Peru: Mining for potential
Latin America | 27 Feb 2013
Despite Peru’s vast mineral wealth and the many large investments planned for the mining sector in the short term, social conflict and other regulatory issues are creating production delays that could deter future investors if not resolved quickly.
Over the past year, a number of mining operations were stalled or abandoned due to social conflict. Recently, in September 2012 Canada-based Barrick Gold shut down operations at its Pierina mine for one day following a dispute between the police and villagers, which left one protestor dead.
Meanwhile, the conflict surrounding the Conga mine was one of the most publicised in 2012. Newmont Mining, the majority stakeholder in the Conga mine, in cooperation with the national government, decided to suspend its operations indefinitely. Putting the $4.8bn copper project on hold was a major blow for Newmont and the mining sector as a whole, as investors began to doubt the government’s ability to address social unrest surrounding mining projects.
While the government has implemented several important changes in policy surrounding extractive industry since the end of the Conga conflict in August 2012, social unrest continues to interrupt and delay mining projects. In early February 2013 authorities and residents of the Los Baños del Inca district in the mineral-rich Cajamarca region were organising to protest the Yanacocha mine, which is also managed by Newmont.
One of the primary concerns of protestors is the environmental impact of mining projects, particularly in regard to local water supply. The national government has taken steps to address this issue through the creation of the new National Service for Environmental Certification of Sustainable Investments (SENACE).
Approved by the Ministry of Environment in December 2012, SENACE will be responsible for approving the Environmental Impact Assessments (EIAs) for large-scale investment projects. Previously, the Ministry of Energy and Mines (MINEM) was responsible for both rewarding mining concession agreements and approving EIAs, an arrangement that critics argued created perverse incentives.
As of January 2013, SENACE was still in the early stages of implementation, and there is currently no clear timeline as to how long it will take to officially transfer the EIA approval responsibilities from the MINEM to SENACE, which may result in further project delays.
The government has made attempts to address protestors’ grievances through the creation of a law of prior consultation, which was approved in August 2011. The law requires the government to consult with indigenous groups affected by development projects before projects are approved. The law does not grant indigenous groups the right to veto project proposals, rather it obligates the government to prove that a project is “duly justified”.
The law of prior consultation ideally would help to ensure that residents near a mining site are accurately informed of the impact of potential mining projects on the surrounding area. Pedro Martinez, the ex-president of the National Society of Mining, Petroleum, and Energy (SNMPE), told OBG that much of the conflict surrounding mining projects has resulted from “the spread of misinformation by pseudo politicians with a particular agenda.” Martinez believes that the SNMPE needs to establish a greater and stronger “culture of dialogue” with communities to make them aware that the “mining industry has come a long way in the past 40 years and is cleaner, more efficient, and more responsible than ever before”.
However, not all forms of mining abide by the same standards of law. The 100,000 workers involved in informal mining in Peru are a major problem. Illegal mining often fails to abide by either labour or environmental legislation. The MINEM is currently engaged in a formalisation effort in the sector.
One testing ground for the government’s ability to resolve conflict may be the Tia Maria project proposed by US-based Southern Copper, which has branches in Peru and Mexico. The government will be responsible for setting up consultations with the local community early this year. Southern Copper expects to receive the government’s approval by the second quarter of 2013. If successful, the administration’s approval of this controversial project should help to allay investors’ fears going forward.
Despite the aforementioned challenges, the mining opportunities that exist within Peru are immense. As a result, the country should continue to attract significant investment in the mining sector, as long as the government continues to make address the concerns of the industry and the population alike.