Chinese-Operated Peruvian Mine Turns to Chinese State Lenders Amid COVID-related Financial Difficulty
On October 19, China’s state-owned MMG Ltd. announced that its Peru-based subsidiary, Minera Las Bambas (MLB), has reached an agreement for a three-year, $800 million credit facility with several Chinese state lenders, including China Development Bank (CDB), Bank of China (Sydney Branch), Industrial and Commercial Bank of China (Macau Branch), and the Export-Import Bank of China. The financing is reported to satisfy MLB’s operational funding requirements and follows a similar agreement between MMG and CDB for $85 million on September 4. MMG Ltd. is the Melbourne-based subsidiary of China Minmetals Corporation, the ultimate shareholder of MLB.
Previously owned by Glencore Xstrata, Las Bambas (which is one of the world’s largest copper projects) was acquired by a consortium led by MMG in July 2014 for approximately $7 billion – the largest single investment by a Chinese entity in Peru to date. Since its acquisition, Las Bambas has encountered considerable resistance from local groups that have protested the project primarily on environmental grounds. This resistance had had direct implications for production, as was seen in March 2019, when MMG declared force majeure for the decline in output from the mine. According to Reuters, Las Bambas produces 400,000 tons of copper per year or about 2% of the world’s annual metal extraction.
COVID-19 has harmed the outlook for Las Bambas. Lockdowns in Peru disrupted production and forced MMG to issue another force majeure on copper concentrate supplies in April 2020.
The pandemic also had a major effect on global copper prices, which collapsed as economic activity ground to a halt in March 2020. Citing a recent rally in commodity prices, MMG stated that it “does not expect to immediately rely on” the aforementioned credit arrangement, but “considers it to be a prudent addition to [its] stand-by liquidity sources in the current environment.” Although copper prices have experienced a recovery, uncertainty regarding the global economic recovery continues to be a source of concern for the mine’s future, as does the renewed flare-up of protests against the project in July 2020. The loan is likely intended to mitigate these risks for a strategically significant project.