The price of gold: winners and losers in Latin America's mining industry

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Mongabay, Cajamarca, Peru

This story originally on Mongabay.

On a Friday afternoon in June, the Plaza de Armas in Cajamarca is pulsing with life. It's winter here, and although thick white clouds hover low in the distance, the sun in this northern Peruvian city is warm. Couples sit on benches facing one another. Kids run in the grass between flowerbeds. Men in suits stride along the perimeter. It's an idyllic day. But signs of something more ominous are not far from sight. On the mountainside overlooking the town the words Nova Conga have been carved into the vegetation. It is a constant reminder that beyond the square, hemmed with international hotels and expensive restaurants, there is another reality. 

On the side streets, out of sight from the Plaza de Armas, campesinos line the roads selling cheese, quail eggs and pan. The native Quechuan women wear traditional knee length flannel skirts, brightly patterned satchels slung across their torsos, and tall straw hats atop long, black braids. Their skin is dark and leathered from a lifetime of working under the sun. Their smiles reveal few teeth. 

Here in the Andean mountains, amid the high grassy plains, there are two distinctions of people: those who have found economic prosperity from the presence of gold, and those who have felt the social and ecological fabrics that once held this community together worn away by the invasion of corporate interests. 

Protestors march at Lake Perol in June against Conga mining project. Photo by: Meghan Walsh.
Protestors march at Lake Perol in June against Conga mining project. Photo by: Meghan Walsh. 

Conga, which the message on the mountain decries, is a $5 billion gold and copper mine slated to begin 20 years of excavation in 2016. Conga will rev up just as another massive mining operation that reshaped the region is winding down. The same companies behind Conga—Colorado-based Newmont is the majority stakeholder, followed by Peru's Buenaventura—also manage Minera Yanacocha, a repository that has yielded more than $7 billion worth of ore over the past two decades. 

Yanacocha has been a source of social and environmental turmoil throughout its tenure. Many of the locals, afraid that history is about to repeat itself, have spent the past several years dedicated to driving investors away. Demonstrators halted Yanacocha's attempts to sprawl out in the past, and their virulent protests against Conga prompted the Peruvian president to temporarily suspend construction, so it seemed as if the opposition might prevail. But as time passes it's becoming more apparent the project will continue as scheduled. So the question now is will Conga be another Yanacocha? Or will it help Cajamarcans finally rise out of poverty? 

Mining does have the potential to bolster economic development in impoverished areas. But as Leonith Hinojosa, a research fellow at University of Manchester's School of Environment and Development, wrote in an online debate hosted by Columbia University on whether mining is the key to Latin American prosperity: "Everything depends on the rules of the game.'' 

Looking back 

When Yanacocha first opened in the early 1990s, residents—the entire region has a population of about 1.3 million—thought it represented a chance for a better life. As with any project of this sort, there would be an environmental toll, along with the forced displacement of rural dwellers. But there would also be jobs and royalties and new commerce. The people, for the most part, were welcoming. But disillusionment quickly set in. 

Alpine Lake Perol: the lake will be drained and used as a waste dump if the project goes ahead. Photo by: Meghan Walsh.
Alpine Lake Perol: the lake will be drained and used as a waste dump if the project goes ahead. Photo by: Meghan Walsh. 

"Cajamarca had an opportunity, and we missed it," said Carlos Garcia, a native who has worked as a mine engineer for almost a decade. His name has been changed since he was not authorized to speak with me. "When Yanacocha came, everyone did things wrong. Yanacocha didn't have the best environmental standards. The [Cajamarca] government wasn't ready so they didn't take advantage of the opportunities." 

First, the seduction of employment proved a mirage. Yanacocha created more than 10,000 direct jobs (some fulltime and others on a contract basis), but most were given to educated outsiders. While poverty in Cajamarca did improve for a handful of years, it wasn't more than comparable areas without lucrative natural resources. The district continues to be one of the country's poorest. 

The subsequent influx of people, who were making significantly more than the general population, has driven up the cost of living. According to a 2009 report by the International Finance Corporation, an investor in both subsidiaries, Yanacocha has created "excessive demand" for public services, while its social contributions have been "relatively insignificant." The company built schools, but only for the families of employees, further etching a division in classes. 

"Many conflicts associated with the expansion of mining are, in fact, about the distribution of the benefits," wrote Hinojosa, the expert panelist for the Columbia debate. 

Then there have been the environmental calamities. The Ministry of Fishing—and numerous other sources—documented thousands of trout dying as groundwater was contaminated by acidic runoff. Soil erosion and sediment levels in water channels rose, while streams began to dry up. Open-pit mining requires immense amounts of water to first blast the rock from the earth and then separate the ore, which also requires vast quantities of cyanide. 

Police at multi-day protest. Photo by: Meghan Walsh.
Police at multi-day protest. Photo by: Meghan Walsh. 

After Yanacocha started building open pits, nearby canals that brought water to rural farmers dwindled to a fraction of their previous water flow, according to a study published by Wageningen University in the Netherlands. If local communities wanted Yanacocha to build infrastructure to restore water levels they were required to transfer over their water rights indefinitely. They did so, and Yanacocha built the San Jose reservoir. But after a series of malfunctions, the dam has never fully worked. 

Then in 2000, a truck spilled 330 pounds of mercury over 25 miles of road. The company failed to notify officials and clean up the mess, allowing hundreds of residents, thinking the mixture contained gold, to scoop it up with their hands and bring it home as a treasure. The incident sparked riots. 

