Suppliers: Doe Run Peru bailout at acute risk

Doe Run Peru — an affiliate of the Renco Group which operates La Oroya’s poly-metallic smelter — has put its financial bailout package at risk suppliers said on Tuesday, claiming that the mining company has failed to meet terms agreed to last April.

In early April, ending weeks of speculation of a government bailout, fifteen Peruvian mining companies dependent on Doe Run Peru’s smelter extended the U.S.-owned mining company a $175 million credit line, if the company met specific two conditions.

First, the Renco Group must inject $165 million into Doe Run Peru to compensate a financial shortfall. And second, Doe Run Peru must pledge the totality of its shares to the Peruvian government to prove that it will comply with an environmental cleanup plan.

But, according to Carlos Gálvez, General Manager of Buenaventura Mining Co., neither Doe Run Peru nor the Renco Group are “complying with what was agreed to.”

The metallurgical complex of La Oroya run by Doe Run Peru 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.

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.

The Blacksmith Institute, a New York-based environmental organization and U.S. think-tank, 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.

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