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HudBay (T.HBM) says winning a social license is "the big test" in Peru

HudBay (T.HBM) says winning a social license is "the big test" in Peru

Posted by Juan Gavasa on March 05, 2014

There seems little doubt that Peru has a bright future as a destination for mine and resource financing. Consultants from Scotiabank, PricewaterhouseCoopers, Deloitte, and E&Y were quick to make that point during a day of speeches to the Prospectors and Developers Association of Canada conference in Toronto on Tuesday.

But as shown by local opposition to projects controlled by U.S. giant Newmont Mining Corp. (NYSE: NEM, Stock Forum) and others, the Latin American country still has some work to do to convince its population that having a mine in the back yard is necessarily a good thing.

The problem for Peru is that as the Latin American country gets richer, indigenous groups are learning to read and write, and after being exploited for hundreds of years, many are starting to express a point of view, explained Carlos Coirolo, a vice-president with Orosur Mining Inc. (TSX: V.OMI, Stock Forum), which has a gold mine in Uruguay.

Unlike the population in Chile, which has a much stronger mining cultural, residents in Peru often do not differentiate between companies that are engaged in early stage exploration and those that are intent on digging large open pits.

It means that obtaining a social license to operate is still a big issue for mining companies that are aiming to do business in Peru. “It’s all about building trust with local communities,’’ said Glenn Ives, an Americas Mining Leader with consultant and financial advisory firm Deloitte.  “You have to be patient with the local communities, because if you don’t, it can cost you more in the long run.’’

Ives said Hudbay Minerals Inc. (TSX: T.HBM, Stock Forum) is considered to be doing a good job in that area as it moves to develop its US$1.7 billion Constancia copper project.

Javier Del Rio, Hudbay’s business development director in South America, said the company has been working to resettle families that currently live on land that is needed for mine site waste dumps.

“This has been our biggest test,’’ he said.

Under agreements with local communities, Hudbay has delivered new homes to 29 of 36 families and has constructed a total of 32 homes. While the relocation of these families is still in progress, the company hopes to be in commercial production by the second quarter of 2015, Del Rio said.

Newmont Mining has fared less well with its Conga gold-copper mine where construction was halted in 2011 as a result of protests. Newmont had hoped to start production at the US$5 billion project in early 2015, but the company has not said anything recently about a potential start date.

Still, Roque Benavides, the Chairman and CEO of Newmont’s partner Buenaventura told PDAC delegates that investment in the Peruvian mining sector has soared by 3,000% in the past decade. Of the 30 million people who live in Peru, roughly 1.8 million owe their livelihoods to mining , including 209,000 who are employed directly, he said.

Benavides said copper is the most important metal for Peru and the country hopes to double its production to 2.8 million tonnes annually.

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