New President Martín Vizcarra has said he is ‘pro development’ of Peru’s extractives sector, but also wants to rid the country of so-called ‘bad mining’ which has been a catalyst for social unrest and environmental degradation. So, how might he transform the sector in this key mining country that is economically tied to, but increasingly disillusioned with, the development of its mineral riches?
“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’.
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.
This 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.
Heidi Vella 