Peru postpones sale of La Oroya smelter until August

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Tuesday, July 14, 2015

The sale of Peru's bankrupt La Oroya metallurgical complex was postponed until August after the government took longer than expected to approve environmental regulations for the shuttered zinc-lead smelter.

The smelter and its Cobriza copper mine were originally scheduled to be put up for bids in June, with the winning bid to be chosen this month. Creditors including Glencore, Trafigura Beheer, Pan American Silver, Buenaventura, El Brocal and Volcan will meet July 16 to set a new timetable for the sale, smelter operator Profit Consultoría said, according to local press.

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The energy and mines ministry (MEM) said this week it approved a corrective environmental management instrument known as IGAC for the former Doe Run Perú unit, which failed to complete an environmental clean-up before filing for bankruptcy in 2009.

Creditors now aim to award the winning bid by August 27, Profit Consultoría director Alfredo Romero said. The aging smelter in Junín region will need an estimated US$800mn investment, including a sulfuric acid plant for its copper circuit, according to previous operator Right Business.

"We need to find a balanced date between the deadline and the time required by bidders to evaluate the IGAC," Romero told Lima-based newspaper Gestión. "There's a series of factors to be considered to see whether we maintain the timetable or if we'll have to modify the dates a bit."

The IGAC mechanism is designed to ensure the future smelter operator can meet current environmental standards, energy and mines minister Rosa María Ortiz said.

"The ministry made an offer and has complied by approving the IGAC. We're sure this is the beginning of a lasting relationship," Ortiz said in a statement. "Our wish is that the metallurgical complex is reactivated to benefit the population of La Oroya."

Romero didn't immediately return a telephone call and e-mail seeking comment. The local consultant firm, appointed in September 2014 to manage the sale, has lined up potential bidders including Glencore, Trafigura, Votorantim Metais, Volcan and Barclays unit Southern Peaks Mining, according to the smelter's workers' union.

The smelter, which restarted zinc and lead operations in 2012 after a three-year shutdown, but closed again in July 2014, failed to reach an agreement on concentrate sales with Trafigura unit Cormin last year. The smelter owes about US$600mn to a group of 100 creditors.

La Oroya, the only polymetallic smelter in South America, can produce 122,000t/y of lead and 43,000t/y zinc, according to the ministry. Cobriza produced 21,159t copper in 2014, according to the ministry.

Built in 1922 by the Cerro de Pasco Corporation and acquired in 1997 in a privatization process by Doe Run, La Oroya halted its operations in 2009 after metals prices collapsed. La Oroya has the capacity to produce a dozen different metals including copper and silver, but failure to meet environmental standards has shuttered the copper circuit.