MAC: Mines and Communities

Latinamerica Press has published a special online edition, containing articles, reports and analyse

Published by MAC on 2005-01-26

Latinamerica Press has published a special online edition, containing articles, reports and analyses about mining activities and their effects in countries throughout the region.

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The impact of Mining in Latin America

Latinamerica Press

January 26, 2005

This special edition of the bulletin stresses the following: Mining's role in the economy and sustainable development. Current situation of conflicts in the region's mining sector. Proposals for citizen participation in decisions on the activity as well as positive experiences of dialogue between mining companies and communities. Analysis of the problems in the sector from the perspective of social organizations, experts on the issue, authorities, companies and financial institutions.

Through this report we hope to draw attention to the controversial aspects of mining and help develop a wider understanding of the issues involved.

We begin below by looking at the role of mining in the sustainable development of a country

Economic development for whom?

Debate needed on how mining can make a real contribution to sustainable development.

Latin America is now the world's most important destination for investment in mining. At the start of the 1990s, the region received 12 percent of worldwide investment in mining. The amount nearly tripled, to 33 percent, by the start of the current decade.

The international boom in metal prices - gold went from US$363.4 an ounce in 2003 to $433.15 in December 2004 and copper increased from $0.80 per pound to $1.44 in the same period - has been a major incentive for new mining investments.

As a result, mineral exports from Latin America grew by more than 40 percent in 2004 compared to the previous year. Chilean mineral exports last year hit an all-time high, increasing nearly 90 percent over the 2003 figure to reach $16.5 billion. In 2004, Peruvian mineral exports brought in $6.77 billion, an increase of 44 percent over the previous year, while Brazil's export earnings from mining rose the same percentage to $5.2 billion.

Legal frameworks - tax breaks, relaxed labor laws and other benefits - approved in the 1990s to attract mining investment proved to be right on the mark in meeting their objective.

Mining expands

Mining has grown in the region's traditional mining countries, such as Brazil, Peru and Chile - in this order for the preference of mining companies when they spend on exploration in the region - as well as in countries that are not necessarily major mining centers, such as Argentina and Honduras.

It has also spread to new areas in countries that are already traditional mining centers.

"This is explained by the use of new technology, which allows for mining in areas where the minerals are dispersed in the ground, cover huge areas and the concentration is relatively low. These technologies are mainly leaching, which uses cyanide for mining gold and sulfuric acid in the case of copper, both of which are pollutants," said César Padilla, head of the Mining and Communities area of the Latin American Observatory for Environmental Conflicts (OLCA), based in Santiago, Chile.

"In the case of Chile, mining [once concentrated primarily in barren regions] is affecting communities in agricultural valleys, many of which are prosperous. In the majority of cases, they are involved in the agro-export market. At the higher elevations of these valleys, where most of the rivers start, mining projects undertaken by large transnational companies are being developed, putting the entire valley at risk," said Padilla.

"No to mining"

The "no-to-mining" movements growing in many countries are a response to the expansion of mining activities that do not take into account the rights of communities. The conflict in Tambogrande in northern Peru, in which a traditional farming community in 2002 stopped a mining project from moving ahead, is a good example of this movement.

"Populations that find out that their lands are being claimed for mining activities or offered in concession are saying 'no, I don't want mining on my territory, it is not part of my vision of development, on the contrary, it will harm me,'" said José De Echave, an economist who heads the Mining and Communities Program at the Peruvian non-governmental organization CooperAcción.

"In a country [like Peru] where mining is an important activity, and no one disputes this, you have to start discussing where to mine and where not to mine. For example, we believe that there is no way mining should be allowed in protected areas. We feel the same way about the farming valleys," he said.

Padilla sees the same thing in Chile, where mining is expanding to productive areas that offer other viable sources of production, "and where mining does not create jobs, does not offer growth or development, and puts farming at risk because of the pollution it causes." Benefits versus costs

In this context, organizations working on environmental and sustainable development issues propose a cost-benefit analysis of areas that may be offered in concession for mining, measuring whether the benefits outweigh the potential social, cultural, sanitary and environmental costs, and if the benefits will be equally distributed.

