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Chinese miner MMG (HKG: 1208) is ending copper production from its Las Bambas mine in Peru on December 18 after talks with locals to end a 27-day road blockade, the latest of several in the past year, failed.
Residents of the Chumbivilcas province have been blocking the road used by Las Bambas since November 20 as they demand jobs and economic contributions from the company, which they say generally fails to benefit residents despite its great wealth.
The company, a unit of state-owned China Minmetals, warned earlier this month it would halt Las Bambas as blockades were preventing essential supplies from reaching the operation.
The mine, which accounts for 2% of world copper supply, will produce about 290,000 tonnes of copper concentrates this year to December 18. The company had already said in July that 2021 production at the mine was expected in the low end of its 310,00-330,000 tonnes forecast.
Stockpiles on site are now approximately 60,770 tonnes of copper in concentrate, MMG said in the statement.
At issue is a dirt road that Las Bambas uses to transport the copper from its mine to a sea port. Communities along the road asked for more logistics transport contracts, financial compensation for the land used to build the mining road and actions to reduce alleged damage to their crops caused by the large number of trucks on the road every day.
They also wanted to set a fund with 8% of the mine’s annual profits to finance productive and social development projects, while the company offered financing for individual social projects.
MMG believes it’s the government’s responsibility to pave the route, but a long-term solution would be building a separate freight train link. Construction of the railway would take more than five years and cost $9.2 billion, according to Peru’s transport and communications ministry.
The company’s decision is a blow for leftist President Pedro Castillo, who attempts to raise taxes to miners to fund social programs. Las Bambas is the second operation to halt production this week, after Nexa Resources temporarily suspended its Cerro Lindo zinc mine due to a similar road blockade.
Protesters demanding compensation for the use of their land to transport ore forced the suspension in November of Antamina copper-zinc mine, the country’s largest producer of the red metal.
Las Bambas, Peru’s fourth-largest copper mine and the world’s ninth, has grappled with on-and-off protests and road blockades since the operation’s 2015-16 ramp-up.
Operations at the mine were disrupted for more than 100 days in 2019, with 70 communities along the 450 km (280 mile) road to the Port of Matarani demanding action from MMG and the national government over emissions from trucks and reduction of their farmlands.
A three-week-long roadblock protest staged at the end of 2020 prevented MMG from exporting 189,000 tonnes of copper concentrate worth $530 million from the mine.
More interruptions in September this year forced the company to halt operations for a few days. The company agreed in early October to integrate the communities into its value chain, though they are not within the asset’s area of influence.
Overall, operations at Las Bambas have been disrupted for close to 400 days since 2016, according to company estimates.
With production capacity of 400,000 tonnes of copper a year (and significant quantities of gold and silver) or some 2% of the total global primary output, the mine brought in about 69% of MMG’s revenue in 2020.
Its closure will leave more than 6,000 direct and indirect employees without a job, 25% of them residents from the Apurímac region, right before Christmas.
With a positive demand outlook amid the transition to green energy, attention on copper markets has shifted to the supply picture where gaps have opened up. Former Glencore (LON: GLEN) CEO Ivan Glasenberg said in June copper supplies need to increase by one million tonnes a year until 2050 to meet expected demand.
The Swiss commodities trader and the world’s number four miner was strong-armed into selling Las Bambas to a Chinese consortium in 2014 after Beijing made the disposal conditional to its approval of the Glencore-Xstrata merger. Glencore used the proceeds of the $6.2 billion cash deal to shrink its considerable debt pile at the time.
Click here for an interactive chart of copper prices
London copper prices jumped more than 2% on Thursday as a result of supplies concerns triggered by Las Bambas’ imminent shutdown.
Improved risk sentiment after the US Federal Reserve struck an upbeat tone on economic recovery on Wednesday, also boosted prices.
Three-month copper on the London Metal Exchange was up 2% at $9,385 a tonne. In the previous session, the metal hit a low since October 7 at $9,135. The most-traded January copper contract on the Shanghai Futures Exchange inched down 0.1% to 68,590 yuan ($10,771) a tonne.
March delivery contracts were exchanging hands for $4.32 a pound ($9,504 a tonne) by midday on the Comex market in New York, up 3.2% compared to Wednesday’s closing.
