“Peru is a mining country, but we need to do things differently from the past,” Peruvian President Martín Vizcarra told the Economist in May.
In another speech given to a community affected by pollution from illegal mining, Vizcarra said he wants to create a ‘consensus around the advantages and benefits’ of responsible extraction, showing how it can improve ‘wellbeing and quality of life’.
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Peru is a country steeped in mining, but also one that is, in places, utterly disillusioned by it. The country reaps its rewards, but also at times, keenly feels the pervasiveness of its environmental degradation often spilling over into social tension.
The Andean country is the second-largest producer of copper in the world and is amongst the top four producers of silver, lead, zinc, tin and molybdenum. It is also a leading producer of gold.
Its economy, which has been slowing in recent years, is largely driven by mineral exploration and extraction.
Silvia Alfaro, from the Ministry of Foreign Affairs, writing in EY’s Peru Mining and Metals Investment Guide, says it’s estimated that in 2016, mining and oil production represented 14.36% of the country’s GDP. And mineral exports came to more than 50% of the country’s total export revenue.
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By GlobalDataThis is because Peru has been and remains an attractive investment proposition for foreign miners. This is partly due to its relative political and macroeconomic stability and attractive legal and tax regime that is designed to support the industry.
Mining’s risks and rewards
According to EY, Peru’s high rates of production have attracted $42bn of inbound investment into the mining sector between 2011 and 2015.
Furthermore, a new portfolio of projects is expected to come into operation in five years, estimated at more than $46bn, according to Alfaro.
Yet, in different regions of the country, projects face stiff opposition from Peruvians, resulting in delays or abandonment.
In 2015, Southern Copper was forced to suspend the $1.4bn Tia Maria copper project in the southern Peruvian province of Islay after intense protests left at least four people dead and dozens arrested.
Canadian Newmont Mining, in 2011, also suspended a proposed gold and copper project called Conga, after five protesters died in clashes with police.
And Zijin Mining Group’s Rio Blanco project has faced similar opposition.
In many cases protesters are concerned about heavy noise and dust from industrial trucks passing their houses, river pollution, and competing with huge mining projects for resources such as water.
The manager of the Central Reserve Bank of Peru (BCRP), Renzo Rossini, has said these three suspended mining projects would have delivered $7bn in investments and about $500mn in annual tax revenue, had they been built.
Peru’s previous leader, Pedro Pablo Kuczynsk, who stepped down in March to avoid impeachment, promised to ease opposition to mining in Peru by making sure communities received benefits from projects before they were built.
But he seems to have largely failed. Verisk Maplecroft has said that 2017 saw 171 formally registered conflicts related to mining in Peru. This, it added, would worsen if a new law to formalise and legalise small-scale and artisanal mining was passed.
The law, which was eventually approved, removes the requirement for projects to have formal environmental certificates in place before launch.
Furthermore, Mining Minister Cayetana Aljovin, has said she wants to simplify mining permits to support an anticipated growth in foreign investment – a move seemingly at odds with trying to assuage the fears of concerned locals.
Stronger governance
Tempelmann, a consultant to Red Muqui, a member organisation representing various environmental and human rights groups in Peru, says environmental regulations are already lax and rarely enforced.
For example, he says, there are more than 8,000, mining waste dumps that, unlike in many other countries, companies are not required to treat, so often chemicals leak into the surrounding environment.
He adds that in the mining corridor in South Peru, near Cusco and Arequipa, where Glencore and others operate, there have been numerous disputes and now an exclusion zone is in place, where the ‘normal rules don’t apply’.
Tempelmann supported the compilation of a new report, titled ‘Alternatives for the development of Peru’s mining regions’, written by researchers at Berlin’s Humboldt University.
The report says Peru’s economic policies do not allow for a significant royalty collection from resource extraction, leaving little opportunity for reinvestment in the country at large.
The report authors also note that the National Service of Agrarian Health, responsible for inspecting and regulating mining operations, is headed by someone with deep connections in the mining industry.
However, Tempelmann believes that mining could be of great benefit to Peru if it is organised better.
“One of the main, urgent issues is that there is no control and fiscalisation around pollution and social impacts,” he says. “The key to making a change is better environmental and social standards, and that requires improved institutions and regulations to ensure more returns from mining companies – this can’t be voluntary.”
Does he think the new president, who on the face of it seems to agree with this point, will create change?
“The new government is not currently making these changes, they are trying to make it more flexible for mining companies,” he says.
Indeed Rossini, of the BCRP, has advocated for cutting red tape for mining exploration to support further investment interest.
The future of mining in Peru
Vizcarra is keenly aware of the challenges around social licence to operate and environmental degradation caused by mining, and has made an effort to visit affected areas.
But for now, like his predecessor, he offers only words and not action on reconciling the pros and cons of major mining projects.
Templemann says the government should turn to universities and civil society groups for advice, as well as better manage land use and planning for all of Peru, and that that should be mandatory and obligatory, instead of just voluntary, as it is now.
“Ultimately, the government needs to classify where there should be agriculture and where there should be mining,” he says.
And mining firms should work harder to negotiate and appease local communities. Otherwise, as in many developing countries, achieving a social licence to operate could become not just the biggest single challenge that the mining industry faces in Peru, but an extremely prohibitive problem.
