Latin Finance - April 2008 - 18

peruvian mining Drilling Through Resistance by Lucien Chauvin ith base and precious metals riding at all time highs, Peru is doing its best to cash in by extracting raw materials as quickly as possible. Peruvians, largely left behind in the rapid expansion of recent years, are resisting the extraction. But the sheer weight of cash and increased use of social programs by miners is expected to prevail. “Capital markets in Europe and the United States are looking at Peru because of its abundant resources,” says Roberto Dañino, VP of Hochschild Mining. “There are some social problems and regulatory issues that need addressing, but the level of investment should indicate that the climate overall is good,” adds Dañino, a former cabinet chief. Take Querocoto, a little town tucked into a green valley in Peru’s northern Andes. Reached by an unpaved highway through the department of Cajamarca, it is home to the La Granja copper and gold deposit, which is being explored by Rio Tinto, the fourth company to probe Querocoto’s ore deposit in the past few decades. Others pulled out when international prices were low, or when they encountered problems with ore grade. But Rio Tinto’s results have been promising and it hopes to decide in the next 18-24 months if it will go into production. Rio Tinto has fixed road access to Querocoto, while also covering the cost of new water pipes and rebuilding the church. It employs around 800 from a population of fewer than 5,000. A $3 million social fund has also been created for special projects like rural electrification. “We are receiving investment and the company has created many jobs for local people, and this in only the exploratory phase,” says Querocoto mayor José Pérez. “We have a transparent relationship, so W Peru’s mining bonanza will be driven by private investment of more than $10 billion in the next five years. However, the leading base metals producer faces a popular backlash. Playing with fire: the government may be burned by neglect of social concerns there are no complaints,” he adds. But despite a government projection of private mining investment exceeding $10 billion in the next five years, there are few communities like Querocoto openly embracing the industry. Of almost 90 social conflicts recorded by the government in February, almost half were linked to struggles between communities and extractive industries. In the past six months there have been two non-binding referendums on mining – one in the far north and another in the deep south of Peru – with almost all votes cast against extractive projects. President Alan García’s government, while recognizing the fears some communities have about mining, believes rising investment will eventually convince people it is best for development. It is also confident that huge mining resources will lure investors, even if social protest continues. “Communities have to understand that mining investment is positive. This is a traditional mining country and economic development is grounded in mining, there is no other activity that can guarantee development,” says energy and mining minister Juan Valdivia. While analysts agree, they are concerned about the government’s cavalier attitude to communities. “The government is playing with fire and may be burned by its poor attitude to social concerns outside of metropolitan Lima,” says Mark Turner, LatAm equity analyst at Hallgarten & Company. “The 18 LATINFINANCE April 2008

Latin Finance - April 2008

Table of Contents for the Digital Edition of Latin Finance - April 2008