U.S. Markets closed

Peru in talks with miner Bear Creek to avoid free trade suit

LIMA, March 19 (Reuters) - Peru said on Wednesday that it is working with Bear Creek Mining to avoid being sued by the Canadian miner under free trade protections over its suspended silver project.

Finance Minister Luis Miguel Castilla said he is optimistic direct talks between the company and his ministry would defuse a dispute in coming months and avoid international arbitration.

"There is complete willingness by the government and the company to overcome this problem and resolve it as soon as possible and not have to resort to arbitration," Castilla said on the sidelines of a conference late on Wednesday.

The company was not available for immediate comment after normal working hours on Wednesday.

In February Bear Creek published a notice of its intent to sue Peru in six months unless the government allowed it to move forward with its proposed Santa Ana silver mine in southern Peru.

Bear Creek was nearing construction on Santa Ana in 2011 when deadly protests against the project led outgoing President Alan Garcia to nix the company's rights to operate in the area.

The company has said it suffered "significant damage" from the suspension of Santa Ana, which it wants to use to finance its more expensive $700 million silver project, Corani.

Negotiations with the company have moved from the energy and mines ministry last year to the economy ministry.

It is unclear if local residents, who once staged large protests against Santa Ana because of fears the project would pollute water supplies, are now supportive of the project.

Bear Creek expects Santa Ana to produce some 5 million ounces of silver per year and Corani to produce about 13 million.

Canada and Peru signed a free trade agreement in 2008.

(Reporting By Mitra Taj and Marco Aquino; Editing by Eric Walsh)