Shougang Hierro Peru S.A.A. (

Shougang Hierro Peru S.A.A. (http://www.shp.com.pe) is the largest Chinese entity operating in South America. Their mining and benefication plants are located in a desert area called Marcona within Nasca city, Ica province, covering 670 square kilometres of Peru.

Peru miners feel oppressed by China's Shougang

July 21, 2005

By Robin Emmott, Reuters

SAN JUAN DE MARCONA, Peru - The residents of Marcona, a desolate, dying port on Peru's Pacific coast, are not exaggerating when they say they feel abused. In a town surrounded by desert and with only four hours of water a day, a Chinese-owned iron ore mine is the only source of employment and workers there complain of health risks, low wages and frequent accidents, some of them fatal

China has billions of dollars of investments in South America ranging from Bolivia to Brazil, but none appear as troubled as Shougang Hierro Peru SA, owned by China's state-run steel maker Shougang Group.

Peruvian officials, miners and environmental groups accuse it of failing to meet its investment obligations, alienating workers and threatening China's reputation in its search for raw materials in the resource-rich region.

"Shougang has turned us into slaves," said Carolina Collantes, an impoverished sweet seller whose husband works 15-hour shifts at the mine for $13 a day. "Marcona has become a source of cheap labor to feed the iron ore production."

Shougang Hierro Peru declined a request for an interview.

In 1992, when the Shougang Group paid $118 million for the state-run Hierro Peru mine 200 miles south of Lima, Marcona buzzed with expectations the company would revive the local economy. Shougang agreed to invest $150 million over the next three years, but spent only $35 million, preferring to pay a $14 million fine, according to Peru's government.

"We thought it would be so different. Chinese investment is the big hope for Latin America, isn't it?" said miner Antonio Ventura, pointing to a rusting bus that takes miners to work.

Facing more fines, Shougang invested another $88 million between 1995 and 1999 to take its total investment, including the fine, to $137 million over seven years.

Shougang's union says the result is rising production -- the mine's iron ore output climbed 22 percent to 4.2 million tonnes last year -- but also job cuts, minimal safety standards and no investment in the now ruin-like town of 13,000 people.

"Shougang is responsible for water and electricity in Marcona. The result is just four hours of water a day and regular blackouts," says Julissa Castaneda, a senior official at Marcona's town hall.

Locals and Peruvian environmental groups also accuse Shougang of tipping chemical waste into the sea, killing fish.

SAFETY DECLINES

Union officials say there were 450 accidents at the mine last year, including 22 that left workers disabled. Five workers have died since 2002 in accidents, from electrocution and a lack of safety harnesses, the union says.

"The company tells us we're inventing things, but I'm forced to use crutches because my legs got caught in a faulty engine in 2002," said Constantino Contreras, 56, sitting in his cold cement house with cracked windows.

Shougang's relationship with its 1,800 workers has also deteriorated and there has been at least one strike a year since 2001, the latest at the start of July.

Miners complain wages at Shougang are among the lowest in Peru's multi-billion dollar mining industry, at an average $14 a day, but that the company has increased productivity per worker by 60 percent since 2000.

A faded company statement from July 2003, stapled to a wall in the union building, argued that only BHP Billiton and Southern Peru Copper Corp. (SPCU) paid more.

The average miners' salary in Peru is $33 a day, according to Peru's National Society of Mining, Petroleum and Energy.

A Shougang official in Beijing who declined to be named said: "The company has done a lot to improve safety closely related to operations," but declined to be more specific.

The apparent frugality cannot be blamed on Shougang's economic performance. With international metal prices at record highs, Shougang Hierro Peru's profit last year doubled to $21.6 million, compared with 2003.

Peru accounts for only around 2 percent of China's iron ore imports but has another 30 years of life in which production is expected to rise. China, the world's biggest steel market, sees its steel output growing at least 10 percent this year.

CLASH OF CULTURES?

"There is a culture problem," said Peru's Mines Minister Glodomiro Sanchez. "The Chinese managers see their way of doing things as discipline, while the workers see it differently."

But he denied the government was turning a blind eye to the situation. "I've told Shougang they've got to change their ways. They cannot go on as they are. If they do, they'll bring the mine down on their own," Sanchez said.

Peru's experience with Shougang is sobering for Latin America, which sees fast-growing China as a key source of investment. Countries in the region have signed a variety of trade and tourism deals with Beijing.

Marcona's residents, meanwhile, say Shougang and China can learn a lot from the U.S. company that developed and operated Marcona from 1946 until 1972, when the pit was expropriated by Peru's military government.

"The Marcona Mining Company built the schools we still use today. It built the port, the hospital, the roads and it paid us well," said union leader Manuel Vidales. "To make mining sustainable, you can't abuse the communities," he added.

(Additional reporting by Fang Yan in Shanghai)