The Washington Post
Tuesday, February 17, 2004; Page A13

Peru's Mines Dig Deep at Local Discontent

Gold Fosters Growth, but Sharpens Economic Disparities and Disrupts Communities

By Scott Wilson
Washington Post Foreign Service

CAJAMARCA, Peru -- The armored trucks weave down roads misted by clouds, carrying bars of precious metal from the mine at the top of the hill. The destination is Lima, the seaside capital, then Europe -- a trade route Peru's gold has followed since the Spanish conquest five centuries ago.

Gold mining is central to the economy of this high valley, and in recent years it has provided one of Peru's most impoverished areas with schools, roads and running water on a scale the government could never manage. But there is discontent in the towns below Latin America's largest gold mine, known as Yanacocha, which means black lagoon in the Quechua Indian language.

The riches have brought resentment, particularly among those who have not won a coveted place on the mine's relatively small payroll. Many of those who do not work for the mine say it has brought minimal development, a higher cost of living and pollution to the rivers that for generations have provided irrigation for a patchwork of potato and corn crops.

The debate over mining here mirrors a broader one taking place across Peru. There are mounting questions about an economic policy that has produced impressive growth figures but few jobs, especially for the majority of Peruvians, who live in poverty. Rising populist sentiment from Venezuela to Bolivia has stirred deep social unrest over how to harness the Andes' natural wealth, much of it in foreign hands, on behalf of the poor.

Now the Newmont Mining Corp., the Denver company that holds controlling interest in Yanacocha, wants to begin working a barren, 14,000-foot dome filled with more than $1 billion in gold. The expansion is generating sharp public opposition while challenging Peru's government to reconsider how best to balance its export-dependent economy with the interests of needy communities.

"There are the millionaires up there, and we're as poor as ever," said Lucida Torres, whose tiny potato and spice farm in Huambocancha is irrigated by the Mashcon river, which she says has shrunk to a trickle since the mining began. "All the people must come out against this as if at war."

The debate is at the heart of the political dilemma confronting President Alejandro Toledo, whose approval rating has slipped into single digits despite what appears on paper to be his successful stewardship of the economy.

A former World Bank official, Toledo promised on taking office in July 2001 to create 1 million jobs in his five-year term. Despite Peru's average annual economic growth of about 4 percent, among the best in Latin America, Toledo has fallen far short of that goal. Last year, Peru's economy lost 40,000 jobs, according to government figures. His support among the poor has vanished.

Much of Peru's recent economic success has been built on exports, the key in Toledo's view to expanding an economy with a domestic market that is severely restricted by poverty. Peru's exports are projected to exceed $10 billion this year for the first time. Half of that revenue is derived from mining, which is growing at an average annual rate of 10 percent. There are now mining operations in 22 of Peru's 24 states.

But mining employs only 8,000 of Peru's 27 million people, and nearly all of those jobs are created in the remote regions that surround mining operations. The isolated communities, including this one high in the Andes Mountains 360 miles northwest of Lima, are known as enclave economies because relatively little of the financial benefits derived from mining reach beyond their mountain borders.

Last year, mining companies paid $290 million in income taxes to the Peruvian government, 10 percent of the total income tax collected. Tax proceeds have contributed to many social programs outside the mining regions, most notably a low-income housing construction project that has ranked as the most popular program of Toledo's presidency. But the mine companies took more than 10 times what they paid in taxes out of the country as revenue. Government officials, as well as mining executives, also worry about tax receipts lost to rampant corruption, an amount that is undetermined.

The new wealth has brought modern changes to traditional communities, some of which have rejected the allure of promised development altogether. In the face of broad public opposition, the government withdrew permission in December from a Canadian company to excavate a major gold seam beneath the town of Tambogrande, which would have required one-third of the town to be leveled and relocated.

"Mining does create jobs, but it also creates enormous expectations within communities," said Jaime Quijandria, Peru's energy and mining minister and a former finance minister. "We do not want to stop or even slow mining. But we must find ways to manage it in order to create more jobs and help these places."

Since the Yanacocha mine opened in 1993 across a 100,000-acre hilltop concession of scrub and pasture, its directors have assumed many of the roles of Peru's weak local government and lightly trained business class. One of the mine's chief opponents describes it as the city's "rich uncle," generous except when it comes to work.

