Interview: Canada's Bear Creek wins community OK for Peru mine

Bear Creek Mining

15/04/2013 20:22

By Terry Wade

LIMA, April 15 (Reuters) - Bear Creek Mining  BCM.V  has won community backing for its Corani mine in Peru's southern highlands of Puno - a crucial milestone that will help move forward its $700 million silver project, Chief Executive Andrew Swarthout said.

Some 800 residents from five communities that make up the Corani district voiced their support for the mine on Friday at the last in a series of public meetings held in the language of Quechua to discuss the project.

Obtaining this so-called social license is increasingly the biggest challenge mining companies face in Peru, where a weak central government is trying to mediate dozens of disputes nationwide over how to share the spoils of natural resources between companies and rural towns.

To avert conflicts that could delay projects in an investment pipeline worth more than $50 billion, the government has tightened environmental standards, decentralized distribution of tax revenues, and urged miners to win explicit community support for proposed mines in Peru, a top global minerals exporter.

Increasingly, some mining companies are also entering into what amount to profit-sharing pacts with local communities to help them fund local infrastructure projects or finance schools.

Bear Creek, a Canadian-based junior miner, has agreed to pay $1.6 million a year for 23 years into a trust for the district of Corani - and the payments will be made even if metals prices sink.

Its payments were inspired in part by Peruvian gold miner IRL  IRL.LM  IRL.TO , which has agreed to give a 5 percent stake in one of its mines to local townspeople, as well as by other miners.  ID:nL2E8HR8ZL

"It was very successful," Swarthout said about the final community hearing in Corani.

"Reaching agreements on voluntary payments and profit-sharing is crucial to get buy-in from people," he told Reuters late on Sunday.

The public hearing was monitored by officials from Peru's mines and energy ministry.

"All the families have given their social license," for the project, Corani's Mayor Edmundo Caceres Guerra told the local newspaper Los Andes.

The "social license" is part of the environmental review of the project. The government is expected to approve or comment on Bear Creek's plans in the next 90 days.

Bear Creek expects full approvals by the end of this year, followed by financing and construction for the mine in 2014, and production in 2015.

The company says Corani would produce on average 8 million ounces of silver a year, making it one of the largest undeveloped silver mines in the world.

Swarthout said the Canadian-based junior miner has received very good feedback from the government for its Corani project.

"The message we've got from the government is that if you can deliver on the social license then we will back you to the hilt," he said.

REVISITING STALLED SANTA ANA PROJECT?

President Ollanta Humala has desperately sought to defuse social conflicts over mining since violent protests against Newmont Mining's  NEM.N  $5 billion Conga gold mine in northern Peru prompted him to shuffle his cabinet twice.

Similar protests derailed Bear Creek's Santa Ana project in the Aymara-speaking part of Puno in 2011 during the final days of former President Alan Garcia's term.

In a bid to calm a wave of deadly clashes between protesters and police, Garcia, who had initially supported the miner, canceled Bear Creek's ability to advance the Santa Ana project, battering its share price, now at C$2.31.

The company is suing the government to get Garcia's decree overturned and resume the project. It has won at least one ruling and Swarthout said he expects another favorable ruling from a constitutional challenge the company has filed.

It could also potentially resort to arbitration under Canada's free-trade pact with Peru if the matter is not resolved by local courts, he said.

"I think now that we've gotten over this particular hurdle at Corani we'll start to see more value," he said of the share price.

"It's a very peculiar situation, in that we are trying to get one project permitted with the government and trying to solve a dispute with the government over another," Swarthout said.

Bear Creek had once planned to produce silver starting in 2012 in Santa Ana, located some 1,385 km (860 miles) from Lima. The mine has reserves of 63.2 million ounces of silver.

The magazine Caretas reported in 2011 that wildcat miners participated in protests against Santa Ana, believing the concession had valuable gold deposits in addition to silver.

Since Newmont's Conga mine was delayed, the government has repeatedly tried to calm investors worried about community opposition to mines by pointing out big projects that have all necessary permits are under construction or are moving ahead.

These include Hudbay Minerals  HBM.TO  $1.5 billion Constancia copper mine, Chinalco's $3.5 billion Toromocho copper mine, Xstrata's  XTA.L  $5.2 billion Las Bambas copper project, and Anglo American's  AAL.L  $3.3 billion Quellaveco project - though Anglo has said it will scrutinize Quellaveco's costs.

"I think there's a lot of pressure on the government from investors to trot out a success," Swarthout said. "The government needs a win to reassure foreign investors."

(Reporting by Terry Wade; Editing by Phil Berlowitz)

((terry.wade@thomsonreuters.com)(+51 1 221 2134)(Reuters Messaging: terry.wade.thomsonreuters.com@thomsonreuters.net))

Keywords: PERU BEARCREEK/