While mines always represent an economic boost for the vicinity, the relationship with locals has to be very transparent in order to avoid possible conflicts

Mining operations in Peru coexist with innumerable communities, which means that they have to be in contact with them from the get go. From the exploration stage all the way to closure, it is important to build a long-term relationship. For the mining operator, professionally managing the raised expectations is key, as well as ensuring that the plethora of contractors and providers will follow the same standards. Building trust can take years, but one single mistake can ruin everything.

“Historically, many mining companies have made a mistake in thinking the best way to deal with communities was not getting involved with them. We have understood that we need to face social issues from the very beginning. In this context, information is key. If we make mistakes, we need to be transparent and acknowledge it,” said Diego Ortega, head of corporate affairs and legal at Gold Fields La Cima.

While the relationship between the mining company and the communities surrounding the operation is always unique and depends on external factors that may be applicable only in each particular situation (political interests often being at the forefront), there are a number of issues that are commonplace. These are general environmental matters, questions about the use of water and expectations about employment opportunities.

Water is life and one of the major concerns for local communities has always been whether the mining operation will exhaust the water resources in the area or pollute them. Southern Copper knows about this very well: the company already has three desalinating plants in the region of Ilo, and now it plans to build another one for its Tía María project. Polymetallic producer Milpo, controlled by Votorantim, already has one such plant at its Cerro Lindo operation. “Water is always going to be a priority for mining. There is no doubt that agriculture is an ancestral activity, but it has always coexisted with mining. Indeed mining only consumes 2% of the country’s water resources. Today’s formal companies apply the strictest environmental standards,” said Miguel Carrizales, president, Institute of Mining Engineers of Peru (IIMP).

Another very sensitive aspect has to do with relocations, when families accept to leave their homes so that the mining operation can take place. These decisions can never be imposed and it is assumed that those who will leave the houses that their families may have occupied for generations will significantly improve their standard of living. In Peru, three mining ventures are prompting the relocation of whole towns. These are Morococha (5,000 people), which lies in the operations area of Chinalco’s Toromocho project; Fuerabamba (1,200 people) at Xstrata’s Las Bambas project; and perhaps the most impressive case, Cerro de Pasco (70,000 people), home to a historic open-pit mine today operated by Volcan.

At Cerro de Pasco, the old pit continues to get bigger and bigger, while the population also expands and builds houses closer to the mine. “We have been actively acquiring new properties to ensure that we can proceed with the mining operation,” said Juan José Herrera, general manager, Volcan. “The people in the area understand that mining provides jobs to many people, but we also need to understand that many people do not want to move from their homes. This issue should not be an exclusive responsibility of Volcan.”

In 2009, the Peruvian government passed a decree declaring the relocation of the town of Cerro de Pasco to be a national priority. Pollution, serious health implications and poor living conditions were cited among the reasons backing the construction of a new city. The text suggested the project should be funded jointly by Volcan, by money from the mining canon, and by the central government.

To avoid these situations in the future, mining clients and the regulatory watchdog ensure that everything is carefully planned through detailed environmental and social impact assessments. The industry must provide a relocation solution before any mineral is produced, to safeguard the health and safety of the local populations and to assure the sustainability of the projects in the long run.

Armando Arrieta, vice- president of legal and corporate affairs of Minera Chinalco Peru, provided some facts and figures about the relocation of Morococha, part of the large Toromocho copper project. “We are building a new city in the middle of the highlands, with 1,450 houses over two phases,” Arrieta said. “This is a big relocation project so obviously there will always be people who oppose moving, however a large majority are in favor. Where they live now there is no sewage, poor electricity and no permanent running water. Moreover, we are going to provide houses not only to the homeowners but also to tenants.

“We need to persuade them because we do not have any other alternative. There is no way Chinalco can force the people of Morococha out of their town,” Arrieta said. “If people decide not to move, there will be no mine and we will all lose. The locals will have no jobs, the government will receive no taxes and Chinalco will have no business here.”

Have Your Say
The public participatory processes have developed considerably in Peru over the last years. Companies need to hold a public audience to present their environmental impact assessments where the communities can ask as many questions as they like, as well as raise their objections. It is assumed that a project that does not obtain the so-called “social license” cannot go ahead.

“In Peru, there are about 120 conflicts per month between the latent and the active ones,” said Óscar Díaz, CEO, Viceversa Consulting. “Of these 120, more than 90 are related to environmental issues. And within these 90 environmental conflicts, about 80 of them are mining-related,” Díaz said. “Therefore, the biggest problem the mining sector faces with regard to the communities is the environmental aspects, and within that, the water issue is highly sensitive.”

The challenge, said Díaz, is to inform the locals about the different impacts. The system is very transparent, but at the same time it is not easy to present a highly technical engineering study of hundreds or thousands of pages to people with potentially very low education levels. At the end of the day, the communities need to be informed of the changes, both positive and negative, that the mining operation is going to bring to their lives and the lives of their descendants.

Recently there has been a strong movement for the implementation of Convention 169 of the International Labor Organization, which includes the local communities’ right to be consulted on any regulatory change that may affect them. This will probably mean additional participatory processes to the ones already in place. “The regulations in place already incorporate the concept of public participation. The system in the mining industry is a model for other sectors. Convention 169 of the ILO has to be implemented in a very responsible manner,” said Cecilia Gonzáles, a lawyer specialized in mining at Estudio Grau law firm. “Letting the people understand the impacts of the mining industry is key, but at the same time the mining industry is the foundation for Peru to keep moving on.”

Employment and CSR Programs
The expectations concerning employment opportunities need to be carefully dealt with. The mining operation cannot hire everyone; however, it can do its best to provide as many jobs to local people as possible. While mining companies may want to bring experts and contractors from elsewhere, they should also provide training and career opportunities locally and not only in low-skilled positions.

