LIMA, Jul 27, 2010 (Dow Jones Commodities News Select via Comtex) -- Peru's Ministry for Mining and Energy said Tuesday it will begin the process of winding down Doe Run Peru's management of the country's only polymetallic smelter.
Doe Run, a unit of U.S.-based Renco Group Inc., could also face insolvency and environmental proceedings against it by Peru's regulatory bodies, Osinergmin and OEFA. Osinergmin supervises energy and mining investments, while OEFA is charged with the evaluation of environmental affairs.
"Doe Run Peru has breached obligations," the mining ministry statement said, having failed to meet the 10-month deadline to provide financial proof that it could restart operations and complete an environmental upgrade to its sulfuric acid plant.
Representatives from Osinergmin and OEFA spent Tuesday in the town of La Oroya--home to the smelter--verifying the company had failed to restart operations, the ministry said.
In order to preserve some 3,500 jobs, Peru's government had been pressuring Doe Run to restart operations, but in compliance with a long-delayed environmental clean-up program.
Environmentalists have described La Oroya, about 200 kilometers east of Peru's capital Lima, as one of the most polluted places on earth.
Doe Run shuttered the polymetallic smelter, which normally produces copper, lead and zinc, more than a year ago, after a cutoff in bank loans prevented it from paying for metal concentrates.
The confirmation the government would begin closing Doe Run's operations in Peru was made despite a last-minute plea by the company. In a statement late Monday, Doe Run said it had made "significant progress" towards restarting the smelter but admitted it wouldn't meet the Peruvian government's Tuesday deadline.
The government has said if Doe Run missed its restart deadline, it would begin looking for a new smelter owner.
One of Doe Run Peru's creditors, precious metals miner Compania de Minas Buenaventura SAA (BVN, BUENAVC1.VL), said it was "no surprise" the operation could be shuttered.
"We foresaw this a year-and-a-half ago," Carlos Galvez, Buenaventura's chief financial officer, said earlier Tuesday.
"There was a lack of will [by Renco] to capitalize Doe Run and bring in more equity," he said.
Galvez said no matter how the government's closure plan played out, a refinery without suppliers or clients was only a "monument".
Galvez also said that Buenaventura--which has already written off more than $12 million owed to it by Doe Run--might look at debt recovery options via Indecopi, the government agency that handles intellectual property and bankruptcies.
Reports have put the company's liabilities at about $1.2 billion, including cash owed to suppliers, back taxes, as well as the financing it needs to complete its environmental clean-up and lawsuits against it in the U.S.