| A roadblock in Peru's Urubamba Valley, also known as Sacred Valley, during recent national social unrest. Source: iStock/Getty Images Plus via Getty Images |
Rural Peruvians are not seeing the benefits of major mining projects in their regions, and protests interrupting mine operations may last until a presidential election is called, industry analysts and observers told S&P Global Commodity Insights.
The ousting of former President Pedro Castillo in early December 2022 led to antigovernmental protests, which merged with long-standing tensions between Peruvian communities and mining companies to disrupt mining operations in the world's second-largest copper-producing country. Protestors in southern Peru have been blocking a key road used to get supplies and send copper to port, forcing some mines to repeatedly halt operations.
Copper production declined 17.9% in January to 252,488 metric tons, compared to 307,878 metric tons in December 2022 and 279,125 metric tons in November 2022, according to preliminary data from Peru's Ministry of Energy and Mines (MINEM).
MMG Ltd.'s Las Bambas mine and Glencore PLC's Antapaccay operations have been most affected by road blockades, which observers said will likely continue unless the government agrees to hold early elections. An administration will need to take on the task of fixing the distribution of mining revenues to establish long-term stability in mining regions; analysts said mining companies are paying what they promised, but the money is not flowing into the towns and villages near big mining projects.
"The profits from mining in a region can be slow in returning to the area, or in many instances never makes it back to the communities from the federal government, in part due to corruption; as a consequence the locals don't see the point in suffering the negative externalities from a mining project while not seeing the benefits," Joe Mazumdar, an editor and analyst with Exploration Insights, an independent mining newsletter, told Commodity Insights.
Glencore and MMG did not respond to requests for comment.
Tensions spill over
The removal of Castillo triggered a resurgence of grievances among communities near mine sites over historic inequality and poverty. Castillo was Peru's first "campesino," or rural native, president.
Mining operations in the Puno, Apurímac and Cusco regions have all been affected since the start of protests, where demands from participants have varied from the resignation of current President Dina Boluarte and a new constitution to more social benefits and the nationalization of mining assets.
"The protests since Dec. 7 have been more political in nature and aimed against the national government, although a lot of accumulated anger and frustration helps to propel participation by communities in mining regions who perceive that they are ignored by the central government," Cynthia Sanborn, professor of political science at the Universidad del Pacífico in Lima, told Commodity Insights.
Protests have less to do with support for Castillo's former administration, and it's "more that [citizens] identified with him and felt that he had been mistreated and discriminated against, all of which is true," Cynthia McClintock, professor of political science and international affairs at the George Washington University, told Commodity Insights.
Road blockades were set to resume near the Las Bambas and Antapaccay operations and Hudbay Minerals Inc.'s Constancia mine as of March 4. Boluarte said in January that she would be open to holding elections in 2023 instead of riding out the term through 2026, but the Peruvian Congress has shelved her bill, only leaving hope for elections in 2024.
"There's a constant effort for people to say, 'Oh, in the next election, the next election, the next election,' [but] somebody else comes in, they're in for 18 months, and then they're out," Mazumdar told Commodity Insights. The analyst used to be director of strategic planning at Newmont Corp. from 2006 to 2009.
"For a mining company that runs a mine that lasts for 30, 40 years, I mean, that's kind of problematic," Mazumdar added.
Hudbay did not respond to requests for comment.
Conflicts with local residents
Mining conflicts in Peru have intensified since former President Alberto Fujimori privatized the sector in the 1990s, and the friction has often involved disputes over the distribution of mining revenue, a lack of prior consultation, and environmental and social impacts, according to a report by the UN's Economic Commission for Latin America and the Caribbean.
Glencore's Antapaccay has experienced road blockades in the past from locals demanding additional social benefits and protesting alleged environmental damage. Newmont's Yanacocha gold mine has faced violent conflicts over land use rights and for alleged contamination of local water sources.
Las Bambas, which produces 1.36% of global copper production, has been the hardest hit by recent road blockades. Tensions with locals go back to the mine's inception in 2004 and intensified when the property traded hands from Glencore to MMG in 2014. MMG canceled a mineral pipeline project and started using local dirt roads for transport, along with other controversies including changes to the project's environmental impact assessment.
Las Bambas' production decreased 4.4% in January, after recording a 1.2% increase in December, according to preliminary MINEM data. MMG has not reported further production numbers.
"Peru has always had issues with social licenses to operate, frankly. If the locals tell you that they don't want to mine, it's best just to walk away," Mazumdar said.
Of the total $53.72 billion in planned mining investments in Peru, a majority will be concentrated in the north of the country, rather than the south,
MINEM did not respond to request for comment about what the ministry is doing to support both local communities and mining companies, and whether dialogue is taking place to defuse tensions.
Allocation of taxed mine revenue is criticized
Experts contacted by Commodity Insights agreed that governmental misuse of mining revenue means local communities often do not receive sufficient benefits from operations in their region.
Controversies involving Peruvian presidents have a high profile. "What's less mentioned is that there's a lot of incidences, sadly, of corruption at the local level," McClintock said.
"The problem is the local governments are not developing plans for investment of the [mining] profits," McClintock added. "These are problems that have gone back a century."
Mazumdar said companies such as Newmont have worked with communities to design local projects and write funding requests to the federal government to ensure funds make it back to locals.
In September 2022, Newmont delayed an investment decision on its Yanacocha sulfides project in Peru to 2024, citing an unfavorable macroeconomic environment.
"Operations at Newmont Yanacocha are normal and we have not experienced any interruptions. Yanacocha is located in the Cajamarca region," a company representative told Commodity Insights.
Peru's mining code requires a 1%-12% royalty and a 29.5% income tax while mining law requires that 50% of all mining revenue collected by the state be distributed back to local regional governments.
Mercedes Aráoz, former acting president of Peru, told Commodity Insights that it was common for funds to be distributed unevenly between regions and for regional governments to use funds in the cities rather than in communities near the mines. In addition, politicians would often skip out on development projects such as schools for more popular projects that would win them favor, such as soccer fields, Aráoz said.
"The companies have complied to a large extent with social commitments. The big problem is the state, the government, which does not fulfill its commitments," said Aráoz, a professor of international economics and public policy at Universidad del Pacífico in Lima.
Aráoz said there is a lack of adequate planning as announced projects often go uncompleted or funds sit in public coffers without being used.
"Most Peruvians say they want some kind of national accord, some kind of agreement among the major parties and leaders," said Sanborn, the political science professor. "And if a subset of potential leaders is able to offer that ... there is hope for greater stability."
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