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DOING SOME DIGGING – How to ruin your chances in Peru

I have just returned from a week in South America during which time I fell in love with Peru. It is the land of anc...



I have just returned from a week in South America during which time I fell in love with Peru. It is the land of ancient and rich cultures, of a rural lifestyle unchanged for centuries as well as vibrant cities, and the soaring Andes Mountains. I also picked up tips on how easy it is for a mine development to go wrong for a North American company in that country. Allow me to share a few observations with you.

► BUY AN EXISTING MINE WITH AS MANY ENVIRONMENTAL PROBLEMS AS POSSIBLE.

There is evidence dating back to the 1500s of mining at Quiruvilca in the Andes Mountains. The current owner, Vancouver-based PAN AMERICAN SILVER, has operated the mine since 1995. Last year the mine produced approximately 2.5 million oz of silver, 12,000 tonnes of zinc, 3,800 tonnes of lead and 1,100 tonnes of copper. Slated for closure in 2004, the mine remains open thanks to strong metal prices.

One problem faced by Pan Am was the failure of the old tailings dam. The fugitive tails spilled over an area nearly a kilometre long, including the local river. Not only does reclaiming the spill cost money, a new dam is being built in another location at additional expense.

Another problem is a coal mine located upstream from the silver mine. The high-sulphur coal is sold in local markets for domestic use. The Peruvian mine owner is not inclined to apply North American operating standards; consequently, it was obvious during my visit that this mine is a major polluter of the area. Even if downstream mining had no impact on the watershed, the coal mine is enough to foul the river.

► KEEP ALL THE MONEY AND BENEFITS FROM A PROJECT FOR YOURSELF.

The 9,000 people of Quiruvilca, located 3,800 metres above sea level, have relied on the nearby mines for over 100 years. The town is dirty, its residents dirt-poor. Raw sewage flows in open ditches beside the road, and there is no clean water because the river is polluted. Electricity, education and medical care are but words. Pan Am did not create this situation, it only inherited it from previous operators. The residents’ meagre incomes are derived from mining wages and subsistence farming. Their future is not bright. The closure of the nearby silver and coal mines would leave them with nothing.

► BE A TARGET OF ANTI-MINING PROTESTERS.

Failure to win over local communities, environmentalists and anti-mining groups early in the process can drive a company out of the country if not out of business. No company wants to be targeted, but once the protesters get started, it is a steep, uphill road to change their minds. Recall MANHATTAN MINERALS, which paid the ultimate price for unwanted attention.

Manhattan went to Peru in 1996 with hopes of developing the Tambo Grande massive sulphide deposit, one of the world’s largest. With the Peruvian government as a 25% partner, Manhattan proposed spending US$325 million to create gold and base metal mines in a two-stage development.

By 2001 the project was in trouble. When Manhattan unveiled plans to relocate 1,600 families, local opposition heated up. Protestors raided and burned the exploration camp, and completion of the feasibility study was delayed. The 2003 review of the project by the government’s natural resources ministry raised additional concerns about Tambo Grande, and last year the Peruvian government terminated Manhattan’s option on the property. That decision has gone to arbitration. Meanwhile, Manhattan has completely pulled out of Peru, announcing a corporate restructuring last month and changing its name to MEDITERRANEAN MINERALS.

Anti-mining demonstrations in northern Peru are becoming more frequent. The La Zanja exploration camp of Peru’s largest precious metals producer, BUENAVENTURA, was destroyedincluding the drill coreby protesters last year, putting work on hold. Buenaventura and partner NEWMONT MINING abandoned their Cerro Quilish gold exploration project after weeks of marches and strikes. A radio journalist was kidnapped and held for four days by an armed mob accusing him of being pro-mining. The small San Nicolas copper and gold project was attacked in February 2005 by 200 angry protestors demanding it be closed.

There never has been much of a police presence in northern Peru, I was told during my visit, and to judge by recent violence, it is still lacking.

► DON’T INFORM RESIDENTS OF RISKS.

The Yamacocha gold mine is Peru’s largest and the crown jewel in Denver-based NEWMONT MINING’s portfolio. Newmont shares ownership with BUENAVENTURA (44%) and an arm of the WORLD BANK (5%). In June 2000 a mercury spill occurred during transport. Two flasks fell off a truck and at least one burst.

Residents of three nearby villages knew gold mines used cyanide and mercury, but they had no idea what the toxic effects of those substances might be. Children took the shiny drops of liquid mercury home to play with. It was ingested as an elixir. Villagers believing that mercury contained gold, took it home and boiled it. Poisonings occurred. Had residents been informed of the toxic nature of mercury they would have avoided it, and Newmont would have been spared a US$15-million cleanup and costly lawsuit that continues to this day.

► IGNORE THESE STUMBLING BLOCKS.

Mining in Peru can be an attractive undertaking for companies aware of these major stumbling blocks. Those who are not willing or unable to avoid them can expect opposition at every step. Those who take a pro-active, community-based approach to a mining project will be rewarded. Read the special June issue of CMJ to learn how one of Canada’s most respected gold producers is doing things the right way.


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