicay can become a highly-profitable mine producing up to 70,000 gold ounces a year. But given the weakness in international gold prices, investors are wary of new gold projects like Quicay, which do not have high short-term returns, according to analysts.

Barrick, North America's second largest gold producer, had won the rights to Quicay by agreeing at a 1996 auction that it would pay $202 million if-- after exploration--it wanted to go ahead with the project.

But the firm pulled out of the project, saying its $3 million exploration investment in the central Andes did not reveal the "sizable" deposit that would have justified the price offered at the auction.

The Quicay sale is part of Peru's seven-year-old widespread privatisation programme that has seen the government sell most of its top mining assets. The program was stalled last year as investors were wary of spending in Latin America amid global financial turmoil. In the mining sector, depressed metals prices meant the government made no major sales in 1998.

For 1999, the government hopes a more favorable investment climate will revitalize its sales programme allowing it to raise $1 billion in privatisations, compared with over $300 million last year.

The government's sales programme has attracted direct income of about $8 billion since 1991 and commitments from buyers to invest a further $8 billion.