Peru: Is this Doe's final run?

Published by MAC on 2009-08-10

Doe Run Peru Insolvent, Begins Restructuring

EFE

6 August 2009

LIMA - U.S.-owned smelter operator Doe Run Peru is insolvent and will begin restructuring, Peruvian Energy and Mines Minister Pedro Sanchez said.

The mining company will undergo a review by Peru's Indecopi regulatory agency that will allow it to restructure liabilities and become viable, the minister said in a press conference on Monday. "What we learned about today (Monday) is a process that was already underway at Indecopi," Sanchez said.

Doe Run representatives met Monday with Sanchez and other Energy and Mines Ministry officials to discuss the company's financial situation after the firm's workers accepted a deal under which they would receive 63 percent of normal pay during a 90-day suspension of operations at the company's smelter east of Lima.

Prior to declaring insolvency, Doe Run Peru had repeatedly asked the government for a 30-month extension to execute the Environmental Clean-Up and Management Program, or PAMA.

Sanchez, however, said the mining company "not only has the problem of the PAMA, but it also has serious financial problems, and these two factors must be analyzed within this process by Indecopi."

"This is a viable solution provided under force majeure, to protect the commitments to workers and so the accounts to pay salaries and other things won't be frozen," Doe Run Peru general manager Juan Carlos Huyhua said.

Doe Run has proposed injecting $31 million of fresh capital into its operations, conditioned on the government's granting an extension for completing the PAMA.

While officials rejected that request, they indicated the government might provide more time if the company injects at least $100 million in fresh capital, hands over 100 percent of its stock to the state as a guarantee and reaches an agreement with creditors.

Doe Run Peru has operated the La Oroya smelter - which produces lead, zinc, copper, silver and gold, as well as byproducts such as sulfuric acid and indium - in the central region of Junin since 1997 and the Cobriza copper mine in the Huancavelica region since 1998.

Amid the global financial crisis, Doe Run Peru was forced to pare down its operations to a minimum, saying it lacked sufficient funds after a group of foreign banks cut off its credit line in March.

After Economy Minister Luis Carranza stepped in and mediated, the National Mining, Petroleum and Energy Society, or SNMPE, announced on April 2 that its member companies would extend a $175 million credit line to enable Doe Run, a unit of U.S.-based Renco Group, to resume operations.

Even with the loan, the La Oroya plant never returned to previous production levels and shut down completely several times, provoking protests by employees.
Doe Run has been a frequent target of criticism due to the high levels of toxins emitted by its smelter, which has made the nearby city of La Oroya the most polluted city in the Americas.

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Doe Run Peru's Possible Bankruptcy to Spur Overseas Zinc Sales

By Alex Emery, Bloomberg

4 August 2009

Zinc companies in Peru, the world's third-largest producer, will look to sell more concentrates overseas after the government said smelter Doe Run Peru may file for bankruptcy, according to a creditor.

A bankruptcy may take months to complete, said Carlos Galvez, chief financial officer of precious metals producer Cia. de Minas Buenaventura SA, a Doe Run Peru creditor. Doe Run, a unit of Renco Group Inc., may file for bankruptcy to restructure about $156 million of debt, Energy & Mines Minister Pedro Sanchez Gamarra said yesterday.

"There are plenty of smelters around the world looking for concentrates," Galvez said yesterday in a telephone interview from Lima. "The smaller companies will have to turn to the traders."

Banks halted lending to Doe Run in February after metal prices collapsed and the smelter shut all operations on June 2 when suppliers refused to sell it raw materials.

Copper, zinc and lead prices declined at least 49 percent in London last year, leading to $124 million in company losses.

Doe Run Vice President Jose Mogrovejo declined yesterday to confirm that the company will file for bankruptcy. Company and government officials will meet for talks on Aug. 5, he said in a telephone interview. "A bankruptcy process would protect the company's assets and workers' jobs," Mogrovejo said. "But it's a technical process we can't comment on beforehand."

Union Meeting

Union leaders met last night to study the possible bankruptcy, Mining Federation General Secretary Luis Castillo said in a telephone interview.

