Southern Copper's Tia Maria Project: Social License And The Copper Market

Southern Copper's Tia Maria Project: Social License and the Copper MarketProblems at Southern Copper's (NYSE:SCCO) Tia Maria project reached new heights on Friday when Peru declared a state of emergency due to violent protests at the operation.

The government has put the state of Arequipa under martial law for the next two months. That means police officers can break up meetings and marches and may enter houses without search warrants, The Wall Street Journal reported. Protests have been going on since late March.

"In line with what is established in the constitution and the decree declaring a state of emergency, the national police with the backing of the armed forces will be charged with maintaining public order," the news outlet quotes Prime Minister Pedro Cateriano as saying.

So far, one policeman and three protestors have died as a result of violence in the region. Development at the $1.4-billion Tia Maria project was temporarily put on hold on May 15, according to Reuters. The project has been stalled since 2011.

Social license

For investors, the situation highlights how keeping an eye on a company's efforts to obtain social license is key. Any major issues on that front could spell trouble for the development of a project.

So far, Peru's government doesn't appear to have explicitly opposed Tia Maria, though it sent in approximately 4,000 police offers and 1,000 soldiers in response to this month's demonstrations. Reuters notes that the country's president has said Southern Copper could sue Peru if the project gets axed.

Still, locals continue to protest the operation due to concerns about how could affect their water and agricultural land. The public's negative perception of the company may stem from the fact that Grupo Mexico (OTCMKTS:GMBXF), which owns Southern Copper, has had issues with the environment before — a toxic leak at that company's Buenavista copper mine turned Mexican rivers orange last summer.