Bear Creek presses on in Peru

Several months have passed since Bear Creek Mining (BCM-V) made headlines for all the wrong reasons, losing its Santa Ana silver project in Peru following extended and sometimes violent protests.

But the company, headed by chief executive officer Andrew Swarthout, is by no means done with Peru. Along with pushing forward its advanced-stage Corani silver project and exploring its earlier-stage Tassa and Sumi prospects, the company is determined to work with the new Peruvian government to regain control of Santa Ana and avoid getting stuck in a drawn-out legal battle.

“I feel strongly that there’s a negotiated settlement possible that will avoid very messy litigation,” Swarthout said by phone. “We’ve said it all along, and we messaged this to the new government. That’s not the path that we want to launch on.”

Instead, Bear Creek is looking to convince the new government, led by President Ollanta Humala, of the benefits the project will bring and the local support it already has, both of which were lost on many as the company got swept up in a tide of anti-development protests in May and June in the southern Puno region of southernmost Peru.

“The local communities to this day support the Santa Ana project,” Swarthout says. “These protests never involved the eighteen communities within which we work on this project, so we’ve always enjoyed strong local support.”

Swarthout points to the late February formal public hearing as evidence of that support. For six or seven hours, 600 people from the surrounding communities listened and asked questions about the project, and in the end approved it with the two-thirds majority required. The technical report on the project, published a year ago, notes that “the company has maintained good working relationships with the local communities.”

Yet the company – with its advanced-stage, open-pit silver project just waiting for environmental approval – became a focal point for protests that erupted in the Aymara-dominated southern region of Peru about potential water contamination and environmental degradation.

“This protest that occurred back in May and June was largely against anything,” Swarthout says. “It wasn’t just mining. It was against a hydroelectric project – which also got shut down —- it was against new mining claims, it was against a whole array of things . . . we just became very, very high profile, unfortunately.”

In response to the protests, then-President Alan Garcia issued a supreme decree, reversing a 2007 decree that had given the company rights to develop the Santa Ana project. Garcia justified the reversal on the basis that the project was no longer in the nation’s best interest, though he did not point to anything Bear Creek had done wrong.

“It was kind of an act of desperation on his part to settle things down in the Puno region in general,” Swarthout says.

The protests eventually calmed down and Garcia was replaced by left-leaning Ollanta Humala, who came to power promising a more equitable distribution of wealth. Since then, Bear Creek has opened dialogue to hopefully work out a reasonable solution.

“There’s certainly a willingness to listen to us, and an understanding,” Swarthout says. “We’ve had conversations with almost all levels at the high end of the government, and you know, I’m optimistic . . . I think all of the signals coming out of Peru have been quite good.”

“There is a regional dissatisfaction with the way things are going in Peru,” Swarthout continues, “especially with respect to the central government not dispersing revenues efficiently to the provinces. I think they have a legitimate complaint. And I think Humala won the election on the premise that he wanted to rectify those things . . . We’re a perfect opportunity to be part of the solution and not the problem.”

Swarthout says more local participation in the form of net profit interests for communities can ensure more mine revenue stays in the region. More immediately, he notes that the communities have benefitted from job-training and social projects at Santa Ana, which Bear Creek was forced to stop when the project was suspended. 

Bear Creek is also receptive to restructuring the royalty regime in Peru, which is designed to bring in more tax revenue during periods of high metal prices.

 “It’s margin-based instead of revenue-based, so I think it’s a very responsible approach to taxation,” Swarthout says. “Obviously at forty dollars for silver, you pay some pretty high taxes . . . including corporate tax and profit sharing, the new royalty would be about forty-five percent, but at our base case studies the new royalty has no effect whatsoever on us.”

What has had a financial effect on Bear Creek is the loss of Santa Ana. The project makes up 20% of Bear Creek’s total valuation, but the company’s stock dropped by half in late June. After a brief recovery, the company has struggled with the continuing weak markets, and the stock sits at under $4 a share. 

“There was a strong overreaction to not only Peru in general,  but Bear Creek in specific,” Swarthout says.

The company’s Corani project, with reserves of 140 million tonnes grading 57.5 grams silver, 0.94% lead and 0.46% zinc, remained entirely unaffected by the issues at Santa Ana, and Swarthout says he is 100% sure a similar event will not happen there.

Undaunted, the company is moving Corani ahead, with three drill rigs active at the site and a feasibility study due shortly. The prefeasibility study, meanwhile, outlined a 27-year mine life with a 25% internal rate of return and a US$348-million net present value based on US$13 per oz. silver.

Swarthout says the events at Santa Ana came a surprise, but provided some lessons.

 “I suppose we could have recognized we were pushing this project forward in an election year, and reached out to a broader influence of communities to make sure that there wasn’t any sort of trouble brewing.”

Swarthout maintains that the company generally did everything right, and there was little Bear Creek could do once the protests gathered momentum. Going forward, Swarthout thinks the company will be better prepared.

“Santa Ana is very unique situation by being located in this one pocket of Peru where there’s this Aymara culture. It obviously raises different challenges, but I think we can address them now,” Swarthout says.

Getting a second chance is by no means guaranteed, and a fierce block of opposition remains in the area, but Swarthout believes they will find a solution.

“We’ve got a dialogue going, and I’m on the optimistic side that we’ll have something resolved by the first half of next year,” he says.