The government last week threatened to close down the smelter indefinitely if Doe Run failed to inject $100 million in capital and meet an Oct. 31 environmental clean-up deadline. The company proposed to use $31 million in guarantees and tax breaks.

"We didn't have a concrete proposal until now and we were just going over and over the same issues," Sanchez told reporters in Lima yesterday. Peru's antitrust office "is a viable option that will deal with this in a serious manner," he said.

Creditors including Buenaventura and its zinc unit El Brocal are increasing provisions for lack of payment. Doe Run owes these two companies $16.6 million and $7.5 million to Vancouver-based silver and zinc miner Pan American Silver Corp.

"It's time to look for a serious operator to manage this company," Buenaventura's Galvez said. "Without suppliers, the smelter's a worthless hulk."

Traders Benefiting

Doe Run, Peru's fourth-largest exporter with $1.45 billion in sales in 2007, buys $1 billion of concentrates a year, according to its Web site. The shutdown of its operations forced about 30 mining companies in the Peruvian central highlands, the country's main zinc and lead-producing region, to either shut down or seek other buyers.

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.

Trading companies Glencore International AG and Trafigura Beheer BV have boosted their sales as suppliers of Doe Run's shut lead and zinc smelter seek international traders to sell their concentrates, company officials said last month.

Doe Run has said it needs three years to settle debts and invest in the environmental cleanup, prompting employees to call for the government to intervene. The complex employs 3,700 workers.

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Doe Run is obligated to meet deadline for cleanup, Peru's govt says

Isabel Guerra, Living in Peru.com

5 August, 2009

Peru's Deputy Minister of Mining, Fernando Gala, declared publicly that despite having declared itself insolvent, Doe Run Peru "still has the obligation of meeting the environmental cleanup as soon as possible."

Gala remarked that Peru's goverment expects Doe Run to have this task done in two months' time (by October 31st) but admitted that "it is very complicated for Doe Run to meet this deadline."

Meanwhile, Doe Run Peru's Vice President for Environmental Affairs, Jose Mogrovejo, insists on requesting an extension of 30 months to do the cleanup.

"We need Doe Run to become credit-worthy again, and it won't be possible without an extension," declared Mogrovejo.

Doe Run Peru is a subsidiary of the US based Renco group.

Doe Run Peru still needs to invest US $115 million dollars in order to finish with the last stage of the cleanup, and has at present a total debt of US 120 million dollars with its creditors.

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Ministry awaits "serious proposal" from Doe Run

By Business News Americas staff reporters

15 July 2009

Peru's energy and mines ministry is waiting for a "serious proposal" from Doe Run Perú to consider extending the company's deadline for meeting environmental improvement requirements, known as PAMA, at its La Oroya smelter, MEM said in a statement.

Such a proposal would have to include US$100mn in fresh capital from the company and collateral of 100% of the company's shares, deputy mining minister Fernando Gala said, adding Doe Run has not responded favorably to these terms.

According to Gala, the company's last proposal of contributing US$38mn to the US$150mn project is financially unviable, as the money would already be coming from the state in the form of tax returns and letters of guarantee.

The official also said that Doe Run's request for a 30-month extension of the October 31 deadline is excessive, and that assuming proper resources the work should only take 11 months.

"The PAMA is not going to be complete in October, that is definite. We are three months away. If there is a financially viable proposal with adequate guarantees and an agreement with suppliers, then the state would be willing to evaluate a possible extension," Gala said.

Meanwhile, Gala defended a bill aimed at speeding up the restructuring process of large companies in financial trouble, which Doe Run recently criticized as changing the rules of the private investment game. The bill is designed to protect workers, he said.

Doe Run ran into financial problems earlier this year when banks cut off its credit as metals prices plummeted. The smelter's concentrate providers co-signed on a US$175mn credit line to keep the operation going, one of the conditions being that it complete the PAMA obligations established in its 1997 privatization contract.

The smelter complex was expected to produce 130,000t lead, 55,500t zinc and 66,000t copper this year.