The effect of the restart of Tía María on the local mining project portfolio

Following up on the announcement by Raúl Jacob, vice president of finance at Southern Perú Copper Corporation, Tía María has resumed operations in Peru with a view to turning the company into one of the most important copper producers (a metal currently quoted at over US$4.4 per pound) in the region and the world. But the announcement goes beyond that, as it is a decisive signal to the market.

The Central Reserve Bank of Peru (BCRP) has identified five major projects to be developed in our country between 2024 and 2025, which are also in the process of being unblocked: Antamina Replacement (US$1,604 million), Zafranal (US$1,263 million), Toromocho Expansion Phase II (US$815 million), Corani (US$579 million) and San Gabriel (US$470 million).

This, without counting other great ones mining projects which will be ready from 2026, such as Pampa del Pongo (US$1,781 million) and Reposicion Inmaculada (US$1,319 million), among others.

But the Ministry of Economy and Finance (MEF) is going for more and will take advantage of the momentum provided by Tía María to bring forward other deposits that, although they were not paralyzed as such, did represent a strong injection of resources..

We are talking about El Galeno (US$3.5 billion), La Granja (which was reduced from US$5 billion to US$2.4 billion) and Michiquillay (US$2.5 billion). The latter, also from Southern, has announced its interest in reducing its period of start of operations from 2032 to 2029, eleven years after it was awarded to the Mexican capital company by ProInversion. Many of them are promises to be unblocked by the Minister of Energy and Mines, Rómulo Mucho, before his appointment to the post.

Southern, the leading local copper producer

This is not a random promotion. They are part of the Economic Reactivation Plan presented by the MEF in November 2023, so it would not be strange if other projects such as Río Blanco (US$2.792 billion), Los Chancas (US$2.6 billion) and Coroccohuayco Integration (US$590 million) could cut their schedules.

“The projection for the period 2024-2025 considers both the construction of Phase II of the Toromocho and San Gabriel Expansion projects as well as the beginning of the construction of the Antamina, Zafranal and Corani Replacement projects,” forecasts the BCRP in its latest Inflation Report June 2024.

Current panorama

In the mining sector, investments between January and March 2024 amounted to US$995 million, mainly from Anglo American Quellaveco (US$142 million), Antamina (US$93 million) and Las Bambas (US$75 million). Regarding the latter, it should be noted that it decided to postpone the completion of the first stage of its brownfield in the open pit of Chalcobamba until 2025, as reported at one of the events organized by the Institute of Mining Engineers of Peru (IIMP). But it is already producing copper.

Other projects remain in the pipeline for the near future, such as the lithium mine in Macusani Yellowcakein Falchani (Puno), for US$847 million. All in all, mining investment has rounded up to US$1,322 million up to the first four months of the year, an increase of 11.5% compared to the same period in 2023.

There are almost US$6 billion in mining permits until 2026 alone. In any case, a positive impact on the economy is already expected in the short term. Julio Velarde He stressed that Tía María will make a significant contribution to GDP from 2025 and 2026.

With the additional 120,000 tons of copper that Tía María would generate for Southern starting in 2026, the company would have the remote opportunity to scale up as the leading national producer (in 2023 it produced 374,149 with Cuajone and Toquepala), above other operations, such as Cerro Verde and Antamina. But if we add the contributions from Michiquillay, it would far exceed 700,000 tons and would become the leading player in the Peruvian copper market.

The rapid exit through the Pacific towards Asia, where China consumes 80% of Peruvian copper and almost 50% of the entire world’s copper, They would also allow Peru to regain its second place as a global supplier of the red metal, which was overtaken in 2023 by the Congo and its more than 3.2 million tons per year.

Peru is already expected to reach 3 million by 2024, so the opening of more projects in its portfolio, valued at more than US$54.5 billion, should be enough to quickly recover its position. Aunt Marya is an example.

The The Road to El Dorado

But the projects do not begin to perform at their maximum capacity from the first year, so the horizon of possibilities is still uncertain. Nor are the millions of dollars mentioned above invested all at once, since they have an execution schedule that can be postponed and, in the best of cases, even extended. Epifanio Baca, coordinator of Propuesta Ciudadana, believes that there are no elements to end the conflict in Arequipa.

Following the mobilization called for July 19 by some local governments and federations of workers and farmers, the expert explains that the situation of the Environmental Impact Study (EIA) of the mine, which was rejected up to two times in the past, the last time being in 2019.

“If this is not worked out in detail with the people, mistrust will persist. Minimizing the discontent is not appropriate on the part of the Government, as it does not correspond to reality. The company has gained some followers along the way, but the underlying problems have not been resolved,” Baca concludes.

The history of Peru is the history of its mines

● Southern has expressed interest in investing in a copper refinery worth around US$10 billion in Moquegua. The company already has a complex of this type in the city of Ilo. The location is critical, as it also has the Cuajone copper deposit in that region.
● Tía María would produce around 120,000 tons of copper per year. On the other hand, it would generate approximately 9,000 jobs and pay the State almost S/5.46 billion in mining royalties and fees over 20 years of operations.
● As La República reported at the end of 2023, MEF revealed that Tisur has a plan to expand its concession in the port of Matarani and build an exclusive warehouse for Zafranal.
● At the end of 2023, the main copper producing companies in Peru were Cerro Verde (466,463 MT), Antamina (435,378 MT) and Southern (374,149 MT), followed by Quellaveco (319,061 MT) and Las Bambas (302,039 MT).
● Grupo México is the world’s fourth-largest copper producer. The red metal accounted for 78.6% of Southern’s sales in the first quarter of 2024, with production growing 7.6% to 240,270 MT compared to the fourth quarter of 2023.
● The IIMP assures that global copper consumption and demand will be 33 million MT by 2033 alone.

Sharing the waters of Tambo, by Roque Benavides, president of the board of directors of Buenaventura

San Gabriel (Buenaventura), although a smaller mine, is a project that is moving forward and is scheduled to begin production in mid-2025. Curiously, the Tambo River is also located in the basin, only at 4,700 m above sea level, while Tía María rests at almost 600 m above sea level. That is the difference that we often do not notice from Lima.

But Tía María was a project that was just beginning, and it has to be developed in harmony and dialogue with the communities. Along with that, what the company is proposing must be built, which are reservoirs. Cocachacra’s criticism was that they were going to consume its water. Therefore, the proposal of Minem and Southern is to contribute with these reservoirs and that is where the brotherhood of water between mining and agriculture comes in.

It must be recognized that 85% of the rainwater from the Tambo River goes to the sea every year, the logical thing is to build reservoirs so that this fresh water can be used for crops, livestock, population and Tía María.

We must, of course, be grateful for the current price of minerals, but we must also remember that mining is not based on prices, but on costs and efficiency, and Tía María is moving forward because it is a profitable project. Copper, lead, zinc, gold, etc. mines are developed over the long term and we have to learn to be competitive even with low prices. Mining does not control prices, but rather costs and efficiency, and that is something that many people in Peru do not understand.