Chinese miner MMG (HKG: 1208) will close copper production at its Las Bambas mine in Peru by mid-December, as months of road closures have prevented basic supplies from reaching the mine.
The company, a unit of Minmetals, a state-owned company, said that despite meetings with residents of the Chumbivilcas community, MMG was unable to reach an agreement with them because of "excessive commercial requirements".
The problem is the dirt road that Las Bambas uses to transport copper from its mines to the seaport. Communities along the route demand more logistics and transport contracts, provide economic compensation for the land used to build mining roads, and take action to reduce the damage to their crops caused by the large number of trucks on the road every day.
They also hope to use 8% of the mine's annual profits to set up a fund to fund production and social development projects, while the company offers to fund individual social projects.
MMG believes that it is the government's responsibility to lay the route, but the long-term solution is to build a separate freight train line. According to Peru's Ministry of Transport and Communications, the construction of the railway will take more than five years and cost US $9.2 billion.
Las Bambas, Peru's fourth-largest copper mine and the ninth-largest in the world, has been grappling with intermittent protests and road closures since it went into production in 2015-16.
Operations at the mine were suspended for more than 100 days in 2019, and 70 communities along the 450km (280mi) road leading to the port asked MMG and the national government to take action on truck emissions and farmland reduction.
A three-week roadblock protest at the end of 2020 prevented MMG from exporting 189000 tons of copper concentrate from the mine, valued at $530 million.
More disruptions in September forced the company to suspend operations for a few days. The company agreed in early October to integrate communities into its value chain, even if they were not under the influence of assets.
Overall, Las Bambas operations have been suspended for nearly 400 days since 2016, the company estimates.
The mine has an annual production capacity of 400000 tonnes of copper (as well as large amounts of gold and silver), accounting for about 2 per cent of global primary production. MMG generated about 69 per cent of revenue in 2020.
, Las Bambas said in July that production in 2021 is expected to be at the low end of its forecast of 3101.00-330000 tons.
In the transition to green energy, the demand outlook is optimistic, and attention to the copper market has shifted to the supply situation, where there has been a huge gap. Ivan Glasenberg, former Glencore (LON: GLEN) chief executive, said in June that copper supply would need to increase by 1 million tonnes a year by 2050 to meet expected demand.
The Swiss commodity trader and the world's fourth-largest miner was forced to sell Glencore-Xstrata to a Chinese consortium in 2014 after the Chinese government conditioned it to approve the Las Bambas merger. In hindsight, the $6.2 billion cash deal seemed like a good outcome for Glencore, when Glencore used the proceeds to reduce its huge debt pile.
Prices did not respond to the news on Friday, and futures trading in New York fell on the day. By noon, contracts for March delivery changed hands at $4.28 a pound ($9435 a tonne), down 5 per cent from Friday. Copper prices hit an all-time high of more than $10000 a tonne in May.
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