Conga delay undermines Peru perception

27th October 2012 By: Joachim Bamrud

SANTO DOMINGO (miningweekly.com) – The suspension of the Conga mining project – which would have been Peru’s largest foreign investment ever – is undermining the country’s perception among investors. However, Conga will likely go ahead as planned eventually, mining officials say.

“A case like this can affect investor perception of Peru,” says Pedro Martinez, chairperson of Peru’s National Mining Society, which groups all the leading mining companies in the country.

He also expects the suspension of Conga to negatively impact on Peru's yearly ranking from the Fraser Institute. The country ranks as the third-most attractive mining jurisdiction in Latin America after Chile and Mexico on the latest Policy Potential Index from the institute.

The Conga gold mine was being developed by US-based Newmont Mining and local miner Buenaventura – the same companies that own Yanacocha, which is considered to be the world’s second-largest gold mine. Development of Conga was originally estimated at a cost of up to $4.8-billion, or the equivalent of 63% of what Peru received in total foreign direct investment last year.

Construction on Conga started in July 2011, but were suspended in November 2011 at the request of the Peruvian government following violent protests from antimining activists led by the head of the Cajamarca region, where Conga and Yanacocha are located. The opponents claim Conga will pollute the waters used by the local farmers for agriculture.

Construction was further delayed as the Peruvian government waited for an independent expert review of Conga’s previously approved environmental-impact assessment, which was handed in in April. The three experts confirmed the data used for the original approval.

However, in August the government of President Ollanta Humala announced it would suspend the development. The decision came as a surprise after Humala had earlier taken a hard line against the protestors and had appeared to respect the expert findings.

Neither Newmont nor Buenaventura answered questions from Mining Weekly Online on the future of Conga or the delay’s impact on financials. Buenaventura referred to Newmont, which, in turn, sent a short statement on its general commitment to Peru.

However, in its latest yearly report, Newmont states that “any inability to continue to develop the Conga project or operate at Yanacocha could have an adverse impact on our growth if we are not able to replace its expected production… Should we be unable to continue with the current development plan at Conga, we may reprioritise and reallocate capital to development alternatives in Nevada, Australia, Ghana and Indonesia.”

According to Newmont’s 2011 annual report, $1-billion had been invested in Conga as of December 31, 2011. This year, it is investing $440-million, according to a separate fact sheet.

According to the same fact sheet, Newmont’s top priority now is developing the water reservoirs for Conga.

“The company will take a slower development approach – which is intended to foster a more suitable political and social environment – by focusing on the construction of reservoirs for downstream communities,” it says. “Construction on the Conga project will only continue if it can be done in a safe, socially and environmentally responsible manner with risk-adjusted returns that justify future investment.”

Once Newmont and Buenaventura finish the water developments, Martinez expects the Conga project to be back on track. “Once the reserve construction has finished, the population will realise that there is more and better quality water,” Martinez says.

Plans call for boosting water to help local farmers, he says.

“The change of perception is only a matter of time, during which the arguments from the radical opponents will remain without merit … and the Conga project will finally be approved,” Martinez says.

American Chamber of Commerce in Peru executive director Aldo Defilippi points out that the large mining companies are providing big benefits to areas with little or no Peruvian State infrastructure. They include well-paid jobs with insurance and special preferences at local banks.

Meanwhile, thousands of indirect jobs have been created. Those benefits stand in stark contrast to illegal miners, informal loggers, drug traffickers and terrorists that operate in Cajamarca.

“They prey; pollute; exploit the locals, including children; don’t provide any labour rights; don’t pay taxes; etc,” he says. For them, formal mining companies are seen as a hindrance to their activities, Defilippi adds.

Notwithstanding the Conga delay, there are several juniors interested in Peru, according to Martinez.

“They understand that these problems are part of an unfortunate constant, but shouldn’t affect substantially the plans of new investors,” he says.