YANACOCHA MINE CLOSES, REOPENING AFTER PROTESTS

UNCLAS LIMA 003446

SIPDIS

SIPDIS

DEPT FOR WHA/AND, WHA/EPSC, EB/IFD/OFD
COMMERCE FOR 4331/IEP/WH/MCAMERON
USTR FOR BHARMAN

E.O. 12958: N/A
TAGS: EMIN EINV ENRG ECON PGOV PE
SUBJECT: YANACOCHA MINE CLOSES, REOPENING AFTER PROTESTS

REF: A) Lima 1361 B) Lima 5874 C) Lima 4471


1. Summary: After months of demonstrations and a recent five-day
road block, Peru's largest gold mining company Yanacocha (operated
by Denver-based Newmont Corporation) closed its operations August,
with an estimated loss of $2 million per day. After Prime Minister
Jorge del Castillo personally mediated, protest leaders removed the
road block on August 30; the mine should reopen September 4. What
began as on community's complaint jobs has evolved into a broader
campaign against mining. The closure idled the mine's 2000
permanent staff and 8000 contract workers; a long closure would have
seriously curtailed government revenue, as Yanacocha is one of
Peru's largest tax contributors. Wide media coverage is making
Yanacocha a test case for how the Garcia administration will manage
conflict involving extractive industries. End Summary.


2. Since August 23, demonstrators in Combayo, a community
neighboring Yanacocha's Carachugo mine, blocked the
Cajamarca-Bambamarca road, the mine's connection to the region's
capital city of Cajamarca. On August 28, the mine's spokesman
announced closure of operations until the road was opened.
Demonstrators say they are against the Carachugo II project, which
would expand mining operations to the eastern side of Yanacocha's
mines. They assert that an expansion of the existing leach pad and
processing facility will lower water volumes of and contaminate
nearby rivers -- their source of drinking and irrigation water --
and that job creation and other benefits will not be felt by local
communities.


3. An earlier demonstration in July 2006 erupted into violence when
policeused tear gas to break up the crowd of over 500
demonstrators. One protester died of a gunshot wound; investigators
have still not determined who fired the shot. Protests and road
blocks have continued ever since. On August 3, one of the 18
communities within Combayo began a protest, complaining that the
community was not receiving a fair share of employment and other
benefits. Mine officials responded that Yanacocha would not
negotiate with individual communities but with designated
representatives of the 18 communities as a whole. Mine officials
assert that the Combayo community was not against mine expansion,
but only wanted a bigger slice of the pie. Protestors from outside
the 18 Combayo communities joined the protest, blocking the road and
saying that they opposed mine expansion plans.


4. Pro-Yanacocha demonstrators, reportedly dismayed at how outsiders
took over the demonstration and blocked the roads, also took to the
streets. On August 28 and 29, counter-protesters marched against
the road block and held demonstrations in front of Father Arana's
NGO office.


5. Yanacocha officials confirmed that protestors removed their road
blocks at around 10pm on August 30, after protest leaders returned
from their meeting in Lima with the Prime Minister. Yanacocha
officials and protest leaders are planning to receive on September 3
a visit by the Prime, Mining and Health Ministers to discuss the
concerns by the various parties. Yanacocha has begun restarting the
mine, which should be fully operational by September 4.


6. Yanacocha is majority-owned and operated by Denver-based Newmont
Corporation. Newmont's Vice President for Latin America Carlos
Santa Cruz announced on August 28 the closure of mining operations
until the state intervenes to restore order. Mine officials told
Econoff that when the road block began on August 3, the national
police immediately cleared the road. After the arrival and
intervention of Catholic priest Marco Arana and a Ministry of Mines
(MEM) representative, the police pulled back, protecting mine
property but not preventing the road blockage. Yanacocha officials
stress that dialogue was impossible until the road to the mine was
opened.


7. Yanacocha is one of the largest taxpayers in Peru ($90 million,
or 26 percent of total canon money in 2005). The company estimated
a loss of $2 million per day from cessation of mine operations;
officials said Newmont is pondering reconsideration of future
investments and expansion plans (estimated at $2 billion for new
projects in 2007) if the investment climate does not improve.


8. Protestors claim that Yanacocha's cyanide use has contaminated
water sources, causing fish kills, cattle illness, and the loss of
medicinal plants. They also claim that the mine's water use has
resulted in the drying up or sedimentation of irrigation channels.
Yanacocha cites independent consulting reports that confirm there is
no environmental harm. Although independent committees regularly
collect water samples, activists are still suspicious of test
results. Yanacocha has already spent over $100 million in
environmental improvements and has set up an accredited water
monitoring lab, three water treatment plants, and procedures for
sediment control, recycling, and waste management. The only
operations open during the mine closure were treatment procedures
for waters leaving the concession area.
STRUBLE