Doe Run Peru scores $175 million bailout, avoids collapse

April 3, 2009 10:29 amComments OffViews: 34

Ending weeks of speculation of a government bailout, fifteen mining companies dependent on Doe Run Peru’s smelter have extended the U.S.-owned mining company a $175 million credit line, reported daily El Comercio on Friday.

An affiliate of the Renco Group, Doe Run issued a statement last Wednesday, confirming that its operations were only a hair shy of a complete halt. When a consortium of banks led by PNP Paribas withdrew a $75 million revolving line of credit, Doe Run became unable to buy the concentrates it needs for its smelter.

Once the Renco Group injects $165 million into Doe Run Peru, El Brocal Mining Company, Buenaventura Mining Company, Glencore and, among others, Volcan are to supply Doe Run with copper, zinc and lead concentrates worth an estimated $100 million and $75 million in credit. This will allow Doe Run to quickly resume its operations.

The metallurgical complex of La Oroya is comprised of smelters and refineries to process copper, lead, zinc and silver, as well as several sub-products. It is one of the few complexes that processes so-called bulk concentrate. Approximately 30 mining companies operating in central Peru sell copper, zinc, gold and silver concentrates to the U.S.-owned smelter.

According to Finance Minister Luis Carranza, Doe Run – which has been given yet another extension – has offered all its shares in its poly-metallic smelter to guarantee it will complete an environmental clean-up program at La Oroya, a city which has been dubbed “Slow Chernobyl” for the appalling environmental impact of contamination generated by the U.S.-run smelter.

The new tentative date by which Doe Run must meet the terms of its environmental cleanup plan is 2010.

In La Oroya, located 180 kilometers east of Lima and 3,300 meters above sea level, a poly-metallic smelter and refinery complex has been spitting out clouds of toxic lead, copper, zinc and sulphur dioxide-filled smoke for more than 80 years. In the valley, where the surrounding limestone mountains have been stained black and burned bare of vegetation by acid rain, 99 percent of children have dangerously high blood lead levels.

According to the Blacksmith Institute, a New York-based environmental organization and U.S. think-tank that listed La Oroya as one of the world’s most polluted places in 2007. Lung ailments are widespread, and high numbers of premature deaths have been linked to the smelter’s 1.5 tons of lead and 810 tons of sulphur dioxide daily emissions.

In August 1997, soon after Peru passed its first national environmental laws, Doe Run purchased the Empresa Minera Metal Oroya S.A. for $125 million, plus $120 million in upgrades. Industrias Peñoles, Mexico, pulled out three months after winning the privatization bid for the refinery, held in April that year by the Peruvian government.

At the time, the government recognized the complicated aspects of the privatization due to environmental and social concerns – the environmental damage in La Oroya was so severe that Rio Tinto, a large British mining company, decided it was not worth buying. The privatization package required that the new owners would have to invest at least $132 million over the first five years and up to $330 million over ten years to bring the refinery complex up to environmental standards required by law.

As part of the purchase agreement, Doe Run agreed to comply with a 10-year environmental cleanup plan, known locally as the Environmental Suitableness and Management Program, or PAMA.

But in 2004, after an environmental study and government inspection records indicated that since Doe Run began running the plant concentrations of lead, sulfur dioxide, and arsenic in La Oroya’s air increased, the corporation asked the Peruvian government for a four-year extension to the smelter’s environmental management plan.

On Aug. 13, 2008, as residents covered their mouths with handkerchiefs to be able to breathe, the El Sindicato monitoring station — located nearest the smelter — registered a sulfur dioxide concentration of 27,000 micrograms per cubic meter of air. The sulfur dioxide levels rose from the former record benchmark of 22,000 parts per cubic meter registered by the El Sindicato monitoring station on Aug. 4, 2008 and 17,000 parts on July 21, 2008 according to the Peruvian environmental Web page Eco Portal.Net.

Peruvian law stipulates sulfur dioxide levels within a set legal limit of 364 micrograms or less per cubic meter of air.

Sulfur dioxide emissions from the U.S.-run Doe Run smelter sometimes reach 10 times the amount considered acceptable by the World Health Organization, or WHO, and the annual mean concentration exceeds this level by a factor of two or three.

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