Humala reshuffles Cabinet in Peru's mining crisis

Dec. 12, 2011 at 1:53 PM
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LIMA, Dec. 12 (UPI) -- Peruvian President Ollanta Humala is changing tack to deal with an escalating in the country's gold and copper mining crisis, which threatens to derail Peru's economic growth.

A $4.8 billion copper-gold Conga project in the northern Cajamarca state was suspended last week because of protests by campaigners opposed to mining near water resources. Clashes between protesters and police have left at least one person dead and scores injured.

Investors and media commentators sought clues to why Humala parted company with millionaire businessman Salomon Lerner as prime minister and replaced him with former military officer Oscar Valdes.

Lerner battled through weeks of negotiations over anti-mining protests but failed to clinch a negotiated compromise that would have allowed work on the Conga development project to resume.

Cajamarca is one of the most heavily mined states in Peru. The country earns more than 60 percent of its total export income from mined products.

Humala appeared to have overruled Lerner, reportedly on recommendation of Valdes, 62, until now the interior minister, as he responded to the protests, analysts said. Last week Humala declared a state of emergency in Cajamarca, a move indicating a harder line on the protests.

Critics said they feel betrayed by Humala's strong reaction to the protests, after his assurances that interests of local inhabitants and their water resources will be guaranteed.

Critics of the government say the planned mining complex will devastate the region's ecology, contaminate underground water resources, rivers and lakes and endanger the health and livelihoods of thousands of Peruvians.

The government says the mining plans are scientifically thought through and pose no major risks. The protesters aren't convinced and have vowed to continue the protests until the Cajamarca project is canceled.

Jorge Humberto Merino, who worked for the government agency that promotes foreign investment, is to be the new mines and energy minister but it's not clear how his responsibilities will intersect with the wide-ranging brief given Valdes, an ex-military man with a reputation as a hard-liner on law and order.

Both the government and business were rattled by a BoA Merrill Lynch report that said Humala's failure to resolve the stalemate over the Conga project would adversely affect Peru's national economic growth targets.

BofA Merrill Lynch said the protests threatened the security of mining investments, a key driver of growth in Peru.

Mining concessions have more than doubled in Peru in a decade of increasing inward investment but government policies haven't kept pace with the change or responded to opposition from community and environmental groups worried over environmental damage from exploration and mining.

Peru is one of the world's largest producers of gold, copper, silver and zinc but has seen its successive governments' ambitious plans contested by campaign groups. The number of ongoing disputes over mining operations reached 227, official reports said.

The Conga project is being developed by Minera Yanacocha, which already runs a large gold mine in the region.

Yanacocha is 51.35 percent owned by Colorado company Newmont Mining Corp., while Compania de Minas Buenaventura S.A. has a 43.65 percent stake and the International Finance Corp. owns the rest of the venture.

Before the suspension, Conga planned to begin production in 2015, with average output during the first five years of 580,000-680,000 ounces of gold and 155 million-235 million pounds of copper.

Analysts said such a cancellation would be unprecedented and would open the way for claims against other potential water contamination points cited by environmentalists.

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