Oct 17, 2011 LIMA (Dow Jones)--Copper production in Peru, the world's second biggest producer of the red metal, is expected to slightly increase in 2012, reversing a recent trend of declining output.
In the first eight months of 2011, Peru turned out 795,055 metric tons of copper, down 3% from 817,871 metric tons in the same period last year, according to the government.
The declining production has been due largely to lower ore grades at many of Peru's main copper mines. However, industry officials have also blamed it on excessive permitting and social conflicts that have delayed the startup of new projects.
Nevertheless, some copper projects are expected to come online in the short term that will help to boost output. Base metals miner Compania Minera Antamina SA said recently that it is wrapping up a $1.3 billion expansion that should increase capacity in 2012.
As a result, Citigroup Global Markets said in a report late last week that it sees copper production in Peru rising to about 1.29 million metric tons in 2012 from about 1.25 million tons this year.
The portfolio of mining projects in Peru is expected to require investments of approximately $50 billion during the next 10 years, with about 66% of that total aimed at copper projects.
Citigroup adds that copper production is expected to double to approximately 2.45 million metric tons by 2020. "Brownfield expansions should account for 30-40% of the growth," Citigroup said.
Southern Copper Corp. (SCCO, SCCO.VL) Chief Executive Oscar Gonzalez Rocha told Dow Jones Newswires recently that he also sees Peru's copper output recovering in the next few years. "We expect that production in the next two years will be similar to this year, or a little more," Gonzalez Rocha said.
Southern Copper, which is majority-owned by Grupo Mexico SAB (GMEXICO.MX), is one of the world's biggest copper producers and is expected to produce 630,000 metric tons of the red metal in 2011. The company operates mines, smelting and refining facilities in Mexico and Peru.
While the outlook for Peru's copper production is expected to increase, it is unlikely that all of the projects in the pipeline will be successfully developed during the next 10 years due to community opposition, Citigroup said.
"It is extremely unlikely that Peru will add the 3 million metric tons to 4 million metric tons of copper by 2020 that is theoretically possible," Citigroup said. "Local community opposition to several major mining projects shows no signs of abating."
Major projects that have been delayed this year due to community opposition over the use of water are Southern Copper's Tia Maria project and Anglo American PLC's (AAL.LN) Quellaveco project.
Meanwhile, Gonzalez Rocha said uncertainty in the global economy, which has sent copper prices tumbling in recent weeks, could also delay some investments. "The uncertainty in the global economy could cause a contraction in investments, especially if it is in addition to a hostile investment climate due to social or political issues," the executive said.
In addition to Antamina's expansion, Citigroup said expansions at Sociedad Minera Cerro Verde SA (CVERDEC1.VL) and Southern Copper's Toquepala mine are expected to be successfully developed.
Citigroup said greenfield projects with the best chance of being developed include Xstrata PLC's (XTA.LN) Antapaccay and Las Bambas mines, as well as Minas Conga, a gold and copper project which is 51.35%-owned by Newmont Mining Corp (NEM).
Citigroup added that other projects with a "high probability" for development are Minera Chinalco Peru's Toromocho and CST Mining Group Ltd's Mina Justa. Glencore International PLC and CST Mining are expected to close a deal in December for the former to acquire a 70% interest in Mina Justa.