Newmont Mining has been operating Latin America’s largest gold mine, Yanacocha, since 1993. The mine is nearing the end of its life and Newmont wants to develop the nearby $4.8 billion Minas Conga copper and gold project, which will be the biggest foreign investment in Peru’s history. But the project has run into intense local opposition and five people were killed during recent protests, causing the government to impose a state of emergency.
Opponents, led by Cajamarca’s president, contend that the project will harm scarce water resources in the area. Their position has clashed with that of Peruvian President Ollanta Humala, who officially announced his support for Minas Conga in late June. This conflict has become a high-stakes test of how Peru treats foreign investment. The country has more than $50 billion in mining investments in the pipeline and taxes from mining are a key source of government revenue.
Resolving the conflict is a major challenge for the one-year-old administration of Humala, whose approval ratings are declining even as the economy is projected to grow 5.5% this year and 6% in 2013.
While the country’s decadelong economic boom has lifted many Peruvians out of poverty, about 30% of the population is still classified as poor with poverty especially widespread in rural areas. When he was running for office, Humala was seen as a left-wing radical. He won last June’s election by promising he would ensure that the poor get the benefits from the country’s mineral wealth. But, once in power, Humala dramatically reversed course, pursuing orthodox free-market policies.
“We’re still defending the economic model,” said Claudia Cooper, research associate at University of the Pacific in Lima. In the early 1990s, Peru opened up its economy via market-oriented reforms, privatizing industries and taking steps to promote trade and foreign investment. This free-market and investor-friendly model, Cooper noted, is supported by the majority of Peruvians, but about a third of the population doesn’t want the country’s mineral wealth to be owned by foreign corporations such as Newmont, Southern Copper Corp. SCCO -1.41% , Anglo American UK:AAL +0.75% and Xstrata
The social conflict tied to Minas Conga is probably the highest-profile one in Peru now, but it’s certainly not the only one. For instance, in the south of the country, Xstrata has recently seen violent protests against its Tintaya copper mine, which the Anglo-Swiss firm wants to expand.
“You have to separate the economic issues from the political issues. Conga is more of a political issue,” said Guillermo Arbe Carbonel, an economist at Scotiabank in Lima.
He pointed out that while social conflicts make the headlines, very few mining projects in Peru have actually been stopped or suspended.
But Cooper is less sanguine. “The natural-resources environment has deteriorated a lot in the past six months,” she said. “They [the government and protesters] are negotiating and we are hoping that anger is going to diminish,” she said, referring to the Minas Conga conflict.
Ever since Peru opened up its economy in the early 1990s, its resources have drawn foreign mining firms. The country has rich deposits of copper, silver and gold, as well as lead, zinc, tin and iron ore.
Minas Conga is estimated to hold 6.1 million ounces of gold and 1.7 billion pounds of copper. Like the Yanacocha gold mine, the project is a joint venture between Newmont, which has a majority stake, and Compania de Minas Buenaventura BVN -1.32% , a Peruvian precious-metals company. International Finance Corp. also has a small stake.
On a recent July evening in Lima, Miguel Santillana drew a map of Peru and recounted its history since the Spanish defeated the Incas at the battle of Cajamarca in 1532, plundering their gold and bringing devastating smallpox to the Andes.
Santillana, an analyst at the Peru Institute who has also worked as a consultant for foreign mining companies, said there was bad blood from the beginning between the local community and the Yanacocha mine operators, as people in Cajamarca tend to associate mining with abuse of resources.
The current conflict over Minas Conga has much more to do with politics than environmental concerns and it’s an effort to redefine the country’s economic model, according to Santillana, who believes that political leaders in Cajamarca want to weaken Humala and redirect Peru toward left-wing policies like those pursued by Ecuador, Venezuela and Bolivia.
In late June, Newmont said in a statement that before it begins the construction of Minas Conga mining facilities, it will build water reservoirs that will benefit the local community. But this commitment failed to appease the project’s opponents and the conflict has escalated.
Xstrata and Newmont declined interview requests for this story. The office of Peru’s economy minister said he was unavailable for an interview in Lima in early July due to a previously scheduled trip to Asia.
Besides Minas Conga, there are several other major mining projects in Cajamarca and observers think their fate is intertwined. These include Rio Tinto’s UK:RIO +0.48% RIO -1.77% La Granja copper project, which the company describes as one of the world’s largest undeveloped copper deposits, and Anglo American’s Michiquillay copper deposit.
Analysts at Eurasia Group wrote in a June report that anti-mining opposition is unlikely to develop into a nationwide movement, but it does have the potential to delay or derail certain projects, which has happened in the past. For instance, Peru dropped Newmont’s Cerro Quilish project in Cajamarca in 2004 and Southern Copper’s Tia Maria project in Arequipa in 2011.
Javier Torres, an anthropologist with nonprofit group SER, said the Minas Conga issue is very complicated to resolve and very politicized. He thinks the government should suspend the project and have an open discussion with the local community. President Humala may address the issue in his message to the nation on July 28, Peru’s independence day.
“We have to win this political fight,” Cooper said. “We have to get consensus on how we want to grow.”
Source: Marketwatch
