<News Alert!> Las Bambas mine to shut down due to a road blockage

  • MMG to cease production by mid-Dec due to a lack of key consumables 
  • Squeezed between the Peru government and local community
  • Conflict with the local community, a key risk for sustainable operation in Las Bambas 
  • Inevitable negative impact on 2021 earnings, under review earnings forecasts 

What’s new

MMG’s Las Bambas copper mine in Peru will shut down copper production by mid-December because of a road blockade after the failure of the agreement to establish commercial relationships with the local community as the community asks excessive commercial demands. As a result of the restriction of inbound and outbound logistics, Las Bambas has been forced to progressively wind down mine operations due to a lack of key consumables. At issue is a dirt road that Las Bambas uses to transport the copper from its mine to a sea port. Communities along the road have opposed this method of transportation, alleging environmental and social concerns. At the news, the share price of MMG hit a 13-months low of HKS$2.7 today. 

Squeezed between the Peru government and the local community. MMG understands that the dirt road was not sustainable into the future, and that it was the government’s responsibility to pave the route in the medium to the long term, whilst a separate freight train link would have been the best solution. Peru’s administration under socialist Pedro Castillo has endorsed the train, but the government’s cost estimate is significant at $9.2 billion, and it would only begin operations in 2028 at the earliest. The residents of the Chumbivilcas province are negotiating contracts for locals to be hired as drivers for the mine with the company according to the media. 

Conflict with the local community, a key risk for sustainable operation in Las Bambas. Las Bambas, Peru’s fourth-largest copper mine and the world’s ninth largest, has grappled with on-and-off protests and road blockades since the operation’s 2015-16 ramp-up. Operations at the mine were disrupted for more than 100 days in 2019 and a three-week-long roadblock at the end of 2020 prevented MMG from exporting 189,000 tonnes. More interruptions in September this year forced the company to halt operations for a few days. The company agreed in early October to integrate the communities into its value chain, even though they are not within the asset’s area of influence. This is a key risk for its sustainable operation in the Las Bambas and Chalco Bamba which is developing as new copper mines near Las Bambas in Peru. In addition, the newly elected president, the socialist Pedro Castillo has a plan to increase taxes on the mining sector which would be another potential risk.

 The inevitable negative impact on 2021 earnings. We expect its production/sales volume of copper concentrate from Las Bambas to decline which will have a negative impact on its 2021 earnings as Las Bambas contribute c 70% of its earnings. As the company has 50k tonne of stockpile in Las Bambas, its sales volume will be boosted in 2022 when the roadblock is removed. However, the company is likely to face operational risk from time to time until it finds a concrete solution with the local community that will not bring road blockage again. Our earnings forecasts and TP for the company are under review.