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10/17/16

Las Bambas: A death that matters (from IKN388)

Part of yesterday's IKN Weekly IKN388. This isn't just a problem for Las Bambas, the whole of the copper mining industry needs to pay attention to this development.

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Las Bambas: Trucks are the problem
“Relax. Nothing is under control.“
Adi Da Samray

As noted on the blog late Friday, one man died during clashes between with police in Peru when locals blocked roads to protest about trucks coming out of the Las Bambas copper mine in the highland Apurimac region. We now have more details, as the protests happened around 50km from the mine, the clashes were very violent and along with the dead person, reports are of scores of locals and 20 police officers injured.

So what’s the problem? The answer is very poor community planning by MMG, owners of Las Bambas, as well as previous owners Xstrata. Once upon a time when Las Bambas was owned by Xstrata (later taken over by Glencore) the plan was to build a 215km concentrates pipeline to connect the mine to the Xstrata-owned Tintaya mine, a little closer to the coast. From there it would join the existing transport infrastructure. But in the end the pipeline plan was deemed too expensive and dropped. Cut to today and Las Bambas now close to its full production rhythm, no pipeline built, the concentrate has to get to the coast somehow and we end up with this being published by Reuters (10):

Congressman Richard Arce, who represents Apurimac, said the man was shot dead by police and that scores of people from towns nearby were also wounded.
A photograph from the clash provided by Arce's office showed a man lying belly-up on blood-stained stones in a field.
The protesters were upset because of the heavy dust and noise on the road where trucks transport the Chinese-owned mine's copper concentrates, Solano and Arce said.
"On a recent visit I saw 97 trucks carrying 30 tonnes of concentrates in 22 minutes. Passing by in front of people's homes," Arce said. "That would be outrageous to anyone."

The facts back that up. According to the latest figures from Peru’s Ministry of Energy and Mining website (11), Las Bambas  produced 34,983 metric tonnes of copper in the month of August 2016 alone, that’s right on its expected production clip. I don’t have the exact figure at hand but the conc there is known to be higher grades than the industry average and I’ve heard off-record that they’re running it at 30% copper, so if we run with that number we can estimate Las Bambas needs to ship out 116,667 metric tonnes of material to the coast of Peru per month. At 30 metric tonnes per truck that’s 3,889 truck trips per month, though I’d expect some trucks are overloaded somewhat (in typical Peru fashion) and carry an average of 40mt per trip, so that would be 2917 trips. So taking everything into account and splitting differences, let’s call it 3,400 trucks a month.

As there are 720 hours in a (30 day) month, that’s an average 4.7 trucks per hour, 24 hours a day, seven days a week, 365 days a year rumbling past your (previously quiet and bucolic) farmhouse 50km from the mine site. And as that includes all night-time hours, the true figure is more likely to be ten trucks an hour in the daytime (one every six minutes) and as they’ll naturally bunch into a convoy formation on the way down, Congressman Richard Arce is right. And then they have to come back up the hill again. My stars the locals must be pissed with this sudden deterioration in their lifestyles, let alone things like danger and the dust (often on dirt track unpaved roads) and let’s note, this problem and last week’s violent flare-up that left one dead (social media unofficially reports three dead) and many dozens injured was 40km to 50km away from the mine and not in the zone of influence where locals get financial support. All of the annoyance, none of the compensation and if nothing is done it’s only going to get worse when the Haquira project owned by First Quantum and located just down the road from Las Bambas comes online in a few years’ time.

I could go on about this, there are several directions in which this analysis could continue but the most obvious one is that cutting corners and doing things on the cheap in a country with poor internal transport infrastructure such as Peru is a recipe for community disaster. Peru is currently marketing itself as the place to go big pit mining and a better option than Chile (for example) because of its lower cost base. What we see above is the flipside of cheap, which can turn out to be far more expensive for all concerned, be it company, local residents or the country itself, than doing things the right way from the beginning. Also, be clear that this particular combination of infrastructure and community risk is going to be a growing concern across the whole LatAm region and can apply to Colombia, Ecuador (hello SolGold) and Andean Argentina, as well as this corner of Peru. However Peru is a decent test case, as its infrastructure varies greatly depending on where you are (e.g. Cajamarca is generally good, Apurimac is particularly bad). Interestingly and as a final thought (without labouring the point, as I really could spend pages on the subject) Chile holds a massive advantage here.