March 20, 2009 / 4:44 PM / 11 years ago

UPDATE 6-Doe Run halts work at Peru smelter on crisis

(Adds U.S. Doe Run comment, paragraph 9)

LIMA, March 20 (Reuters) - Doe Run Peru has halted work at its sprawling La Oroya smelter after banks cut credit lines, strangling the company’s ability to buy concentrates, its union said on Friday.

Only copper from the company’s tiny Cobriza mine is being processed at the plant, according to the union.

The union said a meeting would be held with the government to discuss the production halt and any ideas about a bailout.

“The workers won’t allow public money to be managed by the private sector,” union leader Luis Castillo said. He said the union will demand two seats on the company’s board.

Companies in Peru, where metals make up 60 percent of exports, are struggling as commodities prices have plunged.

The plant, in the mountains 108 miles (174 km) east of Lima, processes lead, zinc, copper, silver and gold. It is a hub for dozens of Peruvian mining companies and thousands of people rely on it for work.

“There aren’t concentrates for the smelter of La Oroya to keep working,” said Roiberto Guzman, a union official.

Doe Run Peru has lost bank credit lines of at least $75 million, according to a government source. Reports have said the government may arrange a new loan for it.

Doe Run in the United States, a sister company, said it was not affected by the credit line being cut.

The Doe Run companies are owned by the Renco Group, a holding company run by New York-based investor Ira Rennert, who in the past has sold junk bonds to help finance acquisitions.

Forbes has reported that Rennert had $200 million invested with Bernard Madoff, who pleaded guilty this month to accusations that he ran a Ponzi scheme of up to $65 billion.

In a memo obtained by Reuters that was sent to the union, Doe Run told workers it had reduced output because supplies were running low.

An official at Doe Run, which calls itself Peru’s fourth-largest exporter, declined comment. The unlisted U.S.-owned company generates 3,500 direct jobs in Peru.

SUPPLIERS

Mining companies that normally sell concentrates to the smelter, Peru’s largest, may be affected. Doe Run Peru owes $100 million in unpaid bills to suppliers, one newspaper said.

Peru’s mining chamber, the SNMPE, said about 30 companies with operations in central Peru sell concentrates to Doe Run. It said Doe Run relies almost entirely on supply from other mines.

Likely suppliers, including El Brocal, Volcan (VOL_pb.LM), and Pan American Silver PAA.TO could not be reached for comment. Buenaventura (BVN.N) declined comment.

“Doe Run Peru, financial institutions and mining companies are working together in good faith to find a quick and complete solution that will permit us to reestablish normal operations,” the memo said.

La Oroya has at times been ranked as one of the most polluted places in the world, and Doe Run says it has spent $307 million cleaning it up.

When it bought the smelter from the Peruvian government in 1997, Doe Run had 10 years to meet the demands of a cleanup agreement, but it has asked for the deadline to be delayed.

Peru’s mining ministry says Doe Run produced 53,831 tonnes of copper, 114,259 tonnes of lead, 43,440 tonnes of zinc, and 1.07 million fine kilograms of silver last year. (Reporting by Teresa Cespedes, Dana Ford, Marco Aquino and Terry Wade; editing by Marguerita Choy)

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