February 20, 2018 / 8:15 PM / in a year

Southern Copper wins tender for Peru's Michiquillay mine

LIMA (Reuters) - Southern Copper Corp won a tender to develop Peru’s estimated $2 billion Michiquillay copper mine in an auction that attracted just two bidders, the government’s Proinversion investment agency said on Tuesday.

A representative of Southern Copper Corp signs a document after winning a public auction of the Michiquillay copper project at the Ministry of Energy and Mines in Lima, Peru, February 20, 2018. REUTERS/Guadalupe Pardo

Southern, controlled by Grupo Mexico SAB de CV, won with a proposal to transfer $400 million to the government and pay 3 percent royalties, beating out Compania Minera Milpo, which had offered $250 million in transfers and 1.875 percent royalties.

Peru is the world’s second biggest copper producer after Chile. The auction - Peru’s first in at least a decade - was delayed twice last year, in part due to political turmoil that has buffeted President Pedro Pablo Kuczynski.

The auction served as a test of investor confidence in Kuczynski, a former Wall Street banker who was nearly impeached in December. While Kuczynski called the auction “great news for Peru’s development” in a tweet, eight of the 10 companies that presented pre-registration documents did not end up bidding.

Those companies included local affiliates of Rio Tinto PLC and Teck Resources Ltd, and Peru’s Compania de Minas Buenaventura SAA.

Anglo American Plc returned its contract for operating Michiquillay to Peru in late 2014 due to capital constraints. The company had estimated it would produce some 200,000 tonnes of copper per year.

Peru’s government says the project holds an estimated 1.159 billion tonnes in copper resources and will need investment of around $2 billion to develop.

Southern’s chief executive told Reuters in September that Michiquillay has arsenic impurities, requiring a “slightly higher” investment to clean up the area.

Peru has seen private investment fall as companies avoid infrastructure projects due to corruption investigations. The country plans to tender 15 projects that would cost $10.35 billion in 2018, according to Proinversion.

Analysts say Michiquillay could add 0.5 percentage point to Peru’s annual economic growth in coming years. But miners will need to appease nearby villagers in the Cajamarca region, which is prone to conflicts over natural resources.

“It is an interesting deposit with great development possibilities and good technical conditions, but it will be important to have agreements with communities,” Carlos Gálvez, the director of the National Society of Mining, Petroleum and Energy, told Reuters.

Half of Southern’s transfer payment will go to a fund dedicated to social projects in the area, Proinversion director Alberto Ñecco said on Tuesday. The government has assured villagers that the project would not affect water supplies.

Reporting by Teresa Cespedes; Writing by Caroline Stauffer and Luc Cohen; Editing by Rosalba O'Brien and Chizu Nomiyama

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