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February 5, 2013 6:44 pm
Perched at an altitude of 5,200m in the Peruvian Andes, the newly built town soon to be christened Nueva Morococha is an incongruous sight, its immaculate rows of matching red roofs dominating the bowl-shaped valley below.
Chinalco, a Chinese mining company, has built the settlement from scratch to relocate about 3,500 people from the village of Morococha – a former mining camp built on a slag heap in the early 1900s.
Nueva Morococha boasts paved streets, playgrounds, schools, churches and water-processing plants. It stands in stark contrast to the old village, 15 minutes drive up the hill, where shacks and ramshackle adobe houses with rusty corrugated metal roofs cluster around potholed roads. A pungent smell from the communal latrines hangs in the air.
Chinalco’s motive for relocating the villagers is visible in the scars gouged across the cone-shaped, ochre mountain that looms over the old village. It is here on Toromocho – the bull with no horns – that Chinalco is investing $2.2bn in a copper mine and processing facility. The villagers of Morococha are, quite simply, in the way.
According to the company, 77 per cent of households, about 900 families, have agreed to move. Chinalco says it is still calculating the cost of the resettlement, but estimates suggest somewhere between $150m and $200m.
The problem is that not everyone is ready to move immediately. Marcial Salomé, the mayor, has defied Chinalco and has pledged not to move to the new village until he gets what he believes is owed to his people.
“I am not opposed to the move, I just want the company to give us what’s fair,” he says. He is representing a few hundred residents who have resisted the terms of the relocation. He wants Chinalco to guarantee jobs in the new mine and the company to compensate his townspeople with $300m for destroying their village. “This is our home,” he adds. “We need to defend what is ours.”
Mr Salomé’s resistance to Chinalco lays bare the simmering social tensions that pose one of the most severe challenges to Peru’s aspirations to challenge Chile’s supremacy among global copper producers.
Compounding the challenges for Ollanta Humala, Peruvian president, is the huge increase in illegal and informal mining and how best to deal with it. Unregulated mining has moved from artisanal methods of extracting metals into a far more industrial process.
Lima’s targets are ambitious. If Peru receives all the investments it has in the pipeline over the next 10 years – about $53bn for 52 projects – the Andean country will produce 5m tonnes annually by 2025 – putting it right on the heels of Chile, the world’s top copper producer, with output of 5.7m tonnes. Peru is currently the third-biggest copper miner, producing about 1.3m tonnes. Mining is the backbone of the fast-growing economy and accounts for 15 per cent of gross domestic product.
But the exploitation of copper reserves presents President Ollanta Humala with a knotty political challenge. While many of Chile’s mines lie in remote, unpopulated areas such as the Atacama Desert, Peru’s copper is more frequently found near the villages of indigenous communities.
This has forced Mr Humala to perform a delicate balancing act. The 50-year-old former army officer won a close election in 2011 on a social democratic platform, pledging to support the poor in the country’s many mining disputes. On the other hand, Mr Humala is acutely aware that the billions of dollars from promised mining investments are crucial to sustaining the nation’s stellar 6 per cent economic growth. This generates the extra revenues he needs for social programmes, supporting more than a quarter of the population who live below the poverty line – people like the inhabitants of old Morococha.
“Peru has the mineral potential to be a copper superpower, and it is certainly far closer to this status than it was 20 years ago. So it is moving in that direction,” says Anthony Bebbington, a former World Bank consultant. “The question, then, is can that move forward be sustained? And what would be the social and political institutional conditions that will allow that to happen?”
Mr Humala’s first year in office gave him a bloody introduction to the sort of institutional reforms he would have to make as he faced protracted riots around the northern city of Cajamarca, famed as the place where the Inca empire met its end.
The stand-off was over a planned $5bn investment by New-York listed Newmont Mining for one of the country’s largest open-pit gold and copper mines, Minas Conga. Local politicians and residents say the Conga mine, which is still at the construction stage, will harm the water supply. The company denies this. The total number of deaths is disputed. In July last year five people were confirmed killed but human rights and environmental activists say as many as 15 or 16 people have died since September 2011.
The government admits to more than 200 conflicts, with others reportedly bubbling just below the surface. Those that most often turn violent involve mining and increasingly focus on water use. They include not only Minas Conga but also Xstrata’s Tintaya-Antapaccay operations in the southern region of Cusco. And late last month some people were wounded in clashes between the police and local communities demanding the abandonment of Candente Copper’s Cañariaco project in Lambayeque, northwestern Peru.
