LIMA (Reuters) - Southern Copper (SCCO.N) expects rising costs to drive up total investment in all its Peru projects by between 15 and 20 percent, the company’s chief executive said on Wednesday.
Delays from social conflicts in Peru, the No. 2 copper producer, have not deterred Southern Copper, and the company is moving ahead with its $1.2 billion Tia Maria project despite higher costs, Chief Executive Oscar Gonzalez said.
“Everything has gone up, not just equipment, I mean trucks, drills, tractors ... also projects, engineering and the cost of supplying the plants,” he told the Reuters Latin America Investment Summit.
Gonzalez said sales have not been affected by economic turmoil in Europe, where it sends around 20 percent of its copper. The company does not have a contingency plan in case debt woes in the European Union grow worse, he said.
“We haven’t been affected because we have annual contracts with small (European) clients that keep producing,” he said, adding the company plans to renew those contracts in October.
Despite uncertainty in Europe, global copper prices should rise in the second half of the year due to low inventories of the red metal and sustained demand from China, he said.
“We don’t see what other contingency measures we can take beyond producing at the lowest cost possible and producing the highest volume we can,” he said.
As it tries to boost output, Southern Copper, a top global supplier, hopes to begin exploration in Ecuador and Argentina and has concessions in Chile, the world’s No. 1 producer.
The company has signed an agreement to take 70 percent participation in a project with miner Dos Rios to explore near Guayaquil, Ecuador, and has opened an office in Neuquen, Argentina, a province Gonzalez described as pro mining.
In Peru, Southern Copper, a unit of Grupo Mexico (GMEXICOB.MX), expects to finish a feasibility study for its $1.6 billion Los Chancas project later this year.
“We’re going a bit slower than we thought. Here the problem is infrastructure because it’s in a topographically difficult zone at the foot of an important river,” Gonzalez said.
A new environmental impact study for the stalled $1.2 billion Tia Maria mine should be complete in five months, he said. Tia Maria is expected to produce 120,000 tonnes of copper per year but has faced steep opposition from local farmers.
“We have the support of the ministry of energy and mines and of the very president of the republic, what he wants is for the project to be completed,” Gonzalez said.
President Ollanta Humala, a one-time leftist radical, has supported private investment in Peru’s vast mining sector since taking office in July, even when local community groups have protested against new projects.
Southern Copper has also faced opposition to a $960 million expansion to its Toquepala mine from local authorities who want to cancel the company’s water license. The expansion will probably open in early 2015 rather than 2013, Gonzalez said.
The company has previously said it would participate in negotiations with townspeople in the southern city of Tacna hosted by the central government, but insists the expansion will not increase Toquepala’s water use.
“We haven’t asked for a new public audience. The audience we had planned followed all the existing regulations but it was canceled due to pressure from the regional government,” he said.
Once such expansions and new mines open, Southern Copper’s total output could rise to 1.25 million tonnes from 587,491 tonnes of copper produced last year, counting its operations in Mexico, Gonzalez said.
As it plans to double output, Southern Copper is researching potential sales to Asia via Japan’s Mitsui (8031.T).
“Once we have our expansions at Toquepala and Cuajone and our new Tia Maria mine, we will look to Asian markets to sell additional volume,” Gonzalez said.
Aditional reporting by Omar Mariluz; editing by Jim Marshall