When AAUK successfully bid U$403m last April 2007 for the large Michiquillay copper project in northern Peru, the deal looked pretty sweet. The deposit is big enough to make sense and Peru's government, eager to attract FDI, was effusive about the deal, the jobs, the growth it would bring to the very poor Cajamarca region etc etc. However, the deal has always had the shadow of "those pesky locals" hanging over it. The approx 23,000 residents of the 'Enacañada' district that includes Michiquillay don't want the mine...
...to reopen. Their argument is a simple one. The five (some say six) valleys that are connected to the Michiquillay site service the land of around 60,000 families, and if the mine gets mining they would lose vital water supply to their crops and farms and gain a whole stack of pollution problems.
This case is not one of a head-in-the-clouds community in the middle of nowhere that doesn't know what a colour TV looks like, has no clue about mining and has been brainwashed by the extreme environmentalist treehuggers, either. Cajamarca region is real, traditional mining country, and everyone there knows the industry either first or second hand. Also, Michiquillay is only about 30 miles from the region capital city (also called Cajamarca); this is by no means a isolated yokel know-nothing community.
The locals also know all the arguments both pro and contra mining development. And although leery about letting mining back into their community, they're not closed-minded about it, either. Since 2006 the community has said to the gov't that they will accept mining, but on a number of conditions including guaranteed quality and quantity of water, the capex is spent at a local level, there is profit sharing among locals etc etc. Basically, they know the ins and outs of mining, and this time they're not going to take some crummy deal at the expense of their environment and lifestyle. They have had innumerable meetings with all authorities and representatives from AAUK. And after all that, the majority of the local population has just last week made it clear that they don't want the project to go ahead as stands.
The big problem for the national government that the locals really can stop the mine from happening. In Peru, there is something known as the "social permit", which to cut a long story short is the locals allowing a mine to develop; without this permission, by law the mine cannot happen. Garcia&Co have known about this for quite a while, and they even tried to force through an executive order last year that would have allowed 20 different mines (including Michiquillay) to be developed without needing a social permit, arguing that these projects were "in the national interest". His initiative was rejected at the national level in October last year, thus the social permit is still needed.
In the case of Michiquillay, since then the tactics used have become a bit dirty. Outsiders are shipped in to swing votes against the locals' views. The head of the association opposing the mine, Mercedes Saucedo Rios....
Last Saturday, push came to shove. Despite some shadowy tricks used by the pro-mining factions such as 20 busloads of outsiders trying to disrupt proceedings and the in-the-pocket local community president trying to call off the final vote when he realized his side would lose, the community voted against granting the all-important social permit. The Cajamarca regional governor was livid, and squealed from his office 47km away that a bunch of campesinos couldn't stop progress like this. He's wrong. They can. And they did.
Also, AAUK is miffed with Garcia&Co and has, according to Otto's sources, given Peru until June 4th (like next Wednesday, dude) to get the green light for Michiquillay else it will pull out from the project and also its other Peruvian copper greenfield at Quellaveco in the South of the country (which is also coming under scrutiny from locals on the question of using up the valuable local water resource). If they pull out, AAUK will have lost out a bit for sure, but it's by no means the end of the world for them. The company's potential investment in Peru pales into insignificance against the size of the company's present operations, and just the projected U$6.6Bn or so for its new iron ore mine in Brazil easily outstrips planned Peruvian investment.
On the other hand, Alan Garcia will lose bigtime. He is going to look seriously stupid amongst the international mining community if he can't get Michiquillay off the ground as promised. He constantly touts the good-looking macro figures in Peru, but his detractors point out that the benefits are not being felt by those at the bottom of the pile, this despite the controversial improvement in poverty numbers announced last week. In his headlong rush into the arms of neoliberalism, Garcia has forgotten to invite the poor of his country along. And now that poor sector has a casting vote on the direction of the development, he is about to lose a significant amount of face.
At Michiquillay, some kind of worm has turned. The locals have definitively voted against the social permit and it will stay that way unless something underhand happens. And unless something changes, AAUK is going to abandon Peru. And if that happens, the carefully modelled image of Peru being FDI friendly, miner friendly, progressive, etc will take a serious hit. No matter that it's just one community amongst thousands and there are many other places in Peru that welcome mining development of this kind, the Michiquillay project that Garcia proclaimed as "indispensible for the devevelopment of Peru" at the signing ceremony last year is going to leave him with a nasty case of egg-on-face. The sensation of increased political risk for miners that will ensue from Garcia's fiasco cannot be good for the country's development.