Analysts say the problem with all of these projects, which would require total investment of almost $8bn, is that anti-mining groups believe they have already won a battle to halt them. Digging in, the protesters will not even accept the projects with alterations that satisfy all of their original demands.
“They should scratch most of those projects, sometimes they do more harm than good, it’s as simple as that,” says Marco Arana, a softly spoken former priest, who has been at the forefront of protests in Cajamarca. “I am not anti-mining, but we need to find a balance,” he says.
. . .
Since his baptism of fire, Mr Humala has attempted to forge a more coherent strategy for dealing with the unrest, helping affected communities in advance with infrastructure projects – such as education, water supply and healthcare.
The scale of the promised mining projects gives Mr Humala the financial leverage to be able to make these kind of infrastructure pledges. The projected output from mines such as Toromocho has inspired Peruvian leaders with confidence. The Chinalco mine is expected to produce an average of 250,000 tonnes of copper a year for 36 years. China, which imported 55 per cent of its unrefined copper in 2011, will be the main customer. China’s imports are forecast to rise in the next few years, with supply expected to grow 3 per cent a year between 2012 and 2016.
Jorge Merino, Peru’s mining minister, believes such levels of demand will lead investors to his country. “Chile has old reserves ... Peru has new projects, new areas for exploration, that is why it is still attractive,” he says.
The government is welcoming investors with open arms. Last year it granted 4,668 mining permits to 582 companies, up from 3,100 in 2011, according to the Geological, Mining, and Metallurgical Institute of Peru. BHP Billiton was granted 144 permits. Peru’s Buenaventura – the local partner of Newmont – received 100 and Barrick Gold was granted 84.
Money is being committed at breakneck pace. Southern Copper of the US is planning a $1.6bn expansion at its Toquepala and Tía María mines. Freeport-McMoRan has approved a $4bn expansion of its Cerro Verde operations in Arequipa, southern Peru, while Antamina is investing more than $1bn in expansion work. Anglo American is set to invest $3bn in Quellaveco.
“We are a country blessed by God in mineral terms. We already are a mining superpower and we are destined to become a copper superpower,” says Luis Rivera, Xstrata’s vice-president of operations in Peru. Xstrata has invested more than $6bn in building up Tintaya-Antapaccay, and its flagship project, Las Bambas, which will have a final cost of $5.2bn. Once operational, the latter will be Peru’s largest copper mine, expected initially to produce 400,000 tonnes a year from 2015. In a similar fashion to Chinalco, Xstrata will also relocate 475 families.
Still, despite his strong hand, Mr Humala must play his cards wisely. The National Mining Society has warned that a number of projects are already doubtful because of social problems, with anti-mining forces from Cajamarca taking up positions to oppose projects in other regions.
This is most obvious in the case of Southern Copper’s Tía María, a $1bn project located in Arequipa. Farmers blocked the project in 2011, saying it would deplete the water supply for agriculture. The company redesigned the project to include a desalination plant, thereby seemingly resolving the water issues. However, opponents have now switched their focus to air pollution and soil contamination.
Anglo American’s Quellaveco $3bn copper project, also in southern Peru, is another important test case for Mr Humala. The company has agreed to set up a $385m social fund for development and has announced that it will make a final decision on the project by the time of its next board meeting in April. Anglo American was granted a “social licence” in July, after years of talks with community groups.
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Despite the disputes, Mr Humala appears to be weathering the storm. Most recent polls put his popularity at or above 50 per cent, leading some analysts to label him “the Teflon-coated president”. His support has risen largely because the ferocity of many disputes has started to ebb.
There have been no more deaths since those related to Minas Conga. Some believe this may be because mining projects are running more effective vetting processes, helped by new agencies. Mr Merino, the mining minister, insists the best way to combat poverty is through a properly regulated mining industry “that protects the environment and includes the poorest”.
The government is also trying to cool disputes by involving regional authorities directly in conflict management and resolution processes, as well as including them in the negotiations for projects. Finally, the administration is putting its faith in a prior consultation law – requiring the government to consult local communities before big mining projects – to ward off conflicts, although this has attracted widespread scepticism.
Back in Toromocho, Chinalco is pressing ahead. To Ezio Buselli, the company’s vice-president of environmental and corporate affairs, the crux of the problem is that investments in Peru have advanced at a faster pace than social policies, and many people feel left behind.
“When there is a bonanza, everyone wants to invest,” he says. “When everyone invests, then everyone wants to jump on board.”
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