The depths of community opposition: where’s the bottom? (Part 1)

An investor reports on a fact-finding visit to Peru

This is the first of a two-part series by Julie Tanner on mining in Peru and the role of responsible investors.

I recently returned from a visit to Lima and Cajamarca, Peru to meet with Newmont Mining’s senior management and to obtain the views of government officials, community groups, NGOs, and faith organizations following the deaths of five protestors in July. The proposed $4.8bn Minas Conga mine, a joint venture between Newmont and Buenaventura, is Peru’s biggest foreign investment project and presently its most contentious. The project, now postponed due to community opposition, involves surface mining of a large copper deposit also containing gold that is located 24 kilometers northeast of Yanacocha, the third largest mine in the world and the largest gold mine in Latin America. While legacy issues , including a mercury spill in 2000, have hindered positive relationships, some local communities oppose the project due to concerns about access to sufficient quantity and quality of water and their lack of inclusion in determining development in the region.

In July, the company began a series of more than 50 direct meetings with stakeholders to hear their perceptions of the company and how they impacted their relationships with stakeholders. The release last month by Newmont of the Perceptions Study included an acknowledgement by both the Regional Senior Vice-President and the General Manager of Minera Yanacocha, S.R.L.: “We are not proud of the current state of our relationship with the people of Cajamarca. We want to take this opportunity to acknowledge the mistakes we have made in how we have conducted ourselves and conducted business.“Most importantly, we apologize for the distress we have caused and for failing to earn your trust.” It’s an important admission and it is too early to tell if community groups will find it credible. In 2004, local opposition to another Yanacocha project — Cerro Quilish — became so pronounced that the company relinquished its drilling permit and was forced to reclassify 3.9 million ounces from proven and probable reserves.

The fatalities due to Minas Conga are not the first this year in Peru. According to Human Rights Watch, 19 people have died over natural resource conflicts since President Ollanta Humala took office in July 2011. The most recent death, in September 2012, occurred at Barrick Gold’s Pierina mine which has also temporarily suspended production. Violent protests over environmental contamination concerns left two dead in May 2012 at Xtrata PLC’s Tintaya copper mine in the Espinar province of Southern Peru.

Following the Xstrata and Conga clashes, Peru’s government declared a 30-day state of emergency, which suspends a number of civil liberties, including the right to freedom of assembly. But Barrick and Newmont are just the most recent examples of companies embroiled in community conflicts in Peru. Bear Creek Mining Corp’s Inambari silver mine at Santa Ana in Puno was canceled by the government in June 2011, after six people were killed. In April 2012, the Ministry of Energy and Mines cancelled Southern Copper’s (controlled by Grupo Mexico) $1bn Tia Maria project in the southern region of Arequipa, after two protestors were killed, and forty four injured during protests by farmers fearing potential water contamination.

Southern Copper has faced community opposition to an

$800m expansion at its Toquepala mine in Tacna, near Peru’s southern border with Chile as has Anglo American’s Michiquillay Mine. Anglo has had greater success with its $3bn Quellaveco Copper Mine, a project that faced strong community opposition over concerns of access to and potential contamination of water supplies. In a positive development, in July 2012 the project was given a green light after the company agreed, after a year of negotiations with local governments in the south coast region of Moquegua, to spend 1 billion soles (approximately $390 million) in voluntary payments to surrounding communities over 30 years.

Anglo American’s recent agreement is not common. The Office of the Peruvian Human Rights Ombudsman (Defensoría del Pueblo), which tracks social conflicts in the country, estimates that approximately half of the 167 active conflicts have entailed violence at some stage and the bulk are due to social and environmental concerns over extractive projects.

Conflicts cost investors — the National Society of Mining, Petroleum & Energy estimates that Peru’s mining industry will invest 33 percent less than previously expected next year as social unrest delays projects.While the mining industry accounts for more than 60 percent of export earnings and corporate tax revenues fill government coffers, one in three Peruvians still live in poverty despite a decade-long economic boom fed by high commodities prices. Communities are increasingly calling attention to the environmental impacts, including the potential for water pollution, and questioning the direct economic benefits derived from mining.
According to Peru’s Minister of Development and Social Inclusion, rural poverty is nearly 60 percent and extreme poverty in rural areas is 23 percent. Current national development efforts are focused on reducing these numbers but many question whether these programs tackle the root causes of poverty, the power imbalance that exists when companies enter communities impacted by their operations, and whether there are sufficient mechanisms to provide communities with information on the full range of impacts and with the ability to decide if they want these projects.

The second article in the series will look at the role of responsible investors.

Julie Tanner is Assistant Director of Socially Responsible Investing at Christian Brothers Investment Services.