Doe Run Peru saved from collapse?

Doe Run Peru clinches credit deal, avoids collapse

By Teresa Cespedes, Reuters

2 April 2009

LIMA - Doe Run Peru edged away from the brink of collapse on Thursday, receiving two new credit lines totaling $175 million that were guaranteed by a group of miners, company and government officials said.

Doe Run Peru, a unit of the U.S.-based Renco Group, halted nearly all work last month at its sprawling La Oroya smelter - one of the largest smelters in the Americas -- after banks cut its financing, strangling its ability to buy concentrates. Low prices and debt payments have squeezed the company, which also must make millions of dollars in investments under an environmental agreement.

Doe Run Peru has offered the government a 100 percent stake to guarantee it will complete a clean-up program at La Oroya, a factory town often ranked one of the world's 10 most polluted places, said Peru's Finance Minister Luis Carranza.

Companies across the metals sector are struggling as prices have plunged on the global economic crisis. The near collapse of Doe Run Peru shows how fast a company's fortunes can turn. "This private aid is made up of two credit lines -- one worth $75 million ... which will allow the company to continue operating and one, valued at $100 million, which will provide La Oroya with the concentrates it needs," said Ysaac Cruz, head of El Brocal, a Peruvian miner that sells to Doe Run Peru.

Doe Run Peru had lost credit lines of at least $75 million and has unpaid bills to suppliers of $100 million. In addition to the credit facility, the Peruvian unit of Doe Run will not have to repay, but rather reinvest, $156 million it owed its parent company.

Among the miners that said they are backing the credit are El Brocal, Buenaventura (BUEv.LM), Peru's largest precious metals producer, and Volcan (VOL_pb.LM), one of the country's largest zinc miners.

Thursday's announcement ended speculation that Doe Run Peru would be bailed out by the government. "This was a rescue from the private sector," said Cruz. "It shows the mining sector is continuing to thrive and bet on Peru."

SMELTER OPERATIONS TO RESTART

La Oroya is a hub for dozens for Peruvian mining companies, and 3,500 people rely on it for work.

The company, which buys concentrates from about 30 different mining firms in Peru, said it would restart work at its smelter soon. "Operations will restart as soon as possible, in the next few days," Doe Run Peru President, Juan Carlos Huyhua, told reporters.

La Oroya is located in the mountains, about 108 miles (174 km) east of Lima, Peru's capital.

The mining ministry says Doe Run Peru produced 53,831 tonnes of copper, 114,259 tonnes of lead, 43,440 tonnes of zinc and 1.07 million kilograms of fine silver last year.

Peru, a major metals exporter, is the world's top producer of silver. Minerals account for more than half of total exports and are the government's largest source of revenue.

(Reporting by Teresa Cespedes; Writing by Dana Ford; Editing by David Gregorio, Gary Hill)

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Doe Run Reaches Loan Accord With Suppliers in Peru

By Alex Emery, Bloomberg

2 April 2009

Doe Run Peru reached an agreement with suppliers to resume operations after banks halted funding to the lead and zinc refiner in February, Peruvian Finance Minister Luis Carranza said.

Doe Run Peru, a unit of Renco Group Inc., which shut 95 percent of its operations last week, will restart its smelter “soon,” Carranza said today in a press conference in Lima. A group of mining companies agreed in government-brokered talks to lend Doe Run Peru $75 million and provide $100 million of concentrates, he said. “This was entirely a private solution,” Carranza said. “The government didn’t put up a cent.”

Banks halted financing to Doe Run on Feb. 24 after metals prices collapsed because of the global economic slowdown. The move forced about 30 lead- and zinc-mining companies in the Peruvian central highlands to seek other buyers for their raw materials. Peru is the world’s largest producer of silver, the third-largest miner of copper, zinc and tin and No. 5 for gold.

Cia. de Minas Buenaventura SA, Volcan Cia. Minera SAA and Soc. Minera El Brocal SA were among six mining companies that agreed to aid Doe Run Peru, said Hans Flury, head of Peru’s National Society of Mining, Petroleum and Energy. “The mining industry shouldn’t receive tax breaks or state subsidies,” Flury said.

Buenaventura Chief Financial Officer Carlos Galvez, El Brocal Chief Executive Officer Ysaac Cruz and Volcan Chief Executive Jacob Timmers didn’t immediately return phone calls seeking comment.

Jobs Saved

“The most important thing is that the deal saved 3,500 jobs,” Luis Castillo, general secretary of the Mining Federation, a group that represents 28,000 miners, said in a telephone interview.

Doe Run’s La Oroya smelter, 140 kilometers (87 miles) east of Lima, last year refined 114,259 metric tons of lead; 43,440 tons of zinc; 53,831 tons of copper and 1.1 million kilograms of silver, according to the Energy & Mines Ministry.

Doe Run, which posted $1.45 billion in sales in 2007, buys $1 billion of concentrates a year, according to its Web site. The company has invested $300 million in improvements, including two sulfuric-acid plants, since buying the smelter from state mining company Centromin in 1996.

Doe Run Peru will use 100 percent of its shares as a guarantee to complete an environmental clean-up plan, Carranza said. The company plans to build a third sulfuric-acid plant next year to reduce emissions.

Copper futures for May delivery rose 4.1 cents, or 2.2 percent, to $1.89 percent, to $1.7960 a pound on the New York Mercantile Exchange’s Comex division. Zinc for delivery in three months rose $20, or 1.5 percent, to $1,332 a metric ton on the London Metal Exchange, while lead rose $65, or 5.3 percent, to $1,285 per ton.