Peru's Buenaventura seeks deal with Southern on copper project

1 June 2018

Peruvian precious metals miner Buenaventura said Southern Copper Corp is evaluating its proposal to jointly develop Southern’s $2 billion copper project Michiquillay, Buenaventura’s chief executive told Reuters on Wednesday.

“They were receptive ... but it’s up to them to evaluate the preliminary proposal,” Victor Gobitz said in an interview at the International Gold & Silver Symposium in Lima, Peru.

The two companies jointly own the Coimolache mining company in Peru, and are both junior partners in large mines in Peru controlled by U.S.-based companies.

Buenaventura believes it is well-positioned to help develop the copper project because it already operates a large open-pit gold mine in the same northern Andean region where Southern will develop Michiquillay.

Southern, controlled by Grupo Mexico, operates mines in southern Peru and Mexico.

“Our logic is that there would be synergies,” Gobitz said. “You create more value.”

Southern was not immediately available for comment but when the deal first became public last month said it was evaluating Buenaventura’s proposal.

But the two companies building a major new mine together might also make Michiquillay a target for local opposition, according to an industry source.

The project might require lengthy negotiations to resettle communities in the Andes, where obtaining a so-called social license can be one of the biggest hurdles to mining investments.

Buenaventura and Southern were both forced to halt plans to build mining projects in Peru following deadly protests by activists and farmers worried about environmental impacts. Southern suspended its $1.2 billion Tia Maria project in 2015. Newmont Mining Corp’s $4.8 billion gold and copper Conga project, which Buenaventura owns a 43.7 percent stake in, has been shelved since 2011.

Gobitz said Buenaventura owed it to shareholders to create a business model that paves a path to the eventual construction of Conga. “It’s part of my mandate,” Gobitz said.

Southern has said it hopes the government of the country’s new president, Martin Vizcarra, will issue a construction permit for Tia Maria this year.

But reviving Tia Maria or Conga this year, when opposing the projects could become a platform for anti-mining candidates in regional elections, might be difficult.

Gobitz added that Buenaventura has been implementing an “ambitious” plan to cut costs to trim debt as fuel prices rise.

“This year we want to be more rigorous and critical before venturing into an investment...with disciplined control of capital expenditure,” Gobitz said.

New projects should deliver a return on investments of at least 15 percent, Gobitz said.

The company expects its production of gold and silver to rise 8 percent this year, thanks in part to its mine Tambomayo, Gobitz said.