Arequipa, Peru — Mining is a pillar of Peru’s economy, and newly elected President Alejandro Toledo intends to keep it that way.
Toledo, who assumed his new post in July, recently offered reassurance to the mining sector when he spoke at the country’s 25th mining convention, here in this southern city.
“My administration not only has the implicit will to build the economic and political stability, but also the juridical stability,” he declared. “When agreements are signed, they will be ensured.”
Mining accounts for more than 60,000 permanent jobs in Peru; it accounts for one-quarter of the country’s revenue and more than half the value of all exports. In terms of production, Peru is the world’s second-largest supplier of tin and silver; the fourth-largest supplier of zinc and lead; the seventh-largest supplier of copper; and the eighth-largest supplier of gold.
The mining industry has benefited immensely from a privatization and modernization process that began a decade ago. To date, more than US$3.7 billion has been invested in the program.
On the downside, poverty and illiteracy are still widespread, especially in rural areas, where mining projects are typically situated. Moreover, some of the deposits to be sold are uneconomic at current prices and thus may not fetch their asking price.
Nevertheless, Peru has more to gain than lose by staying the course, as its new leader is fully aware.
“Mining is not only important because of its financial contributions; it is the spearhead of decentralization,” said Toledo. “Mining goes to the farthest regions of the country and spurs local economies, but let us not be seen as exploiters who take away the minerals and leave nothing behind.”
Expanding on this theme (his campaign promised to end a 3-year economic downturn and create 1 million jobs), Toledo outlined four main areas in which miners can make larger contributions: value-added production; environmental protection; worker safety; and community investment. He also asked the industry to continue to support local education, nutrition and health, noting that it already has built some 2,400 classrooms and more than half as many hospital beds.
Toledo said his administration would complete the privatization process in two years, improve the country’s geological database and ensure that half of all mining revenue is channeled back to affected communities. Currently, a portion of mining taxes is being used to fund restoration projects in Arequipa and other nearby cities hit by a recent earthquake.
At an operational level, Toledo pointed to the Yanacocha mine’s decision to sell 10% of its annual production to domestic jewelry manufacturers. This, in turn, will create hundreds of indirect jobs while increasing the value of foreign exports.
Situated near the city of Cajamarca, Yanacocha represents the first major foreign investment in Peru in more than two decades. Production began in 1993. The deposit was discovered by
Today, the mine churns out 2 million oz. annually from five pits. Together, the deposits host 1.3 billion tons of oxide reserves grading 0.027 oz. per ton.
John Dow, executive vice-president of Newmont, praises Toledo’s approach: “As an economist, Toledo is well-aware of the importance of stimulating the fiscal and tax issues, but I think his first priority at the moment is the social community,” he tells The Northern Miner. “His is a beguiling and simple proposition: this is what we’ll do and this is what we expect you to do.”
Dow adds that domestic operators may require more coaxing than foreign ones but that the numbers are increasing. “Now that the domestic industry sees the importance as well, I think you’ll start to see the entire industry speak with a single voice.”
He says, too, that Yanacocha and other operations, particularly Antamina, have made great strides in fostering community relations. At the same time, he cautions that mining companies must not give in to every demand.
“The communities themselves have genuine concerns, such as the need for good sanitation and fresh water, but the Peruvian government should take responsibility for such things,” he says. “The day that mining companies step up and feel obliged to do [such things] will be the day they never stop paying for this in every community their trucks go past.”
Toledo said his government will not tolerate illegal disruptions to mining operations, which will undoubtedly come as a relief to
Manhattan recently raised $5.4 million in a private placement to complete a draft environmental impact statement and advance its community relations and consultation activities. The decision follows the violent protests of last February, in which the company’s exploration camp and demonstration housing units were extensively damaged.
Reflecting on Newmont’s experience, Dow says newcomers to Peru should engage the community as quickly as possible. “They were here before we arrived and they’ll be here after we leave.”
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