Last year, the mine yielded 2.8 million ounces of gold. Gold sells on the world market for more than $400 an ounce, so the yield grossed more than $1.1 billion. The company expects to pay $140 million in Peruvian taxes this year based on that record revenue, half of which will come back to Cajamarca's government.

On its own, the mine has built 75 miles of road and dozens of irrigation systems, and funded small-loan programs and art exhibits. The valley twinkles at night with lighting financed by mine proceeds. Local amateur soccer teams are funded by the mine, as are many of the fields they play on.

As recently as 15 years ago, cows grazed on Cajamarca's main square, today a model of meticulous gardening thanks to an infusion of mine money. Internet cafes sit on nearly every corner. The Don Taco restaurant resides next door to the Ransom Room, the small stone house that the Inca emperor, Atahualpa, filled with gold to win his release from the conquering Spaniards.

But the new money has lifted only a few of Cajamarca's 100,000 people, especially those who work directly for the mine. Yanacocha employs 2,000 people, 60 percent of them Cajamarca natives. Several thousand others hold service contracts with the mine.

A drive along the mine's roads, which rise and fall in the thin air at an altitude of 13,000 to 14,000 feet, reveals how few jobs modern mining operations require. After initial blasting and soil removal, the operation relies largely on a chemical process involving cyanide, zinc, water and gravity to pull the gold from porous rock.

More alpaca than people appeared along the roads. A sleek new environmental laboratory and the administrative offices, however, were packed with employees who fill jobs beyond the technical expertise of the throng that gathers outside the mine's gates each morning with résumés in hand.

"Everybody wants a job," said Brant Hinze, the mine's general manager. "And mining can't do it all."

The province continues to rank among Peru's five poorest, partly because the new money has driven up the cost of living.

"What's increased enormously are the number of nightclubs, and that's not a good thing," said Marino Capanillas, who was born and raised in Cajamarca and who opened a jewelry store on the main square four years ago. "Things have improved for the people who work up there and for no one else."

Yanacocha has had uneasy relations with the community since 2000 when several barrels holding mercury, a mine byproduct, fell off a truck and spilled in the village of Choropampa. Believing the silvery liquid to be valuable, villagers gathered it up; 1,200 of them later suffered poisoning. All survived, but the mine's Cajamarca offices were set on fire later that year.

Those concerns linger, fueled by periodic environmental accidents. In 2002, according to Yanacocha's most recent annual report, more than 36,000 river trout died in streams flowing from the mine.

The Rev. Marco Arana, a priest who heads the anti-mining group Grufides, says the government has failed to hold the company accountable to higher environmental standards because renovating the tiny hospital, building new roads and financing the mayor's continuing education all depend on mine financing.

"All of our problems come back to absence of the state in any of this," Arana said.

In downstream villages such as Huambocancha, nine miles southeast of the mine, residents have watched rivers dwindle and corn, potato and eggplant crops wither in seasons without rain. Only five of the village's 3,500 people work at Yanacocha, according to the mayor, Gomer Vargas, whose rented office shakes with mine truck traffic. It is easy to identify those who work at the mine: Their new concrete-block duplexes tower above the packed-mud homes of those who do not.

"Talk to someone who works at the mine, and they say of course we support it," said Vargas, whose town received a system from Yanacocha that supplies running water to nearly half the population. "But development and jobs for us -- they don't exist."

The valley cut by the Rio Grande is dotted with the shacks of families who sold property near the mine and resettled. Their plywood homes use thick black sheets for roofs; it is the same material used to line the mine's reservoirs where the gold is collected. Women in homespun clothes and high-crown straw hats pass yellow signs along the dirt tracks that advertise Yanacocha water projects.

Late last month, Yanacocha applied to the Ministry of Mines for permission to explore Cerro Quilish, an imposing hilltop from where a small fraction of Cajamarca's drinking water emerges. Those who do not have a job at the mine are coming together now to fight its expansion through hunger strikes and marches.

"We know we don't have the credibility to go in and do this ourselves," said Nicholas Cotts, Yanacocha's director of external affairs, who has lived in the community for 11 years. "We want to do this in a participatory way, and in as transparent a way as possible."

© 2004