"Cajamarca has gotten worse since Yanacocha," Garcia said. "It created a deep division in the community." 

Newmont actually wrote a letter to the people in December 2012 admitting its fault: "We want...to acknowledge the mistakes we have made in how we have conducted ourselves and conducted business. Most importantly, we apologize for the distress we have caused and for failing to earn your trust." 

Water wars 

The Observatory of Mining Conflicts in Latin America reports that more than 200 disputes over mining missions are ongoing across the region. Water is at the core of most: water rights, water access, water quality. Last year, Jose de Echava, Peru's former vice minister of environment, told global news agency AFP the ferocity and frequency of clashes is growing, and more than anything, "it's all over water." 

Water is the main reason why the campesinos, as well as the regional government, are fighting Conga. The project, already unearthing fragile wetlands, will drain four alpine lakes, replacing them with artificial reservoirs. The water, after it is used to separate the ore, will be treated before being distributed, also raising concerns over quality. 

According to an outside review of Newmont's environmental assessment, commissioned by the Peruvian president, the "water situation would improve" – if the company lives up to its promises. The authors claim the water's current bacteriological quality is not suitable for human consumption and frequently causes intestinal infections, while the treated water would meet higher standards. Still the review emphasized the reservoirs, as planned, won't have enough capacity. They need to be larger. 

Another independent study, this one by Colorado-based hydrologist Dr. Robert Moran, also contends the facilities, as designed, won't be able to purify the water to a level high enough for human consumption. 

The consultants also advised Newmont to contribute more money into a social fund, because after the mine closes, local municipalities will still have to rely on and manage the new water system. 

"What they are proposing is to take control of all of the water resources in that area," Moran said in a recent interview. "After they leave who is going to take over operations? Future costs related to facility maintenance, and the collection and treatment of contaminated waters will be subsidized by the public for generations." 

Protesters continue to regularly convene at the Conga basins. 

"We are here to protect our water and to fight for the people," said 19-year-old Marina Catrina during a three-day protest last June that drew about 1,000 demonstrators. Catrina lives near Lake Perol—one of the lagunas that will be drained and used as a waste dumpsite—on land her family has farmed for more than a century. 

Conga's legacy 

As is displayed in the Plaza las Armas, mining can mean prosperity for developing Latin American countries. Yanacocha alone paid $1.2 billion in national taxes and duties between 1994 and 2006, according to an IFC statement. Mineral extraction accounts for 10 percent of Peru's GDP, and mining investments are expected to total $14 billion this year. Those numbers are only expected to increase in the near future. 

Cajamarca. Photo by: Meghan Walsh.
Cajamarca. Photo by: Meghan Walsh. 

Despite past legacies, these giant corporations do have the means to fund social investments, provide jobs and update infrastructure. But reality hasn't played out that way: instead, governments tend to favor foreign firms, leaders often seek short-term financial gains, and developers usually don't protect the environment or people's quality of life. 

In 2008, Newmont submitted an environmental impact assessment that outside experts said was "a challenge even for skilled technicians" to understand. Yet the government hastily approved it without the consent of regional leaders. The Minister of Energy and Mines who signed off on it was Felipe Ramirez del Pino, a former executive for Newmont. President Ollanta Humala fired the previous minister who objected to the assessment and replaced him with del Pino. 

In Moran's opinion, the environmental impact study "does not represent independent, disinterested science." 

But Moran's biggest criticism is that the assessment didn't mention Yanacocha once or use what happened there as a predictor of what is likely to unfold with Conga, even though the sites are only a few miles apart and have the same ecological makeup. 

"We have more than 20 years of real-world experience from Yanacocha," Moran said. "We don't have to rely on speculation. Experience should be the basis of making future statements and it wasn't." 

Then, just last year, Humala amended the "Prior Consultation Law." The legislation originally required corporations to negotiate agreements with indigenous tribes in the mineral-rich Andes and Amazon before developing projects on their lands. But at the urging of the minister of mines, the president revised the rule to exclude Quechua-speaking communities, which are mostly found in the Andes. 

Local protestors. Photo by: Meghan Walsh.
Local protestors. Photo by: Meghan Walsh. 

There has been some positive news, however. Earlier this year the country's National Water Authority Chief, Dr. Hugo Jara, announced the government plans to invest an additional $394 million in reservoirs and water-treatment projects to benefit Cajamarcans. He also said the authority will certify Andean farming communities' water rights, giving them greater legal leverage during negotiations with mining companies. Based on the outside expert recommendations, Newmont has also stated it will consider relocating the Perol waste dump and expanding the reservoirs' capacity. 

Roughly 41 percent of Cajamarca's territory has been divvied out for mining concessions, yet 58 percent of the population earns a living from agriculture. It remains to be seen if their previous livelihood will be able to endure after the mines have come and gone. 

During a visit last summer, I talked to an employee for the Cajamarca Regional Department of Economy, who said the people want commerce that can prevail over time without negatively impacting the environment, such as tourism, reforestation or agriculture. But inefficient and unstructured local agencies haven't been able to develop any of these industries. 

"When Conga came we weren't doing anything else," Garcia said. "Why didn't the people come up with an alternative?" 

Meanwhile, the city remains divided and the true toll of the mine disputed. And that sunny Friday, only blocks away from the manicured Plaza las Armas, a campesino sits without a food stand. Instead she holds her hand out for change and a cardboard sign that reads: "El precio del oro." The price of gold.