“About 85% of our workforce at the Cerro Corona processing plant are locals,” said Diego Ortega of Gold Fields. “We developed a unique training program in 2007-08 in order to have a core staff drawn from the local communities. We have demonstrated that all the locals needed was an opportunity to show their dedication and efficiency. They had to learn because previous mining activities in the area were underground, but today they are qualified staff.”

According to the Inter-American Development Bank, a multilateral organization, the country’s poverty rate could decrease to 30% by the end of this year, however it noted that it will be increasingly difficult to improve the statistic without more focused local strategies. As in many other Latin American economies, inequalities are very high among the population. The harsh living conditions up in the Andes do not help to create sustainable economic growth in the highlands.

“I believe mining is the only activity that can bring good standards of living to regions of Peru that are above 3,000 m, which represents 35% of this country’s territory,” said Jorge Benavides of Zincore Metals. “Any other activity you try to develop there would be mere survival.”

According to the latest report of the Peruvian National Institute of Statistics and Information Technology (INEI), chronic malnutrition still affects 17.9% of under 5-year-olds (18.3% in 2009). In absolute numbers, that means that more than 500,000 infants are malnourished and condemned to be poor when they will be adults. For the World Health Organization, the figure is actually higher, nearly 700,000.

With these numbers in hand, it is not surprising that many mining companies have developed projects intended to tackle this problem. Antamina, who has contributed to date $208 million to the voluntary fund since it was created in 2006 and is expected to transfer a further $45 million by the end of March, has implemented a program called “Ally Micuy” (“good food” in quechua). “More than 36,000 children have participated in the program and we have been able to reduce chronic child malnutrition from 33% to 23% over the past five years,” said Pablo de la Flor, vice president corporate affairs for Antamina. “The interesting thing about the project is that it does not distribute food, but socializes best practices that already exist within the country. It gets a significant level of involvement from the women in the communities and builds up capacity at a local level.”

While obviously not all mines can contribute the same money as Antamina, all players can do their bit to improve standards in their area of influence. Pan American Silver, for instance, received an award from the SNMPE last year for its program to improve nutrition. “Compared to what other major companies contribute, our fund is quite small, but still it is significant for the communities surrounding our areas” said Enrique Ramírez, general manager, Pan American Silver. “The future of any country is its children, so we decided to dedicate 80% of the money contributed to child nutrition. We created a separate fund and partnered with Caritas to manage it. The award from the SNMPE gave credit to our work with 1,200 families in Junín.”

There are many other areas where mining companies implement corporate social responsibility programs: “Since 2007, for our Lagunas Norte project we have been working with World Vision on an educational program focused on child assimilation,” said Darrell Wagner, general manager, Barrick. “We have agreements with the Clinton Giustra Sustainable Growth Initiative and a couple of Peruvian organizations where we are working on large reforestation programs. We also work in alliance with the CIDA (Canadian International Development Agency) and USAID (United States Agency for International Development) in the Lagunas Norte area on a health program. Furthermore, we have our own programs. Our idea is that education and health are what will be sustainable for the community.”

Juniors and Communities
Geologists doing exploration work are typically the first ones to arrive in remote areas and to get involved with the locals. If the area turns out to have a major deposit, it will be much easier to develop it later if the junior company builds a good relationship from the start. “The junior mining companies are in a disadvantaged position with regard to community relations, because we need to become pioneers in explaining what mining exploration is. Our role is very important and it is not always valued by the major mining companies,” said Joseph Grosso, president and CEO, Golden Alliance Resources.

“Nowadays there are very few places where you can be the first one to explore an area,” said Keith Laskowski of Estrella Gold. “Someone was there before you and whatever they did, the local people remember. In a rural area, people do not know the difference between Estrella and Rio Tinto. All they know is, ‘somebody is here.’”

The subprime crisis in 2008-09 caused funding to dry up and as a result many juniors had to restructure and put their exploration work on hold, potentially damaging the relationship with communities who may be expecting projects to develop quicker. “Over the past year, AM Gold has been completely restructured,” said Gerry Aberle, president and COO of AM Gold. We have come a long way through the transformation of the company, but have been careful through the process to maintain the strong local management presence we have always had in Peru as it is our view that community relationships cannot be built or rebuilt overnight.”

For Alberto Arispe, general manager of brokerage house Kallpa Securities, community relations are actually key to the funding of projects. “You may have great reserves on paper, but if you cannot develop the project on the grounds of social issues, the project is worth nothing. In Peru, this is a very sensitive issue. No one wants to invest in a place that has problems. Some companies do not want to spend money on community issues because they pay taxes and they believe this is the government’s responsibility. In theory this should be true, but in practice it is not.”

An innovative approach toward community relations is demonstrated by Minera IRL, who will bring the community as a 5% equity partner at their Ollachea gold project once it goes into production. “This is how you show respect to the historical owners of the land,” said Diego Benavides, president of Minera IRL’s Peruvian subsidiary. The initiative will also benefit the company as the communities will work toward the development of the mine once aware of the substantial funds at stake.

At the end of the day, it is up to each company to decide the best community relations strategies and to define how much to invest in this area. Yet, one thing is clear: not forging good links with the stakeholders is a recipe for disaster. Peru has already seen cases of failure (such as the one of Manhattan Minerals at Tambogrande a few years ago) and while some projects are undergoing social pressures, industry leaders hope that they will not have to be abandoned.

“We are seeing a conceptual change, from the ‘social license’ concept to the ‘strategic partnership’. This way the communities feel more involved in the mining project and social conflicts, which cause economic losses and even cost lives, are reduced,” said Percy Arhuata, general manager of Inmet Mining.

If Peru wants to keep inaugurating new successful projects, this trend will have to continue in the years to come.

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