| Peru | Nov 25, 2016
The Cerro Verde mine is at the heart of Peru's mining industry and economic growth, but projections for 2016 show that the industry may be ahead of demand, leaving the future uncertain.
Sociedad Minera Cerro Verde is a mining company that primarily operates the Cerro Verde site, an open-pit copper and molybdenum mining complex located in Uchumayo in the Arequipa providence of southern Peru. Its size and significance make it a central player in the Peruvian economy, where it has been cited as one of the country’s key economic drivers. Its plans for expansion, currently in progress, should allow it to be a significant player on the world scale.
The mine has a long and colorful legacy of ownership that is evidence of its historical significance. According to Cerro Verde’s website, the site was first mined by Spaniards in the 18th century, and they extracted “high-grade copper oxide ore and shipped it to Wales.” In the early half of the 20th century, the mine was owned by Anaconda Copper Mining Company, one of the largest mining trusts in the world at the time. The Peruvian government nationalized the mine in 1970, mining its oxide ores and building one of the world’s first solution extraction/electrowinning (SX/EW) facilities in 1972. The mine was then purchased by multinational copper mining company Cyprus Amax, and is now, after a series of mergers and acquisitions, controlled by the publicly traded Freeport-McMoRan, the world’s largest copper producer. Freeport-McMoRan is the majority owner of SMCV, with Sumitomo and Buenaventura among other minority shareholders.
Cerro Verde is currently in the midst of a USD4.6 billion expansion project that is projected to increase its annual production by “approximately 600 million pounds of copper and 15 million pounds of molybdenum,” according to company documents. The expansion, which would make Cerro Verde one of the top five copper producers in the world, includes funds allocated for the “financing and construction of a wastewater construction facility” that will serve two purposes: it will provide the water needed for the new operations, while at the same time, company documents explain, “significantly improving the water quality in the Chili River, benefiting more than 1 million people in Arequipa.” The total impact of the project is estimated by Cerro Verde to be USD420 million to Peru’s economy, USD275 million of which directly benefits Arequipa.
The Peruvian mining industry is coming off a period of strong production growth. The Peruvian economy beat growth expectations of 3.26% in 2015, and the mining sector was a key part, growing by a record 22.36% in December. Most of this growth came from copper, iron, molybdenum, silver, and lead. However, production of gold actually fell over this period, and the larger global mining industry is worried that production has potentially grown too fast. Initial economic figures from 2016 showed slowed growth, leading analysts to caution that there might be a surplus of raw materials, a fact that, combined with increased environmental costs, could lead to falling revenues in the coming years . Decreased demand from China is another factor that has impacted the industry worldwide, as the nation is the world’s largest consumer of raw minerals. Any changes in its demand for these goods would be felt throughout the world.
Still, Cerro Verde’s size and significance in the market means that it is well equipped to handle whatever may come, and former President Humala recently cited its expansion project as one of the sources for optimism that economic growth in 2016 can surpass that of 2015. It has the advantage of already having completed the bulk of its expansion at a time when other mines are experiencing delays and suspensions of planned construction projects. Cerro Verde also benefits from having strong environmental protections included in its expansion plans, which will allow it to remain a competitive globally as environmental concerns and regulations raise barriers to mining projects.
Peru is currently one of the largest copper producers in the world in large part thanks to Cerro Verde. Despite some uncertainty as to the future of the global mining market, Cerro Verde’s recent expansions and investment in environmentally sound mining practices position it as a key factor in the Peruvian economy.