Peru's highlands conundrum: gold versus water

By FRANK BAJAK | November 25, 2011 | 5:35 PM EST

LIMA, Peru (AP) — Peru's biggest mining investment is under threat and government social welfare plans with it as highlands peasants mobilize against a gold-and-copper mine they fear could taint and diminish their water supply.

Opposition to the $4.8 billion Conga project, an extension of the Yanacocha open-pit gold mine that is Latin America's largest, poses the first major challenge to President Ollanta Humala's leadership.

He won office in June after promising the very people now mobilizing against Conga, whose 51 percent owner is Denver-based Newmont Mining Corp., that he would put clean water above mineral extraction.

He told the residents of the northern state of Cajamarca, one of Peru's most heavily mined, during a May campaign swing that he would ensure their water supply "because you don't drink gold."

"You don't eat gold."

But as protests began to rattle the Conga project last month, with heavy equipment vandalized, roads blocked and work temporarily halted, Humala was modifying the message.

The choice, he now said, need not be water or gold. Peruvians can have both.

After thousands joined protests in Cajamarca against Conga on Thursday, Humala told a gathering of peasant organizations in the capital of Lima: "You have my word. The state will guarantee water. All our children must have water."

Work at Conga was suspended for a third straight day Friday, "because there have been some sporadic acts of violence and vandalism by the protesters," Newmont spokesman Omar Jabara said.

He said one Conga worker's truck was badly damaged Friday in a hamlet on the mine's periphery.

Once a fiery leftist, Humala slid toward the center to win the presidency of a nation that earns 61 percent of export revenues from mining. A boom in metals prices has fueled 7 percent annual economic growth over the past decade, and Humala inherited a nation with more than $40 billion in mining investment lined up.

But little of the mining wealth has reached the highlands where most mines are located and where Humala won office promising pensions for the elderly poor, a higher minimum wage, more education and health spending, rural electrification and sanitation.

To help finance those programs, Humala got the mining industry to agree to a windfall tax that the government says will reap more than $1 billion a year.

Conga mining is scheduled to start in 2015 and is projected to yield 11.6 million ounces of gold ($20 billion at today's prices) and 3.1 billion pounds of copper ($10 billion at today's prices) over two decades.

If the project is scratched, investor confidence could sag and the underpinning of Humala's social agenda collapse.

"This is a trial balloon for the pact Humala's government made with the mining impresarios," said Julia Cuadros, executive director of Cooperaccion, a nonprofit organization that promotes sustainable development.

Yet local opposition to the project is stiff, led by local officials. Critics say an environmental impact study for Conga that was approved last year doesn't adequately address the potential downstream damage of gouging open pits into mountaintops in what is likely an important aquifer.

It "will eliminate thei am in principal mountain lakes of the region, which are the last that remain that can supply urban expansion in the coming years" Cajamarca's regional president, Gregorio Santos, told The Associated Press.

Not just the 7,000 or so immediate inhabitants will be affected, he said, but tens of thousands in valleys below. At risk, Santos added, are "probable water supply sources for forestation and sustainable agriculture programs, and also for fish farming."

Four man-made reservoirs will replace the four small mountain lakes to be displaced by the 8-square-mile (2,000-hectare) project at the headwaters of two rivers. The biggest reservoir will be used to help extract metal from rock crushed and laced with cyanide before settling it on barriers to prevent ground contamination.

The other three, said Newmont's Jabara, will more than double stored water for surrounding communities.

"We're doing everything that we can to make sure this project is environmentally sound," Jabara said. That includes a willingness to modify the environmental impact. "At the end of the day a project can't be successful if it ends up adversely affecting water supplies."

But environmentalists say that's exactly what happened with the Yanacocha mine, which began operating in 1993 and produced 3 million ounces of gold in its best year.

Peru's relatively lax clean-water standards permitted it to contaminate waterways, they say, while the regulatory process is biased in favor of miners because the Mining Ministry has the last word on environmental impact studies for mining projects.

"That doesn't happen in Chile, Colombia or Ecuador," said Manuel Glave, a respected Lima economist.

Peru's Environment Ministry does, however, provide input. Last month, it began to review "some critical aspects" of the Conga project, said Fausto Roncal, the ministry official in charge of evaluating environmental impact studies.

He told the AP its report is almost ready, and any modifications it requests will be carried out as the project proceeds.

Peru currently has more than 60 disputes over the alleged detrimental impact of mining on water supplies, according to the national ombudsman's office.

The rancor has put an end to some projects.

Former President Alan Garcia's government, which approved Conga and was bullish on mining, nevertheless halted the Tia Maria project of Mexican-owned Southern Copper Corp. in April after three protesters died in clashes with police.

But Garcia's government also often sought the arrest of anti-mining and other protest leaders.

Humala may be similarly inclined. A top lawyer in the Interior Ministry, Julio Talledo, told the AP it has asked prosecutors to file criminal charges against Gregorio Santos and four local leaders who have led protests against Conga. The charges include "hindering the functioning of public services" and carry prison terms of at least two years. Prosecutors have yet to act on them.

Conga's credibility issues owe to past behavior of the Yanacocha consortium, which includes the Peruvian company Buenaventura Mining Co. and the International Finance Corporation, with a 5 percent stake, according to analysts.

In 2000, hundreds were sickened when a Yanacocha contractor spilled 335 pounds (150 kilograms) of mercury, a byproduct of the mine.

The consortium later provoked protests with exploratory drilling at the nearby Cerro Quilish. It shelved that project after complaints it would directly affect the water of the regional capital of 350,000 people.

More broadly, resistance to mining may owe more to the fact that it employs relatively few Peruvians, just 126,000 out of a population of more than 29 million.

Conga has 6,800 workers, mostly locals who live in wind-swept mountains dominated by subsistence farmers where running water, electricity, decent schools and health care have been in short supply.

The Yanacocha consortium is sponsoring projects in the mining zone that it says will address those deficiencies.

Yanachocha paid a total of $292 million in income taxes and royalties last year and made voluntary contributions of $29 million — not including social investments, Jabara said.


Associated Press writers Franklin Briceno and Martin Villena contributed to this report.