Southern Copper Plans to Shut Mines, Smelter on Peru Protests
June 18, 2008 -

By Alex Emery

June 18 (Bloomberg) -- Southern Copper Corp. plans to close a smelter and two mines in Peru tomorrow after protesters blocked access.

(left) Oscar Gonzalez Rocha, president and chief executive officer of Southern Copper Corp., speaks to the media during the World Copper Conference in Santiago, on March 28, 2007. Photographer: Morten Andersen/Bloomberg News

The Ilo smelter and the Toquepala and Cuajone mines are running low on supplies after eight days of protests over a mining tax, Chief Executive Oscar Gonzalez Rocha said in a June 17 telephone interview from Mexico City. Southern Copper is a unit of Grupo Mexico SAB, Mexico's largest mining company.

Protesters in the southern coastal region of Moquegua burned government offices and blocked roads, railroads and the port of Ilo for more than a week. Copper prices rose to a record this year on rising Chinese demand and global supply disruptions.

"This situation has become unsustainable," Gonzalez said. "Operations will be suspended due to circumstances beyond our control. The government has to enforce the law."

Phoenix, Arizona-based Southern Copper fell 73 cents, or 0.7 percent, to $104.11 in New York Stock Exchange composite trading yesterday.

A bill before Peru's Congress would base mining taxes on the amount of earth moved instead of minerals produced, cutting revenue for Moquegua's regional government. Residents and workers are protesting against the bill.

Block Measure

Workers at Ilo and Toquepala will support attempts to block the measure, Ilo union leader Arnaldo Oviedo said in a telephone interview. In a separate strike, workers at the Cuajone mine began a 48-hour stoppage June 17 to press for a pay increase, union official Roman More said.

"Things are very hot here after police provoked protesters with tear gas," Oviedo said from Ilo, 850 kilometers (530 miles) southeast of Lima. "We will go on strike unless a solution is reached for the region."

A shutdown will erode second-quarter earnings at Southern Copper, whose Cananea copper mine in Mexico has been closed by a strike since July, said Jorge Luis Rodriguez, head of research at Lima-based brokerage Centura SAB.

"If prolonged, the shutdown will have an impact on earnings and rating," Rodriguez said. "It could also scare off investors, who will think three times before risking their funds in Peru."

Banco Santander SA analysts Alonso Aramburu and Victoria Santaella on June 11 cut their estimate for the company's earnings before interest, tax, depreciation and amortization this year by 7 percent to $4.6 billion. Merrill Lynch & Co. last month reduced its rating to "neutral" from "buy".

Pointless Strikes

Gonzalez said the strikes are pointless as employees will be unable to work if protests continue.

"There's no reason for the unions to strike," he said. "They've been pressured into it by the protesters."

Police are working to clear roads and restore order in the area, Interior Minister Luis Alva Castro said.

Protesters June 17 freed about 50 police officers taken hostage in the Moquegua region the day before, said Hernan Cubas, spokeswoman for the Peruvian Ombudsman's office.

"It's important news that they freed all the police who were illegally detained as that was the condition for resuming talks," Cabinet Chief Jorge del Castillo told reporters in Lima. "We will now seek the best possible solution."

The strike has cost Peru's southern region more than 40 million soles ($14 million) in lost business and tax income, the Tacna Chamber of Commerce has said.

Peru's Mining Federation, representing about 28,000 miners and 70 unions, plans a national strike on June 30 to pressure Congress to vote on a separate measure to improve pensions, the rights of subcontracted workers and company profit-sharing.