AMBASSADOR DISCUSSES MINING AND DEVELOPMENT IN

UNCLAS SECTION 01 OF 03 LIMA 001390

SIPDIS

DEPT FOR WHA/AND
DEPT PASS TO PEACE CORPS

SENSITIVE

E.O. 12958: N/A
TAGS: EMIN EINV ECON PGOV PE
SUBJECT: AMBASSADOR DISCUSSES MINING AND DEVELOPMENT IN
CAJAMARCA

REF: A) 04 Lima 5441 B) 04 Lima 4471


1. (SBU) Summary. During a March 3-5 trip to Cajamarca in
Northern Peru, the Ambassador met with local dignitaries to
discuss mining and economic development, toured the Newmont-
operated Yanacocha mine, and visited with Peace Corps
volunteers. Cajamarca has more factors in its favor than
virtually any other Andean province. Economic activity is
relatively diversified between agriculture, mining and
tourism (though agriculture still employees over 70 percent
of the population). The province receives nearly $100
million per year in mining royalties, and it abuts two fast-
growing coastal regions. Still, it is not clear that
Cajamarca will make the break through to success. Local
government leaders appear to be focused on grand
infrastructure projects rather than linking their poor and
unproductive farmers as suppliers to the booming agri-
industrial enterprises on the coast. Also, officials have
tense rather than symbiotic relations with the modern mining
sector - one that is key to their future. Like many
mountain provinces, many locals fear they will be losers in
a Free Trade Agreement between Peru and the U.S. End
Summary.

Rich in Resources, But High Levels of Poverty
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2. (U) Cajamarca Department has abundant natural resources,
accounting for approximately 50 percent of Peru's total gold
production. Despite mineral wealth, the department suffers
from high levels of poverty. Over 70 percent of the
population (almost one million people) live in rural areas.
Cajamarca's per capita GDP in 2000 was $895, less than half
the national levels of $2,100. The majority of
Cajamarquenos make their living by producing agricultural
products, including mangos (some of which are exported) and
milk and cheese (for domestic consumption only). Textile
and artisan production also accounts for a small percentage
of employment.

Local Government Interested in Trade and Development
-------------- --------------


3. (SBU) During his trip, the Ambassador met with the
Regional Vice President, Mayor of Cajamarca and the Bishop
to discuss economic development, including the benefits of
an FTA and tourism. Regional Vice President Alejandro
Rebaza explained that the regional government plans to
improve infrastructure, including building highways that
will connect Cajamarca with the more economically prosperous
coastal departments of La Libertad and Lambayeque, as well
as to Ecuador. The regional government would also like to
attract new air carriers, as only one company currently has
service to Cajamarca. With improved transportation
linkages, Rebaza stated, resources and people will move more
freely in and out of Cajamarca.


4. (SBU) Mayor Horna declared that the local government is
committed to improving the standard of living, but noted
that the lack of funding is an issue. (Note: The
Cajamarca regional government received over $90 million in
mining royalties in 2004, which are to be used for
development projects.) The government is working to advance
energy development, improve the standard of education, and
is cooperating with Yanacocha mine to build a new water
treatment plant and renovate the regional hospital.

Mining for Economic Development
--------------


5. (SBU) During his meeting with local officials, the
Ambassador also discussed the role of the mining industry
and its tensions with the local community. Monsignor Jose
Martinez Lazaro noted that the local population often has
unrealistic expectations for Yanacocha (which is majority
owned by Newmont Mining and minority owned by Peruvian
Buenaventura). The population often falls into dependency,
looking to the mine to provide jobs and basic governmental
services. Regional Vice President Rebaza stated that while
the mine is a major source of local income, local mines must
be more socially responsible. He spoke of a number of
projects being pushed by the regional government where he
hoped for multi-million dollar contributions from Yanacocha.

6. (SBU) Mayor Horna asserted that relations between the
local government and Yanacocha are good, though he also
complained that Yanacocha had not followed through on
certain unspecified promises. Horna said that his
government is helping to coordinate dialogue between the
mining community and NGOs. The mines continue to have
problems, however, since the majority of the public does not
trust the companies, arguing that they are only interested
in profits and do not do enough to protect the environment.
(Note: September 2004 protests against Yanacocha's
exploration of Cerro Quilish were predicated on the belief
that Cerro Quilish provides the city's drinking water
(reftel B) End Note.)

