Peru miners fear energy shortage to drive up costs
By Jean Luis Arce
LIMA, Aug 8 (Reuters) - Peruvian mining companies, the traditional backbone of the Andean country's economy, say they will face higher costs over the next year because of scarce energy supplies.
A drier than expected rainy season has slashed power output from hydroelectric dams, while the only gas pipeline that feeds thermoelectric plants is operating at full capacity. Its expansion will not be completed for another 12 months.
With deliveries from Peru's vast natural gas deposits in short supply, thermoelectric plants have started to burn higher-cost diesel at a time when President Alan Garcia is moving to slash fuel subsidies.
Some miners have backup generators that also burn diesel. These may need to be used more often if there are additional blackouts like one that struck parts of Peru on Thursday after a generation plant unexpectedly went out of service.
"Our energy costs have already risen," said Raul Vera, general manager of iron ore miner Shougang Hierro Peru (SHP.LM).
Buenaventura (BUEv.LM) (BVN.N), Peru's largest precious-metals producer, said it was "highly probable" that it will have to put its energy contingency plan into action over the next few months.
"We have back up generators at our mines for emergencies, but obviously it's prohibitively expensive to burn diesel thousands of feet above sea-level," said Carlos Galvez, Buenaventura's chief financial officer.
Newmont's (NEM.N) Yanacocha gold mine, Shougang, and Southern Copper Corp (SPC.LM) (PCU.N) said the government should encourage investment in generation capacity.
The government has downplayed miners' complaints.
"Mining companies use subsidized diesel, but have been helped by sky-high prices for their minerals. Does it make sense for them to be subsidized?" Garcia asked journalists.
Mines and Energy Minister Juan Valdivia said mining companies should invest in their own energy production plants.
"Large mining projects should think about securing their own water and energy resources and collaborating in the construction of the plants," he told mining companies after a brownout on Saturday hurt power deliveries to large consumers.
Freeport-McMoran's (FCX.N) Cerro Verde mine told Reuters it was already suffering from reduced power deliveries imposed by Peru's grid operator, Coes.
"We are currently experiencing a power curtailment", the miner said. "Cerro Verde has implemented their restriction plan and has cut back in areas that will not have an immediate impact on production". (Writing by Terry Wade; Editing by David Gregorio)
