Peru’s political crisis puts mining in the crosshairs

Peru’s ongoing political crisis spells more trouble for miners in the world’s No. 2 copper producing nation, following two years marked by increasingly frequent protests targeting the industry.

The country was thrown into turmoil on Dec. 7, when former president Pedro Castillo was removed from office after less than a year and half on the job, after trying to dissolve Congress. The leftist Castillo, who made the move hours before he was set to face a third impeachment vote by the divided Congress, was impeached anyway, and has been arrested and charged with rebellion and conspiracy.

Castillo, Peru’s second Indigenous president, has widespread support among Peru’s rural Indigenous population — even after failing to make progress on a socialist agenda encapsulated in his slogan: ‘no más pobres en un país rico’ (no more poor in a rich country) and being dogged by allegations of corruption. (He also proposed holding a referendum on redrawing the country’s 30-year-old constitution that was blocked by Congress.)

Since his removal and arrest, protests and road blockades in support of Castillo have been unrelenting, damaging the country’s mining, tourism and agriculture industries. (In a Jan. 30 report, The Wall Street Journal put the count of road blockades at 65, while the government estimated the economic cost at US$1.3 billion in infrastructure and lost production.) Protesters have demanded either Castillo’s reinstatement or new elections. The jailed former leader has also garnered support from the leftist governments of Mexico, Argentina, Colombia, Venezuela, Cuba, Honduras and Nicaragua.

The protests have turned violent, with 58 protesters dead as well as one police officer, who was burned alive by a mob, as of late January, and accusations that security forces have used unjustified force in response to the unrest.

New President (former vice-president) Dina Boluarte, while blaming radicals connected with drug trafficking, illegal mining and smuggling for the protests, has attempted to placate demonstrators by moving up elections to 2024 from 2026. However, she was unable to garner enough support for the proposal in a dysfunctional and divided Congress. (As an indication of the country’s fractured politics, Boluarte is the country’s sixth president in five years.)

Mining accounts for nearly 60% of Peru’s exports and the upheaval has put at risk a sector that accounts for nearly 10% of GDP. While mining operations have frequently been targeted by protesters in the past, the current crisis has reached a frightening level.

“I haven’t seen this level of violence, the coordinated nature of action, seeking to affect mining and energy, during the time I have been working in the sector,” Magaly Bardales of the industry group Sociedad Nacional de Mineria Petroleo y Energia (SNMPE) told Bloomberg news in late January.

Footage posted on social media from Glencore’s Antapaccay copper mine in southern Peru, which suspended operations on Jan. 20 after the third attack on the site in a month, shows invaders entering the site, setting fires and stealing workers’ belongings. In a statement, the company said operations had been difficult to maintain since Jan. 4 when a road blockade was set up, preventing the free movement of supplies and workers.

“On January 12 and 13, we were the object of criminal acts and unjustified attacks, putting the life and health of our workers at risk,” including that of an employee from Espinar who was inside a building as it was being set on fire, the company said in a statement after one of the attacks. It said it also saw serious damage to facilities that included the pump house that provides water to communities in the area.

Like Antapaccay, most of the mining operations that have been targeted are in southern Peru’s highlands, where the protests have been most intense — although Nexa’s Atacocha zinc mine in central Peru was also shut by protests for a week in early January.

The reasons behind the crisis are complex. There’s no doubt that Indigenous Peruvians’ justified anger over entrenched discrimination, racism and inequality plays a part.

In addition, with regards to mining’s role, rural Indigenous populations don’t see much of the benefits from the country’s vast mineral wealth, despite reforms passed in the early 2000s that were meant to share that wealth more equally, sending back about half of mining revenues to local governments. Even though mining and natural resources generate a lot of money for the regions, these local governments have not effectively used the funds to improve rural populations’ quality of life, says Fernando Pickmann, a Lima-based lawyer and a senior partner at Dentons who leads the company’s Canadian and Latin American mining practice.

“The central government has been sending millions of dollars to regions that host the mines that has been administrated by the regions,” he told The Northern Miner in late January. “The problem has been corruption or a misunderstanding of what to do with that money.”

He also believes (as Boluarte has also alluded to) that a relatively small number of people are funding the protests and fuelling the violence for their own ends. These include leftist groups from other Latin American nations (Bolivia’s former president Evo Morales was banned from entering Peru in early January by the Boluarte administration), socialist leaders from inside the country, and informal miners and drug traffickers that operate in southern Peru.

“They are isolated groups,” Pickmann says. “We believe that they are not more than say 50,000 or 60,000 that are generating chaos in Peru out of a population of 33 million.”

Pickmann, who sits on the board of several juniors and one senior company and is president of Regulus Resources, says miners should take comfort in the strength of the country’s institutions during the crisis.

“Peru is a country that is living a hard moment fighting against these violent groups but everything is under the control of our government and the rules of our constitution,” he said. “Not even one article of our constitution has been violated in this process and that’s very important because the legal structure of the country has been respected.”

He believes that normalcy will eventually return.

“Of course mining investment has been paused until everything is clarified… but we are not at civil war,” he says, adding that the social unrest is no different than the protests against inequality that swept Chile in 2019 and the Black Lives Matter movement in the U.S.

“My advice to investors and to mining companies will be keep their positions there,” Pickmann says. “Don’t lose the opportunity because the resource is there and Peru continues under constitutional rule providing the legal guarantee and security the country has always provided investors and companies.”

That may be the case, however, miners would do well to think long and hard about their ESG strategies as they wait for the crisis to subside. In Peru — as elsewhere — they’re going to have to get better at making allies when, in a polarized world, there is no shortage of adversaries.

— This article originally stated in that Castillo was the first Indigenous president of Peru, however, Alejandro Toledo was the first, elected in 2001. The Northern Miner regrets the error.