Visit to the Yanacocha Mine
--------------


7. (U) On March 4, the Ambassador, along with over 30 local
press, toured Newmont Mining's Yanacocha mine, as well as
two of Yanacocha's social projects. Operating over 697
square miles and employing 8,000 workers, Yanacocha produces
more than 3 million ounces of gold a year, making it South
America's largest gold producer. During a tour of the
facilities, General Manager Brant Hinze highlighted
facilities to protect the environment, including a state-of-
the art water quality laboratory and dams to prevent
sediment from leaching into local farming irrigation
systems.


8. (U) Hinze noted that Yanacocha pays over $160 million in
taxes annually. Since it began operations in 1993, the
company has spent more than $14 million on social programs,
which include farming and agriculture programs that provide
new machinery, as well as artisan programs that teach self-
sustainability. In private remarks to the Ambassador, Hinze
offered a frank critical appraisal of the company's troubled
relations with local communities. Among the problems he
cited were (a) Yanacocha's failure to recognize the extent
of the problem and to make resolution a priority; (b) a
paternalistic approach to social programs (Yanacocha would
decide what communities needed rather than develop projects
through dialogue with villagers.); and (c) a lack of good
information about local concerns that caused the company to
misjudge reaction to its activities. The company has hired
more than 100 sociologists to listen to community concerns
and broadly engage villagers in design of social programs.


9. (U) The Ambassador and the press entourage visited one
Yanacocha-supported farming program near the mine. Covering
over 14,000 hectares and with 1,150 people living and
working on the land, this cooperative produces agricultural
products (trout, cheese, milk products),handmade textiles
and lumber. In a separate visit to a local jewelry
production operation partially funded by Yanacocha, the
group was able to see how local artisans teach residents to
make jewelry using gold and silver from the mine.

Tourism to the Rescue?
--------------


10. (SBU) The Ambassador hosted a round table discussion
with local business and NGO officials on March 4. John
Herdin, local Vice President of CANATUR (Peru's tourism
council),outlined thoughtful and ambitious plans to promote
tourism as a vehicle for economic growth. While some of the
plans seemed overly ambitious (i.e. making Cajamarca into a
regional air hub) tourism entrepreneurs were clearly
coordinating well among themselves and bustling with ideas.
Luis Ara, Coordinator of the Local Dialogue on Mining,
argued that the government should focus on strengthening
agricultural output instead of tourism. The majority of the
local population, he pointed out, lives in rural areas where
farming is the way of life. Agricultural production for
export, rather than domestic consumption, should be the
government's main goal. The debate continued for over an
hour, and while no final conclusion was reached, local
officials were able to share their viewpoints in an effort
to plan for Cajamarca's future.

Visit to Peace Corps Sites
--------------

11. (U) The Peace Corps has a robust presence in Cajamarca,
with 27 volunteers living and working throughout the region.
Volunteers work in several sectors, including small business
development, community health, and youth development. On
March 3, the Ambassador attended the regional Peace Corps
Counterpart Day, where he had the opportunity to meet 19 of
the volunteers. He then toured two of the regional Peace
Corps programs; one textiles program outside of Cajamarca
city and one program that provides at-risk children with a
safe haven, located within the city.

Comment
--------------


12. (SBU) The Cajamarca visit provided some insight into
the tensions between the local community and Yanacocha mine.
The smooth symbiotic relationship between the two that would
best promote local economic development has yet to achieved.
The critical self-assessment of Yanacocha management bodes
well for improving relations. Unfortunately, the Ambassador
did not observe similar critical thinking on the part of
regional officials. The latter fully understand the
importance of the mine to their ability to generate jobs and
services. That notwithstanding, the regional Vice President
and Cajamarca Mayor seemed to place a higher priority in
squeezing more resources from the company for infrastructure
projects. Toward that end, local officials were generating
expectations that were unlikely to be met and which would
complicate community relations.

STRUBLE