Xstrata copes with civil unrest in Peru

VANCOUVER — As with many developing countries, there is a natural resource duality in Peru that can trigger tension between pro-mining interests and local communities. Switzerland-based mega-miner Xstrata PLC (XTA-L) is stuck in the middle of such a dispute as regional groups and Peru’s central government clash over environmental and social issues surrounding Xstrata’s Tintaya-Antapaccay copper operation in the southern province of Espinar.

Protests erupted in Peru’s Cusco region in late May, as residents amassed to demand Xstrata increase funding for local development initiatives. The movement later took on a more extreme tilt when protestors began calling for Tintaya’s closure due to negative impacts on the regional Salado and Canipia rivers.

Xstrata has long denied any sort of environmental issues with the mine, and is in the process of a US$1.5 billion brownfield expansion program — called Antapaccay — slated to begin production in August,

“With regards to our environmental performance, our operations comply with all the requirements set forth by the law,” Xstrata commented on May 28. “This has been demonstrated through the various monitoring processes conducted by competent agencies. In addition, we have publicly expressed our willingness to conduct additional participatory monitoring within the legal framework to clarify any perceptions or concerns that the population may have.”

The Antapaccay expansion holds total mineral resources of 817 million tonnes grading 0.51% copper and is located approximately 10 km from Tintaya. Xstrata expects the expansion to carry a 22-year mine life, and raise copper in concentrate production by 60% to 160,000 tonnes per annum,

“The expansion and extension of operations at Tintaya provide important sustainable benefits for the regional communities,” Xstrata Copper Chief Executive Charlie Sartain commented. “We will be able to provide continued employment and training opportunities, important local infrastructure, benefits for local suppliers and enterprise development, additional royalty and tax revenues and investment in community projects and partnerships via the continuation of our voluntary contributions and the Tintaya Framework Agreement.”

Xstrata told Bloomberg News that it returns roughly 3% of its pre-tax profits from Tintaya — totalling US$11 million — to the province of Espinar each year. The company has voiced its willingness to renegotiate transfer payments to the province in hopes of promoting dialogue with regional leaders.

Peru’s central government has been critical of provincial fiscal practices, claiming lower level officials have been sitting on cash subsidies provided by international investment and using the funds inefficiently.

Peruvian President Ollanta Humala took office last year and has been a staunch supporter of mining and foreign investment. A former military officer, Humala has been forced to deal with a number of geopolitical incidences related to anti-mining campaigns in recent months, including disruptions at Newmont Mining‘s (NMC-T, NEM-N) US$4.8-billion Conga development and Southern Copper‘s (SCCO-N) US$1.2-billion Tia Maria project.

Peruvian authorities declared a 30-day state of emergency in Espinar province following violent protests outside of Tintaya on May 31. Two protestors were killed, and dozens of police were injured. According to Peruvian state news agency Andina, the state of emergency allows national police a greater degree of freedom in dealing with the protests, including the suspension of constitutional rights relating to freedom of assembly.

Espinar mayor Oscar Mollohuanca was arrested for “offenses against public order”, and sentenced to five months of preventive detention. Mollohuanca was taken into custody at provincial government headquarters. Reports also said six other individuals thought to be associated with the protest were detained, though Peru’s state run news agency did not release names or positions,

“Protests are to be peaceful and take place within the law,” Justice Minister Juan Jimenez said in a statement. “We are, however, entering into a period of very worrisome violence. We have a feeling that behind the environmental or community concerns there are political demands being made by radical groups, who want to bring into question investments being made in Peru.”

Meanwhile at a forum on economic development and capital markets in Lima, Peru’s Economy and Finance Minister Luis Miguel Castilla stressed the importance of finding a balance between stimulated growth and social peace. Peru is attempting to attract roughly US$60 billion worth of potential natural resource investment over the next four years,

“The unfortunate events in Espinar, and others that are occurring in the country, should lead us to reflect that… without social stability and social peace it is going to be very difficult for investment flows to continue increasing,” Castilla said.

In a statement on May 29 Xstrata said that operations at Tintaya were running normally despite the state of emergency and that the company was still capable of delivering shipments to port.

In addition to the commissioning of operations at its Antapaccay expansion later this year, Xstrata is in the engineering phase at its Las Bambas copper project in Peru’s northern Cotambamba and Grau provinces. Las Bambas holds total resources of 1.7 billion tonnes grading 0.6% copper, as well as gold, silver, and molybdenum credits.The project is slated to cost Xstrata US$4.2 billion and produce an average of 400,000 tonnes of copper in concentrate, with operations projected to start-up in 2014.

Energy and Mines Minister Jorge Merino said in a statement that there seemed to be links between individuals responsible for the protests, and worried that folding to pressure from fringe groups in the short-term would only hurt Peru’s growth,

“There is a radical current that doesn’t want any mining, and they argue that they want Tintaya to go and then it will be Las Bambas. This is the message and it is unacceptable,” Merino said.