Analysis-Peru's Castillo hardens stance on mining protests as economy stumbles

By Marcelo Rochabrun - 
© Reuters/ANGELA PONCE


LIMA (Reuters) - Peru's leftist President Pedro Castillo has signaled a tougher stance on protests against mining companies that are roiling the Andean nation, the world's second largest copper producer, mobilizing the army in a sharp tactical shift from a previous conciliatory approach.

Mining activity has been halted at Southern Copper Corp's Cuajone since late February as protesters from the mostly indigenous surrounding communities demand financial compensation and a share of future profits.

The government on Wednesday announced a state of emergency at the Cuajone mine, saying it would send military forces and suspend the right to protest at the mine that has been shuttered for over 50 days.

That's a significant pivot by Castillo, a former teacher who rode into office last year backed by voters in poor mining districts hoping for a greater share of Peru's mineral wealth. He has avoided clashing with protesters despite a series of blockades that have hit the country's main export sector.

"The problem has to be solved now," Peru's Prime Minister Anibal Torres said on Wednesday, citing "irrational" community demands at Cuajone, including asking for $5 billion in payments. "That has led us to declare a state of emergency."

Meanwhile, last week residents of the indigenous Fuerabamba community pitched tents just feet away from Chinese-owned MMG Ltd's huge Las Bambas open pit copper deposit.

The protests have taken a combined 20% of Peru's copper production offline at a time when the Andean country is battling slower growth amid high global inflation.

"Under this administration there are a greater number of mining protests and they are more serious," said Pablo O'Brien, a mining expert who worked as an adviser to several mining ministers, including under Castillo.

"The protests last longer than they ever did and they have spread to regions where you didn't see social conflicts before."

'WE COULD STAY FOR YEARS'

Protests have also hit other mines in Peru since Castillo came to office last July, including the Anglo-Swiss Glencore's Antapaccay, and Canada-based Hudbay Minerals Inc's Constancia and Antamina mines, co-owned by Glencore and the Anglo-Australian miner BHP.

In neighboring Chile, the No. 1 global copper producer, BHP is also facing road blockades that have disrupted operations at its major Escondida mine, forcing it to cut its annual copper production outlook this week.

But the pinch has been felt harder in Peru, where Cuajone and Las Bambas put together add up to 1.5% of the country's gross domestic product. Shares of Southern Copper and MMG have plummeted over 5 and 8% respectively in the past week.

Las Bambas executives have called on the government to also declare a state of emergency at the mine.

"Las Bambas currently is coordinating with the government, and we hope they can take the same action for Las Bambas," Wei Jianxian, MMG's Executive General Manager for the Americas, said in a call with analysts this week.

A government press representative said they were not aware of any plans for a state of emergency for Las Bambas.

Protesters, however, say they are digging in for the long-run, indicating that disruptions to the mining sector won't be easy to dismantle and that industry will continue to pressure the government to take firmer action.

"We could stay here for years," Edison Vargas, 32, the president of the Fuerabamba community, told Reuters. Vargas and others have set up camp inside Las Bambas and say they are demanding the return of their ancestral lands.

The mine had resettled some 400 Fuerabamba families over a decade ago in a compact urban town dubbed Nueva Fuerabamba to make way for the construction of Las Bambas, one of the world's top copper mines. It paid residents 600 million soles ($161 million) as compensation for the move, mine executives say.

Las Bambas is notorious for mining conflicts and has faced over 450 days of road blockades since the mine opened in 2016.

"If the government wants to turn their backs on us, we are ready," Vargas added. "We prefer to die here in our old lands than back in Nueva Fuerabamba."

(Reporting by Marcelo Rochabrun; Editing by Adam Jourdan and Aurora Ellis)