Interview: Luis Rivera

How can government, local communities and the private sector work together to guarantee sustainable mining projects?

LUIS RIVERA: One of the main factors causing social and environmental conflicts is the historical absence of public institutions and law enforcement in many parts of the country, especially in the more remote regions. That absence, combined with mining companies’ strong logistics structures, are the reasons why they are often regarded by communities as their only chance to access basic necessities which should be covered by the state. In other words, the role of the companies is often mistaken with that of the state. Under such circumstances, mining companies have established four mechanisms that can be activated in case of a dispute with a local community, namely, grievance procedures, complaints, conflict management and development. The failure of one of these four mechanisms typically results in conflict between both of the relevant parties.

To avoid social unrest the government should enhance the state’s presence in areas with mining potential prior to significant investments being made. This step, together with law enforcement, is key to building solid, long-lasting relationships between the state and the private sector. It is also important to strengthen law enforcement, to simplify the investment framework and to involve communities after investments are made.

What types of investment will take place in the mining sector in the next five years, and how can foreign investment be encouraged?

RIVERA: The country’s mining potential is promising despite the decline in mining prices, which began in 2013, coupled with and social and environmental challenges. It is worth highlighting, however, that these challenges are not endemic to Peru, but have hampered the sector’s growth on a global scale.

It is no secret that mining companies are often and increasingly perceived as elitist corporations with little regard for social responsibility. Although this is generally a misconception, mining companies have no choice but to adapt to this new reality and focus on seizing the opportunities available to them.

While opportunities for large-scale mining projects are expected to be limited throughout 2017, medium-scale projects — especially in copper and gold — have become an attractive alternative. In fact, one can expect junior mining companies to play a crucial role in the short- and medium-term future of the sector. In this regard, the government must promote schemes that enhance their participation in order to increase foreign direct investment.

What are the sector’s exploration prospects in the short to medium term?

RIVERA: Investments in exploration are being hindered by consultation processes, which are an essential prerequisite for the implementation of projects. Taking into account that the level of risk involved in investments in primary exploration is already naturally high due to geological factors, requiring prior consultations seriously affects the success of exploration operations.

In fact, on average, less than one out of the 300 exploration projects that begin each year become a mine. Procedures to ensure that environmental regulations are in place are certainly important and necessary, but securing the greatest chance of success possible is also an obligation.

Under these circumstances, one can expect grassroots and primary exploration to be mostly conducted by junior companies that are already in operation. It is also worth noting that mergers and acquisitions between large multinationals and junior exploration companies are expected to take place not only in Peru, but also around the globe.