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Southern Copper's Tia Maria Construction License Suspended

Zacks Equity Research

Southern Copper Corporation’s SCCO construction permit for Tia Maria copper mine project has been suspended by the Peruvian Ministry of Energy and Mines. Notably, the permit will remain suspended until government officials review it.

The decision is based on a request made on Jul 19, 2019, by the regional government of Arequipa, the Association of Workers of the Chucarapi Pampa Blanca Sugar Processing Plant, and the Board of the Valle del Tambo residents, to review the project.

Earlier in July, Southern Copper had received the construction permit for its $1.4 billion Tia Maria copper mine project in Peru. The Tia Maria mine is a large copper deposit located in the south of Peru in the province of Islay, Arequipa Region. The company had received the final approval of Tia Maria´s Environmental Impact Assessment (EIA) on Aug 1, 2014.

The project had since faced fierce opposition from locals who are concerned about its environmental impact and the possibility of an open-pit mine damaging crops. The issuance of the construction permit had been delayed owing to pressure from anti-mining groups. The company had been working with community groups to resolve the issues concerning the project. Of Tia Maria´s total project budget of $1.4 billion, $333.3 million has been invested through Mar 31, 2019.

On completion, Tia Maria is expected to produce 120,000 tons of copper cathodes annually over a life-span of 20 years. This project will utilize state-of-the-art SX-EW technology with the highest international environmental standards. The SX-EW facilities are environmental friendly as these do not require smelting and have no emissions.

The project includes a desalinization plant and will only utilize seawater, transporting it more than 25 kilometers to 1,000 meters above sea level. Consequently, the Tambo river water resources will be utilized solely for farming and human consumption. During the construction phase, the project is likely to generate 9,000 jobs and while in operation, Tia Maria will directly employ 600 workers and 4,200 indirectly.

Southern Copper boasts of the largest copper reserves in the industry, and operates high-quality and world-class assets in investment grade countries, such as Mexico and Peru.

Notably, Peru is currently the second largest producer of copper and its national output is anticipated to hit 4.8 million ton per year by 2021 — double the output of 2017. Backed by persistent focus on increasing low-cost production and growth investments, the company is well poised to continue delivering improved performance. However, current weakness in metal prices and high-debt levels will affect near-term results.

Copper is a major industrial metal and plays a particularly important role in emerging countries. In the long haul, expectations of rising middle class in Asia, particularly China and India, will stimulate demand for copper. Further, the booming market for electric vehicles will significantly impact demand for copper over the next decade.

Primary output from currently operating mines is likely to decline over the coming decade. To meet rising demand, new mines will have to be developed. Those are scarce as well as capital intensive. Along with this, declining copper grades, increased input costs and water constraints will drive copper prices in the future. Consequently, copper miners like Southern Copper and Freeport-McMoRan Inc. FCX, BHP Group BHP and Rio Tinto plc RIO will gain on the long-term fundamentals of the metal.

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