This idea stems from the fact that in most cases the boom in mining investment in the 1990s was accompanied by a gradual increase in level of extreme poverty in regions where mining projects were developed.

In Peru, the departments with the greatest investment in mining are also among the poorest in the country. Cajamarca, in the northern highlands, is Peru's fifth poorest department, with 77.4 percent of its residents living in poverty and 50.8 percent in extreme poverty. It is also home to Minera Yanacocha, the world's most profitable gold mine, which accounts for nearly 10 percent of Peru's export earnings. Yanacocha is owned by Denver-based Newmont Mining (51.35 percent), Peru's Buenaventura Mining Company (43.65 percent) and the World Bank's International Finance Company (5 percent).

Peruvian economist Juan Aste Daffós said that "mining activity does not have a multiplying effect on the regions, given that purchases made at the local level are minimum and the capacity to generate jobs shrinks as technology improves." In Peru, large-scale mining employs slightly more than 75,000 people, or about 0.9 percent of the economically active population. In Chile, big mining employs about 78,000 people, or 1.4 of the percent of the work-age population, while in Brazil it is 91,000 people, or 0.1 percent of the workforce.

Redefining the role of mining

Is it possible to conceive of a different role for mining in Latin America if in its current form it is not creating jobs, the taxes collected are low thanks to tax breaks awarded transnational mining companies for operating in the region, it is expanding to areas with potential for other economic activities, and the communities where mining is present do not feel they are benefiting?

According to Peruvian researcher Pedro Francke the question should be how the nation itself can receive something from the extraction of these resources, which, ultimately, belong to it.

One answer would be through royalties, which were hotly debated last year in Chile and Peru. "More than a specific mechanism, the issue is that there is an absence of tax laws that allow these (mineral) riches to be shared on a national level," said Francke.

"One option that can be considered is that mining become a sector that temporarily offers resources to other, more permanent activities that can promote development," he said.

Francke warns, however, that moving capital from the mining sector to other sectors, from international capital to local capital, is something that requires direct action from the state.

"The most direct mechanism is a tax, with the state receiving resources through royalties or other mechanisms and earmarking them for technological development and infrastructure to promote national development," he said.

Some sectors have proposed that the mining companies themselves contribute to the generation of technologies, a position Francke views as difficult to put into practice.

"[In Peru] there has been some discussion related to refineries and processing mineral resources, but this does not seem to go beyond refining and extracting minerals. There has been little discussion on the industrial issue, metal-mechanic production that requires much more planning," said Francke.

"Another option (can be seen) in Chile, which has moved forward in what they call 'clusters,' in the area of mining services for exploration, geophysical equipment, these kinds of things. This is an option that has been less importance in Peru and on which that state could advance a bit more," he said.

Real citizen participation needed

Redefining the role of mining in the region also means creating mechanisms for adequate citizen participation. The laws currently on the books do not provide citizens with timely information and the mechanism for their participation are slow and do not ensure they will have an influence on the process.

"The legal framework calls together the population at the end of the process, after the company has finished its environmental impact study and presented three volumes containing 1,000 pages, telling citizens that they have 15 days to review the information and attend a public audience to present their opinion, without offering any guarantee that these opinions will be taken into account," said De Echave, describing the situation in Peru and most countries in the region.

Institutional mechanisms are also needed to guarantee adequate conflict management to arrive negotiated settlements when problems arise.

De Echave said a key characteristic of a dialogue process between the different stakeholders in mining is that none of them heads the dialogue process, thereby avoiding the development of uneven relationships. Shared leadership, which is never easy when the process involves a multinational corporation, can guarantee results acceptable to all sides.

Making mining more beneficial to Latin American nations also involves a process of zoning at the national level to determine areas that are apt or not apt for mining.

This implies territorial ordering in which each region has a plan for the sustainable use of natural resources and use of soils (infrastructure) that is linked to the vision of residents on the development of their communities.

"These plans can give communities the capacity to negotiate," said Aste Daffós.

Strengthening capacities of communities and ensuring that they have timely access to information is essential to this process.

"There are still shortcomings in providing true information, real information on the pros and cons of mining," said Padilla.

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