Suspension Of Newmont's Minas Conga Raises Risks For Peru
November 30 2011 - 1:54PM
Dow Jones News
The suspension of the Minas Conga gold and copper project,
majority owned by Newmont Mining Corp. (NEM), has raised risks for
Peru as mining companies look to invest some $50 billion there this
decade.
Late Tuesday, Minera Yanacocha SRL, South America's biggest gold
producer, disclosed that it was suspending the $4.8 billion Conga
project following days of increasingly violent protests that have
left some 20 people injured as a result of clashes between
demonstrators and police.
Protesters had called for the cancellation of Conga over
concerns about its proposed use of water, which involved draining
four lakes and building reservoirs.
Newmont Mining Chief Executive Richard O'Brien said Wednesday
that the company will continue to seek peaceful dialogue with
communities in the Cajamarca region, where Conga is located, as
well as with government officials to advance the project.
O'Brien added, however, that "should we be unable to continue
with our current development plan at Conga, the scale and diversity
of Newmont's global portfolio provides us with flexibility to
reprioritize and reallocate capital to maintain focus on our
strategic objectives through development alternatives in Nevada,
Canada, Ghana, Indonesia and Suriname."
Compania de Minas Buenaventura SAA (BVN, BUENAVC1.VL), which has
a 43.65% interest in Conga, said it believes Yanacocha should
continue to work to receive community approval.
"Suspending construction activities in Conga does not mean that
we do not believe in the project. We think this is the best thing
we can do for the people in Cajamarca and for the country,"
Buenaventura Chief Executive Roque Benavides said in a
statement.
Conga was scheduled to begin production in 2015. A company
executive, who asked not to be named, said at this point it is
unclear if the start date will need to be pushed back.
Conga's average output during the first five years of production
would be 580,000 ounces to 680,000 ounces of gold and 155 million
to 235 million pounds of copper.
The dispute has exposed a rift within President Ollanta Humala's
administration, which took office in late July with promises to
resolve conflicts affecting natural-resource projects. Two
high-level government officials have left their posts, including
Jose de Echave, deputy minister for environmental management.
De Echave criticized the administration's handling of the
conflict and said the current process for approving environmental
permits is outdated. Conga's environmental-impact study was
approved in October 2010 by the administration of former President
Alan Garcia.
Yanacocha said the decision to halt the project was necessary to
reestablish dialogue and recover trust with local communities,
while Prime Minister Salomon Lerner said it is now up to protesters
to "accept dialogue and negotiation instead of violence."
Social conflicts have already delayed a number of projects worth
billions of dollars in Peru, the world's second-biggest producer of
copper and silver, and a major producer of gold, lead, zinc and
other minerals. They also threaten some $50 billion in expected
investment this decade.
Conga is the fourth project to be delayed this year as a result
of community opposition. Other projects include those owned by
Southern Copper Corp. (SCCO, SCCO.VL), Bear Creek Mining Corp.
(BCM.V, BCEKF) and Anglo American PLC (AAL.LN, AAUKY).
Daniel Mori, an analyst at brokerage Inteligo SAB, said Conga's
suspension is "definitely a call to alert for important projects in
[the Peru] portfolio."
Celfin Capital's research manager, Cesar Perez-Novoa, said that,
while the suspension was necessary to ease tensions in Cajamarca,
it does set a "very bad precedent," given that Conga is the
country's biggest project.
Luis Zapata, the head of institutional equity sales for
Canaccord Genuity, said Peru will become less attractive for mining
companies if the new government is unable to resolve the
disputes.
Any hobbling of Peru's mining sector would directly affect the
Andean nation's broader economy. Mining has been the lynchpin of
Peru's high economic growth for several years running. The sector
accounts for about 60% of Peruvian exports and 30% of the
government's tax collection.
-By Ryan Dube, Dow Jones Newswires; 51-945 043 802;
peru@dowjones.com