Persistent Unrest in Peruvian Mines Disrupts Copper Production

Persistent Unrest in Peruvian Mines Disrupts Copper Production

November 10, 2021

Since early October, there has been an escalation of civil unrest at mining companies across central and southern Peru. This has occurred in response to social and environmental concerns which could threaten global resource availability for manufacturers in critical industries. 40 percent of Peru’s 2.15-million-ton annual copper production is under threat by worker strikes and resident protests that started escalating last month. On October 6, demonstrations by local communities broke out at Glencore’s Antapaccay copper mine, followed by a blockade at the entrance to the Las Bambas copper mine on October 18. On November 1, civil unrest onset by affected communities nearby mines shut down production at Peru’s largest copper mine, the Antamina project, further underlining the growing impact on supply of a critical raw materials for numerous manufacturing supply chains. Copper’s role as a critical input in the electronics, infrastructure, and related industrial spaces, makes it a key supply chokepoint should severe disruptions occur. This prospect has grown over the previous month amidst heightened civil unrest and political shifts that threaten Peruvian export continuity.

Civil unrest disrupts operations in major mining areas

Residents have carried out a series of demonstrations near mining sites, demanding that mining companies address inadequate social and environmental safeguards. China-based MMG Ltd. experienced a 10-day blockade at its Las Bambas copper mine in the Chumbivilcas Province that only subsided after the company agreed to pay costly royalties to residents starting January 2022. On the other hand, Glencore’s mine in Antapaccay was forced to halt expansion plans after local protests erupted on October 7. The situation was replicated at Hudbay Minerals’ Constancia mine, where indigenous people have pre-emptively begun strikes and blockades from October 25 ahead of the company’s local agreement on social responsibilities and royalties expiring in 2022. Amid demonstrations, locals constructed road blockades from the mining sites to ports, disrupting continuity of mineral exports. Violent protests have also been recorded in the Ayacucho region since October 28. Riots broke out at the Apumayo gold mine where protestors burned equipment and mining facilities, showcasing the violent escalations at copper hubs. Under such circumstances, disruptions to mining activities and production should be expected. 

Most importantly, Peru’s largest copper extraction site, the Antamina project, has been completely shut down since November 1 after residents and indigenous activists started to block roads leading up to the facility that disrupted access to the compound on October 26. The site is a co-venture between Glencore PLC, Teck Resources Ltd., BHP Plc, and Mitsubishi Corporation, all multinational companies with considerable influence in the Latin American mining industry and has an annual copper production of around 396,200 tons out of Peru’s 2.15 million tons of copper output in 2020. Protest groups only lifted blockades after government officials arrived from Lima for negotiations on November 3.

Figure 1: Map of affected mines within proximity to major ports; Source: Individual company and port authority websites

Prolonged blockades and operational shutdowns likely to threaten industrial supply

Protracted closures are likely to have a direct impact on global consumers. Production halts at the Antamina Mine have a disproportionate impact on manufacturing in the consumer electronics, heavy machinery, automotive, transportation, and construction markets. Antamina’s copper output in 2020 accounted for 18.4 percent of national production. A long-term stoppage could dampen the growth of the copper industry, a sector that grew from 1.5 m/t annually in 2014, to 2.15 m/t annually in 2020. Peru’s close mineral export relationship with East Asia signals acute trouble for China’s industrial production, exacerbated by power cuts across industrial zones, continued shortages of semiconductors, localized COVID-19 lockdowns, backlogs at logistics hubs, and already-inflated commodities costs. Moreover, the case of Las Bambas mine has indicated that mining companies are likely to pay royalties to quench protests, even though under Peruvian law, tax transfers are due only after companies recover their initial investments, which may lead to rise of copper prices. With the onset of the holiday season, consumer demand for copper-bearing products may stress resource markets toward inflation and shortages.

*Export volumes in 2021 have likely increased as reflected by growth in extraction from 2014-2020

Figure 2: Export Destinations for Refined Peruvian copper (OEC-2019); Source: Observatory of Economic Complexity (OEC)
Destination Country Value exported-% of total copper exports
China USD 954 million / EUR 826 mln (58.8%)
Italy USD 261 million / EUR 226 mln (16.1%)
Brazil USD 189 million / EUR 164 mln (11.7%)
South Korea USD 135 million / EUR 117 mln (8.34%)
United States USD 59 million   / EUR 52 mln (3.64%)
TOTAL COPPER EXPORTS (2019) USD 1.62 billion / EUR 1.4 billion

Apart from the recurring protests, uncertainty for mining industries grows amid political changes in the country. The election of leftist candidate Pedro Castillo on April 11 has brought to light the environmental and social consequences of resource extraction. In a highly publicized meeting, government ministers denied Southern Copper’s USD 1.4 billion (EUR 1.2 billion) expansion project of the Tia Maria venture in late September, labelling the scheme as “socially and politically unviable.” Given the resilience of demonstrators, the stance of President Castillo’s political faction, and the growing demand for mineral inputs moving into the holiday season, mining companies will likely accept less favourable terms with locals or risk  further disruption and blockades.

Recommendations

  • Stay abreast of escalating protests at critical mining facilities. Using Everstream Analytics’ Incident Monitoring solution, supply chain managers can receive alerts of escalating protests in near-real time, enabling companies to take pre-emptive action to minimize risk.
  • Monitor policy changes that could impact mining operations in the country. Given Peru’s new leadership and its focus on environmentally friendly policies, mining companies could quickly find themselves facing new operational restrictions which could impact output. Companies reliant on sourcing non-renewable resources such as copper can use Everstream Analytics’ Upstream Supply Risk solution to understand how disruptions to the flow of inputs can have reverberating impacts on their extended supply networks.
  • Consider seeking alternative sources of copper and other critical minerals. Companies reliant on copper supplies from Peru should be prepared for the risk of continuous disruptions caused by protests and blockades and seek to diversify their supply base for the most critical raw materials where possible.

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