Mining Companies Leery As Protests Roil Peru Again

Mining companies leery as protests roil Peru again

June 8 2005

Reuters

Lima, Peru - Villagers in southern Peru stormed the Tintaya copper mine two weeks ago, ransacking offices and setting fire to the grounds. Pamphlets credited to Shining Path guerrillas were scattered in a nearby town.

In response, Tintaya owner BHP Billiton halted production indefinitely and the government is scrambling to patch up the dispute -- the latest in recent years.

While some mining executives worry violent protests could spread in the run-up to elections next April, most agree Peru is still a good bet for long-term investment because of its mineral riches and competitive costs.

"What happened at Tintaya is very different from past incidents, it is strictly political and goes beyond the relationship between the company and community," said Carlos Santa Cruz, vice president of South American operations at U.S.-based Newmont Mining Corp., which has the majority stake in Yanacocha, Latin America's biggest gold mine.

"These political movements may be extreme left or just extremely opportunistic because of coming elections," Santa Cruz told Reuters.

Many poor Peruvians see mining as a threat to their farmland and livelihoods and demand companies invest more in the remote regions where they mine, after decades of state neglect has left areas without electricity or clean drinking water.

Two gold projects were dropped last year after protests and a radio journalist accused of supporting a copper mine was abducted and beaten by an armed mob. Canada's Manhattan Minerals Corp. (since renamed Mediterranean Minerals) canceled its $315 million Tambogrande gold and copper project in 2003 because of local ire.

Peru is the world's No. 2 silver producer and is No. 3 in copper and zinc, No. 4 in lead and No. 6 in gold. The mining sector is the country's top export earner, generating $7 billion last year.

Victor Flores, a mining analyst at HSBC, said the latest unrest reflects the weakness of President Alejandro Toledo's "unpopular and ineffective government." And protests could hurt Peru's image among investors.

"If they see something they don't like in Peru, they just take their money elsewhere ... and that affects mining companies when they want to build a mine because it's harder to raise capital in markets or it costs them more," Flores said.

TINTAYA HAILED AS MODEL

Civic groups hailed an agreement between Tintaya and local residents two years ago, in which the company promised to donate 3 percent of its pretax profits, or at least $1.5 million a year, to community projects.

But last month, a march by two thousand villagers to demand that the mine invest $20 million a year in infrastructure and social projects degenerated into vandalism that included the ransacking of the mine's offices.

"These protests send a very bad message, that mining companies working in solidarity with neighboring communities could at any moment have problems operating," said Mauro Valdes, vice president of corporate affairs at BHP Billiton in Santiago.

Some protests, like those that ended exploration at the Cerro Quilish gold deposit last year, focus on scarce water resources or pollution.

People also increasingly demand that companies do the state's job of building roads, hospitals and bridges.

"The state needs to resolve these problems, reestablish authority and respond politically to what is ultimately a political act," Newmont Mining's Santa Cruz said.

"Peru is making efforts to assure companies that these violent acts will not be permitted," Mines Minister Glodomiro Sanchez said on Wednesday. "While such acts have an effect, they are isolated."

PAR FOR THE COURSE

Many miners say community relations efforts and development projects are now routine in poorer countries.

Britain's Monterrico Metals Plc was targeted last year by around 1,000 armed peasants who marched on its Rio Blanco copper project, which the company says could become Peru's No. 2 copper producer.

"These things happen and I don't think they will just go away," said Andrew Bristow, operations manager at Monterrico.

"But Peru is still a very attractive place to invest because it has an enormous untapped potential in resources ... and there is a lot more stability than in the 1980s and early 1990s" when Shining Path and paramilitaries terrorized Peru.

Canada's Barrick Gold Corp. , which will start producing gold next week at its Lagunas Norte mine in Peru, has a similar outlook.

"You can't go on forever without any kind of reaction or activism or scrutiny in terms of your policies and standards. That's par for the course," said spokesman Vince Borg.

(Additional reporting by Eduardo Orozco)