The threat of spreading mining protests could kill the Peruvian economic miracle

Quartz

Peru’s abundant mineral resources have blessed its export sector (mining contributes to 60% of export revenues) and helped triple the country’s GDP since 2000. But investment in Peruvian mining will likely fall by 33% this year, according to Peru’s mining and energy regulator.

The reason is continued social unrest rooted in citizens’ fears of environmental fallout from mining. This week, local communities in the south of Peru, where most mining is concentrated, pledged that more and better organized protests are coming.

Peruvian president Olanta Humala, a former military officer who was elected on the strength of his promises of greater “social inclusion,” initially  opposed some mining projects, such as Newmont Mining’s Minas Conga. Once in office, Humala calibrated his views to better accommodate the fact that mining is the backbone of Peru’s economic growth. Since Humala became president, the number of Peruvians living in extreme poverty dropped from 42% to 28%, in part thanks to the social programs funded by mining royalties.

Humala quickly changed his mind on Newmont’s $4.8 billion Conga gold mine, once slated to be the largest mining investment in Peru’s history, giving it his go ahead in 2011. But protestors worried about water pollution set fire to infrastructure and shut down the project, which has since remained stalled despite Humala’s efforts to calm relations between the company and the local community.

This week, protesters from the Cajamarca region, where the Conga mine is located, pledged to hold firm in their opposition to the mine and to hold more protests throughout the year. Protesters have already blocked development on Southern Copper’s $1 billion Tía María mine, initially on grounds that it would pollute their water supply, and then, once Southern Copper built a desalination plant, out of concern for air pollution and soil contamination.

Peru hopes to receive $53 billion in mining investments in the next 10 years, and aspires one day to take Chile’s place as the world’s largest copper producer. Humala’s government granted 4,668 mining permits in 2011, according to Peru’s mining and energy regulator. The American miner Southern Copper is committing billions to two mines; Freeport-McMoRan is putting $4 billion into its operations in southern Peru; Anglo American will invest $3 billion in Quellaveco. Xstrata is finishing its Las Bambas project, which cost $5.2 billion, and will be Peru’s largest copper mine.

Humala’s problem has been that his vision of joint social inclusion and continued robust external investment has not materialized.

There are few mechanisms for resolving the sorts of disputes that took place at Minas Conga. Courts and other institutions are lacking in the isolated regions where most of Peru’s mining takes place. During the Minas Conga protests, Humala sent three cabinet members to establish a truce (they failed), a tactic he won’t be able to replicate every time new mining-related friction appears.

Peruvian mining executives and local economists quoted in El Comercio, a Peruvian newspaper, warned this week that the success of the Conga protests might serve as a source of contagion inciting unrest elsewhere, and as a deterrent for other big mining projects. Already, the miners Lumina Copper and Anglo American have planned to reduce their activity in Peru. One Peruvian economist warned (Spanish) that “projects across the entire southern zone”—Peru’s mining belt—”are at risk of running into trouble sooner rather than later.”



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