Chinalco Moves a Town to Access Copper Deposit

What do you do if you have just spent $860 million buying a copper mining company but find you have the problem of a town on top of your 2 billion ton ore body? Simple, if you are Chinalco you just spend another $50 million building a new town.

The 5000 inhabitants of Morococha at an altitude of 15,000 ft and 90 miles east of Lima in Peru lack basic sanitation, a police station and running water or even a reliable electricity supply according to a Mining Weekly article. Even so they still have to pay rent to the mining company Peru Copper Inc that Chinalco purchased in 2007. The company’s proposal to pay them $2,000 each and then build and give them 1450 new homes with all modern conveniences a few kilometers away has understandably been met with widespread acceptance.

For Chinalco it is a comparatively small price to pay for a project that they estimate will cost in total US$2.16bn to bring on stream by 2012. According to an IMC Technical Report prepared for Peru Copper mentioned in Wikipedia proven and probable reserves are 1,375 million tons grading 0.51% copper, 0.018% molybdenum and 7.06 gms/tons silver. Using the recoveries estimated by IMC, the recoverable metal from the reserves would be 5.7 million tons of copper, 148,000 tons molybdenum and 188 million ounces of silver, giving a life of over 25 years at an average production rate of 210,000 tons copper annually, plus another 8 years if further expected resources prove payable, a total of 35 years.

So with a mine life estimated at at least 27 years and with a production rate of about 210,000 tons a year of copper and 5,500 tons a year of molybdenum the math looks overwhelmingly positive. According to Chinalco’s own website Toromocho (the deposit on which the town of Morococha sits) is one of the highest quality undeveloped copper projects in the world a claim we would question as although the stripping ratio is low (the amount of waste that has to be moved to access the ore) the cost of extraction due to the low grade will be comparatively high. Nevertheless the presence of molybdenum and silver by-products will be an additional valuable revenue stream so the building of a new town could be small beer compared to the rewards to come. In addition it ensures a stable local source of labor – make the habitation attractive enough and workers will come in from other parts of the country habitation in mining towns is notoriously poor in Peru. Indeed the model will put pressure on other new mining activities in Peru to follow a similar path even if mining activities don’t encroach on local residential areas.

–Stuart Burns

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