Ministry threatens to close Ilo smelter-refinery

Wednesday, March 19, 2003

Southern Peru Copper Corp (NYSE: PCU) has been given three months to start upgrading its Ilo copper smelter-refinery in southern Peru or face increasing fines and even closure of the facility.

The company must start executing Ilo's environmental adjustment program (Pama) by choosing the technology and signing contracts within three months, the mines and energy ministry (MEM) said in a statement, citing comments by mining minister Jaime Quijandria before congress.

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Quijandria said that closure of the smelter in southern Peru's Ilo port would be an "extreme" case that the ministry was "certain" would be unlikely to occur and would work to avoid.

Under the revised Pama program for Ilo, SPCC has until the end of 2004 to upgrade the plant in one stage to capture 92% of SO2 gases.

Originally the program was to be carried out in two stages with 67% of gases to be captured by the end of 2003, but it was revised following a request by SPCC and accepted by the ministry.

Recently, SPCC proposed postponing completion of the revised plan until the end of 2006 but the ministry has not approved this request, according to Quijandria.

SPCC was not answering the telephone Wednesday afternoon but a spokesperson told BNamericas in February that the company is awaiting new proposals from parties interested in expanding the Ilo facility, part of the Pama program.

SPCC announced in December it had decided to scale down the expansion to process 1.5Mt/y of copper concentrates from the original target of 1.83Mt/y, meaning that more companies could be interested in bidding for the work, originally estimated to need US$600mn.

The downgrade means that capex will be smaller and each company that has already shown an interest has been asked to resubmit studies, the spokesperson said.

A consortium made up of Australian firms Ausmelt and Isasmelt, Japan's Mitsui-Mitsubishi-Chiyoda group and another consisting of Anglo-Norwegian engineers Kvaerner and Peru's Grana y Montero have all expressed an interest in the project. Canada's Noranda (NYSE: NRD) had previously shown an interest in the contract.

Ilo has a current capacity of 1.15Mt/y and processed 1.18Mt of concentrates last year, a new record, and 1.6% more than in 2001.

SPCC, Peru's largest copper producer, is owned 54.2% by Grupo Mexico (via Asarco), 14.2% by Cerro Trading, 14.0% by Phoenix-based Phelps Dodge and 17.6% by other shareholders.