Xstrata’s Las Bambas copper project in Peru could cost as much as $5.2 billion, the company announced.
Xstrata, which is preparing for a merger with Glencore, is the world’s fourth-largest producer of copper and has the largest exposure to copper among the diversified miners. Copper is expected to benefit from tight supply, as mine grades deteriorate and new projects lag.
However, copper is also likely to be a battleground with Glencore when mining projects are reviewed once the tie-up is complete. Glencore favors expanding existing operations in the promising Congolese copper belt, over plans in Latin America, where miners have battled with delays, community protests and escalating costs, Reuters reported.
Analysts expect a review of the combined Glencore-Xstrata group’s projects by the incoming management, led by Glencore Chief Executive Ivan Glasenberg, could result in cuts to Xstrata's pipeline of greenfield projects, particularly in locations like Argentina, where costs have soared and political risks are seen to be high.
Xstrata increased the cost of Las Bambas by more than 20 percent last year to $5.2 billion after permitting delays held back construction, but it stuck to that number in its most recent estimate despite what some analysts had flagged as the risk of further costly delays, due to community unrest in Peru.
The project - with a capital intensity of $13,000 per annual tonne, at the mid to lower end of the spectrum - is now expected to ramp up during 2015. Xstrata expects combined annual copper production from Peru of around 700 kt (770,000 st) from 2015, 400 kt (440,000 st) of that from Las Bambas.