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Problems at Southern Copper’s Tia Maria mine reached new heights on Friday when Peru declared a state of emergency due to violent protests at the operation. The situation highlights the importance of obtaining social license when developing mining projects.
The government has put the state of Arequipa under martial law for the next two months. That means police officers can break up meetings and marches and may enter houses without search warrants, The Wall Street Journal reported. Protests have been going on since late March.
“In line with what is established in the constitution and the decree declaring a state of emergency, the national police with the backing of the armed forces will be charged with maintaining public order,” the news outlet quotes Prime Minister Pedro Cateriano as saying.
So far, one policeman and three protestors have died as a result of violence in the region. Development at the $1.4-billion Tia Maria project was temporarily put on hold on May 15, according to Reuters. The project has been stalled since 2011.
Social license
For investors, the situation highlights how keeping an eye on a company’s efforts to obtain social license is key. Any major issues on that front could spell trouble for the development of a project.
So far, Peru’s government doesn’t appear to have explicitly opposed Tia Maria, though it sent in approximately 4,000 police offers and 1,000 soldiers in response to this month’s demonstrations. Reuters notes that the country’s president has said Southern Copper could sue Peru if the project gets axed.
Still, locals continue to protest the operation due to concerns about how could affect their water and agricultural land. The public’s negative perception of the company may stem from the fact that Grupo Mexico (OTCMKTS:GMBXF), which owns Southern Copper, has had issues with the environment before — a toxic leak at that company’s Buenavista copper mine turned Mexican rivers orange last summer.
An article from Mining Global argues that much of the unrest could have been avoided with more engagement between Southern Copper and local communities. The piece points to comments from Peru’s deputy ombudsman, Rolando Luque, who told The Wall Street Journal that moving a project forward is about more than just paperwork.
“Instead of relying on legal procedures, the company should have focused on the sociological, the economic, psychological and historical issues,” he said. Certainly, communication with all key stakeholders for a project is key to obtaining social license.
Supply issues and the copper market
There have been a number of supply issues in the copper space this year, and the protests at Tia Maria have contributed to that narrative.
So far in 2015, BHP Billiton (NYSE:BHP,ASX:BHP,LSE:BLT) has cut production forecasts for its Olympic Dam mine in Australia due to an electrical failure, while Freeport-McMoRan (NYSE:FCX) temporarily halted production at its Grasberg mine in March due to a road block near the property. Furthermore, top copper producer Chile lowered its production forecast for the year following devastating floods that caused a halt in production for several miners.
Tia Maria isn’t set to come online this year, but is expected to put out 120,000 tonnes of copper cathode annually when it’s completed in 2017. That’s right when many analysts say that the copper market will shift into deficit.
Certainly, investors will be keeping an eye out for more news from Southern Copper, and on other companies that could come online with copper projects in the medium term.
Securities Disclosure: I, Teresa Matich, hold no direct investment interest in any company mentioned in this article.
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