Latin America is confronting a new variant of the resource curse.
Governments keen to develop their vast natural resources – vital to keep their economies growing – are facing determined, and often violent, protests from local communities seeking to keep mining, petrochemical and electric corporations off their lands.
At stake are tens of billions of dollars.
Panama and Peru, which have had the most dynamic economies in the region in recent years, are at the centre of debate over the development of natural resources.
Multilateral institutions and international banks forecast that GDP in the two countries will expand above world and regional averages in 2012, repeating the same pattern from the previous year. Panama is expected to grow by 6.5% and Peru by 5.5%. (Only Haiti, which continues to recover from its 2010 earthquake, will see faster growth in the region.)
While growth in Panama and Peru has come from different sectors, and their economies are markedly different, the governments in both countries, as well as their counterparts throughout the region, see sustained expansion coming from natural resources development.
The government of Peru forecasts investment in resource development at above $80 billion in the coming four years, with a full $52 billion coming from mining alone. Peru is the world’s second-largest producer of copper, silver and zinc, third in tin and sixth in gold. Mining exports accounted for 65% of Peru’s $45 billion in exports in 2011.
THE PRICE OF PLENTY
But this comes with another price tag. The government is also dealing with over 100 socio-environmental conflicts, many of which have turned violent after opposition from local communities has intensified.
The previous government of president Alan García (2006-11) was forced to cancel two projects last year – the $900 million Tía María copper mine planned by Mexico’s Southern Copper Corporation (SCC) and the $600 million Santa Ana silver mine planned by Canada’s Bear Creek Mining, because of violent protests sparked by environmental concerns.
President Ollanta Humala has endorsed the Minas Conga project planned by Minera Yanacocha, formed by US firm Newmont Mining, Peru’s Buenaventura and the World’s Bank’s IFC. However, the $4.8 billion investment, the largest single mining investment in Peru’s history, was put on hold last November during a prolonged strike by opponents to the project, who claim it would irreparably harm water resources. The protest led Humala to reshuffle his cabinet in December, less than five months into office, removing his premier and 10 other ministers.
Gregorio Santos, the regional president for Cajamarca who led the November strike, has declared Conga “unviable”, arguing that it would destroy four high Andean lakes, as well as marshlands that provide water to four provinces. Santos has also questioned four other projects, with combined investments of more than $6 billion.
The regional government passed an ordinance in December that would prohibit mining in areas considered to be the headwaters of the river system. The Humala administration is challenging the measure in the Constitutional Tribunal, Peru’s highest court.
Conga says its environmental impact study, which was approved in October 2010, was prepared over years and includes several different “hydro-ecological” studies. “Conga, far from destroying water sources, will provide more water to communities throughout the year. The reservoirs that will be built will allow for water during the dry season, which is not the case today,” says a spokesperson for the company.
It is not the only flashpoint, however. The Humala administration faces similar problems in the south of the country, where the environmentalists, supported by the Tacna regional government, are trying to stop the $1.6 billion expansion of the SCC copper operation. There is also rising opposition in neighbouring Moquegua to the $3 billion development of the Quellaveco copper mine by Anglo American.
Peru’s National Mining, Petroleum and Energy Society has warned that if Conga is scrapped the government should forget the $52 billion in mining investment. There are also doubts being raised about the projected $12.4 billion in investment projected for this year, even though some high-profile projects, including more than $6 billion being invested in three projects by Switzerland’s Xstrata, are going ahead.
Panama, which until recently did not export minerals, is looking at exploitation of copper and gold reserves as the new motor of development. Minerals are seen as the best option for erasing the country’s historical – and expanding – trade deficit. Exports in 2011, including the Colon Free Zone, stood at $13.2 billion, while imports were $19.5 billion.
Panama has two of the largest untapped copper deposits in the world, Cerro Colorado and Petaquilla.
President Ricardo Martinelli’s administration estimates that Panama could become one of the world’s top 10 copper producers by 2018 if these deposits are developed. Canada’s Inmet Mining received approval to develop Petaquilla’s copper reserves in late December. The Petaquilla deposit also holds gold, and Canada’s Petaquilla Minerals is forecast to produce 100,000 ounces/year in 2012.
Canada’s Pershimco Resources has announced that it will start production of the Cerro Quema gold deposit in late 2012, producing around 50,000 ounces/year.
Opposition to mining, however, has been strong and has forced the government to make concessions.
MAKING THE LAW STICK
The administration passed a new mining law in February 2011, but repealed it a month later after massive demonstrations against it. It faced violent protests again this February over Cerro Colorado and construction of a hydroelectric plant on territory of the Ngäbe-Buglé indigenous people. The government agreed to cancel Cerro Colorado and ban mining on Ngäbe-Buglé land after two people were killed in protests against the project. A decision is still pending on the hydroelectric development.
This government is now betting on Petaquilla, hoping that the experience there with gold mining will allow the copper deposit to be developed. The start-up date for copper production is now forecast for 2016. Estimated investment in the mine and related infrastructure is $3.5 billion. Investment in mining in the coming years could be higher than the $5.2 billion price tag to expand the Panama Canal.
“The government sees mining as the key to sustained economic growth and is actively promoting it. President Martinelli says Panama will become a top copper producer, but he does not want to consider the environmental or social cost of this, which is why there is opposition,” says Tania Arosemena, a lawyer with the Environmental Advocacy Center of Panama (CIAM).
As in the case of Cajamarca in Peru and the Ngäbe-Buglé area in Panama, residents in north-east Argentina blocked roads in February to protest against the open pit mine, Bajo de la Alumbrera. The protests ended in violence and some 20 injured. Environmentalists claim the mine is causing irreparable damage while reaping profits that do not remain in the zone. The mine has both public and private stakeholders.
Meanwhile in Ecuador, protests have erupted against plans for large-scale mining projects, following an agreement between Ecuador’s government and Chinese mining company Ecuacorriente to invest $1.4 billion in a huge open-cast copper mine.
The country, which has no large-scale mining, has been facing growing opposition from indigenous communities and environmental groups to its plans to attract billions of dollars to develop gold and copper deposits.
President Rafael Correa’s government sees mining as a way of counter-balancing the impact on the economy of oil, which accounts for more than 50% of the country’s exports.
Contracts for several other high-profile deposits, requiring a total investment of more than $3 billion, could be signed by the end of the first quarter once the issue of royalty payments is resolved.
These include a deal with Canada’s Kinross Gold to develop the long-delayed Fruta del Norte gold project, China’s Tongling Nonferrous Metals Group for the Mirador and San Carlos copper deposits, Canada’s International Minerals for the Rio Blanco gold mine and Iamgold’s Quimsacocha’s gold mine.
Convincing communities to allow open pit mining, however, might be harder than negotiating royalties. Indigenous organizations, once strong backers of the Correa government, are opposed to the projects, as well as the mining law that was passed in 2009.
Gabriella Muñoz, head of the Ecuadorian Center for Environmental Rights (CEDA), says communities want more transparency and to be consulted about projects before they are approved. She says the process has been “complicated by the government stalling on new environmental legislation required to bring laws in line with the constitution”.
Muñoz says there are obvious parallels between the protests in her country and others throughout the region.
“We are countries that have historically exported raw materials,” she notes, “but communities do not feel as though they have benefitted.”