Having lived in Ecuador for several years, and witnessed a pair of major popular uprisings, I know how quickly the ire of people can transform into a national event that cripples economies or even topples administrations. A full year after a contentious nationwide strike by miners in Peru, unrest is brewing once again.
An estimated 5,000 protestors in Peru's southern Moquegua province blocked key roads with boulders and otherwise shut off access to nearby copper mines and smelters owned by Southern Copper (NYSE:PCU) this week. They demanded from President Alan Garcia a greater share of the taxes collected from the company and appear to have backing from local government leaders, including the governor of the province. With a 40% poverty rate, Peruvians are clearly frustrated with the lack of benefits they've seen from a booming commodity sector.
Southern Copper's Cuajone and Toquepala mines, as well as the coastal smelter and refinery complex in the city of Ilo, combine for a very substantial copper output. In fact, these mines represent 61% of Southern Copper's global production. Any prolonged disruption to these operations could not only sting the company's bottom line, but also put yet more upward pressure on the underlying commodity prices.
Meanwhile, miners at the nearby Cerro Verde copper and molybdenum mine are on strike. Cerro Verde is operated and majority-owned by Freeport-McMoRan (NYSE:FCX), though Peruvian miner Buenaventura (NYSE:BVN) holds a minority stake. Freeport-McMoRan has assured investors that production has not been affected by the walk-out.
The real question for Foolish investors here is whether this unrest will develop into a more widespread or even nationwide event. In northern Peru lies the world-class gold mine at Yanacocha, operated by Newmont Mining (NYSE:NEM) in a joint venture with Buenaventura. Suffice to say, any significant interruption there would be felt within the gold market. Fools invested in any of these companies need to keep an eye out for further developments.
Further Foolishness:
- Southern Copper looks muy bueno otherwise.
- Buenaventura is Peru's Emperor of Gold.
- Freeport-McMoRan could be gobbled up.
