Southern Copper to begin operations at $2.5bn Michiquillay earlier than expected

Southern Copper (NYSE: SCCO) the world’s fifth-largest producer of the red metal, expects to kick off operations at its $2.5 billion Michiquillay project in Peru by 2022, three years earlier than what it said in April.

The company, which won the public auction for the project in February by offering Peru's government investment agency Proinversión $400 million and a 3% royalty rate, said it would begin talks with local communities as soon as possible.

Chief executive, Oscar González, said reaching agreements with residents near the project, in the northern Andean region of Cajamarca, would take about a year and construction another three years, Andina news agency reported.

Michiquillay is the first mega project awarded in Peru in the last seven years.

For Peru's government, securing the investment was one of its biggest mining-related accomplishment since taking office in July 2016, mining minister Francisco Ismodes said during the deal-signing ceremony.

It was also milestone for the mining sector and the Cajamarca region, he noted, as Michiquillay is the first mega-project awarded in the last seven years.

The copper project was originally scheduled to be auctioned off in November last year, but Proinversión pushed the date back twice amid political turmoil in the South American nation.

Anglo American (LON:AAL) acquired the rights to Michiquillay in 2007 for $400 million, but the mining giant pulled out of the project in December 2014. In its 2011 annual report, Anglo envisaged a 187,000-tonnes-per-year operation at Michiquillay with expansion potential to 300,000 tonnes copper per year.

But Southern, which is controlled by Grupo Mexico, has said that once up and running, Michiquillay will yield 225,000 tonnes of copper a year for an initial productive life of more than 25 years.

Strenous, but key social license

Securing a so-called social license is one of the biggest challenges mining companies face in Peru, with several projects being halted or simply abandoned due to local opposition. Southern itself suspended its $1.4 billion Tia Maria project in 2015 and is still looking for enough support to resume it.

Newmont halted construction work at Conga in November 2011 after violent protests against the $4.8 billion project forced the country's government to declare a state of emergency. Conga could have been a 500,000 tonne-plus operation.

A recent study counted 18 major new and growth copper projects in Peru, including expansion at Southern Copper's Toquepala and Chinalco's Toromocho mine. Already the world's number two producer of the metal behind Chile, Peru's output is expected to hit 4.8 million tonnes per year by 2021 — double last year's total.