Peru miners fear energy shortage to drive up costs

By Jean Luis Arce

LIMA, Aug 8 (Reuters) - Peruvian mining companies, the traditional backbone of the Andean country's economy, say they will face higher costs over the next year because of scarce energy supplies.

A drier than expected rainy season has slashed power output from hydroelectric dams, while the only gas pipeline that feeds thermoelectric plants is operating at full capacity. Its expansion will not be completed for another 12 months.

With deliveries from Peru's vast natural gas deposits in short supply, thermoelectric plants have started to burn higher-cost diesel at a time when President Alan Garcia is moving to slash fuel subsidies.

Some miners have backup generators that also burn diesel. These may need to be used more often if there are additional blackouts like one that struck parts of Peru on Thursday after a generation plant unexpectedly went out of service.

"Our energy costs have already risen," said Raul Vera, general manager of iron ore miner Shougang Hierro Peru (SHP.LM: Quote, Profile, Research).

Buenaventura (BUEv.LM: Quote, Profile, Research) (BVN.N: Quote, Profile, Research), Peru's largest precious-metals producer, said it was "highly probable" that it will have to put its energy contingency plan into action over the next few months.

"We have back up generators at our mines for emergencies, but obviously it's prohibitively expensive to burn diesel thousands of feet above sea-level," said Carlos Galvez, Buenaventura's chief financial officer.

Newmont's (NEM.N: Quote, Profile, Research) Yanacocha gold mine, Shougang, and Southern Copper Corp (SPC.LM: Quote, Profile, Research) (PCU.N: Quote, Profile, Research) said the government should encourage investment in generation capacity.