Newmont Mining (NMC-T, NEM-N) has indefinitely halted construction activities in agreement with the government of Peru at its 51.35%-owned Conga gold-copper project in the northern region of Cajamarca following weeks of protests over the proposed mine. The Conga project represents the largest mining investment ever proposed in the country but over the past two months it has come up against increasingly intense opposition involving thousands of protesters, capping off a worrying year for miners operating in Peru.
Newmont received full environmental approval for the project last year but farmers and environmental activists are saying the mine would cause pollution and alter sources of irrigation water by replacing a string of alpine lakes with artificial reservoirs. The protests have also affected operations at Newmont’s nearby Yanacocha gold mine, which has suffered from intermittent work stoppages.
Richard O’Brien, Newmont’s president and CEO, commented about the recent developments: “We will continue to engage in peaceful dialogue with local community leaders and government representatives. We believe that the multi-year approval process followed by Yanacocha and the Peruvian government for the Conga project, thoroughly considered impacts to the environment, including water resources in the region.”
He added, “Should we be unable to continue with our current development plan at Conga, the scale and diversity of Newmont’s global portfolio provides us with flexibility to reprioritize and reallocate capital to maintain focus on our strategic objectives, through development alternatives in Nevada, Canada, Ghana, Indonesia and Suriname.”
The Conga project lies on the northern edge of Newmont’s Yanacocha mine, which produced a total of 1.5 million oz. gold in 2010 making it Latin America’s largest single gold producer. The two operations are located high in the Andes Mountains approximately 600 km north of Lima and less than 50 km north of the city of Cajamarca, and are held in a joint venture with Compania de Minas Buenaventura (bvn-n), Peru’s largest publicly traded precious metals company. Buenaventura holds a 43.65% interest in the projects while the International Finance Corporation owns the remaining 5%, with Newmont acting as operator.
Environmentalists are against Newmont’s plan of replacing four alpine lakes near the project with an equal number of man-made reservoirs, three of which will be used for agricultural purposes and drinking water while the other will hold mine tailings and waste. The dissidents are also concerned over the location of the mine site, which is reportedly near the headwaters of multiple rivers.
Several activist groups have reported sporadic strikes taking place in the area over the past few weeks following a call to protest by Cajamarca’s regional president, Gregorio Santos. On Nov. 30, a larger, region-wide strike continued into its seventh consecutive day, crippling transportation and activity in the area. Unconfirmed leaked reports have suggested Peru’s Ministry of the Environment, in response to the growing concern, has re-reviewed the environmental impact statement for the Conga project and concluded it needed further evaluation because it would “significantly and irreversibly change headwaters, disappear several ecosystems and fragment the rest.”
Newmont had expected to place the Conga mine into full production by 2014 or 2015, having only decided to fully fund construction at the end of July 2011. In the company’s 2010 annual report, Newmont stated Conga’s “current estimated potential is 15 to 20 million ounces of gold and 4 to 6 billion pounds of copper on a 100% basis,” though as at Dec. 31, 2010, it had reported reserves of 6.1 million oz. gold and 1.66 billion lbs. copper.
Annual attributable production for the first five years was estimated at between 300,000 to 350,000 oz. gold and 80 million to 120 million lbs. copper, at estimated average cash operating costs of $0 per oz. gold produced after copper byproduct credits (assuming $3 per lb. copper). Capital costs attributable to Newmont to build the mine are currently forecast between $2 billion to $2.4 billion.
For its part, the company says the quantity of water available to Cajamarca residents will actually improve with the construction of the Conga mine, as the reservoirs will be expanded to hold roughly double the storage capacity of the four lakes. The appropriate steps to preserve water quality will also be taken, according to Newmont, including the implementation of an acid water treatment plant to enable discharge of treated water as per applicable environmental quality standards. It further notes approximately $800 million to $1 billion in royalties from the project would go to the local and regional governments of Cajamarca over the life of the mine.
Conga’s suspension follows the temporary suspension and ultimate cancellation of Bear Creek Mining‘s (bcm-v) license for its Santa Ana silver project in southern Peru earlier this year, and the election of populist left-wing president Ollanta Humala. Other miners to be affected this year include Southern Copper (scco-n) and its Tia Maria copper project; Dia Bras Exploration‘s (dlb-v) Yauricocha mine near Newmont’s operations; and Freeport-McMoRan Copper & Gold‘s (fcx-n) Cerro Verde copper mine, where the workers are striking for better pay.
The Conga conflict is the latest in a series of tests for Peru’s new president to balance the needs of the poor majority of rural Peruvians who elected him and the needs of the mining industry, one of the biggest drivers of economic growth in the country.
Since taking office in June, Humala has increased royalties and taxes on miners and has given indigenous communities the right to be consulted about development on their land.
Shares of Newmont were up $1.72 to $67.01 on 825,000 shares traded at presstime on Nov. 30, following a major uptick in commodity prices and stocks caused by a coordinated central bank move to increase liquidity to financial markets.