The Peruvian government has thrown in the towel on Newmont Mining's (NYSE:NEM) controversial Conga mine as the nation's prime minister announced Monday evening the $4.8 billion copper-gold project is now on the back burner.
The news came as a surprise for analysts, as in April Ollanta Humala’s government hired three international environmental consultants to evaluate Newmont’s proposed water strategy. Upon receiving the report recommending significant changes to Conga, Peru’s government said the final decision on whether to allow the miner to keep going or not was “independent of any study”.
But Peru’s Prime Minister Juan Jimenez said last Thursday the situation has changed and that the project is now on the back burner.
"The scenario is different […] and the project has entered a new phase of suspension that the company already decided on and the government of course asked for," he said.
According to the State-own TV station, TV Perú, Newmont CEO Richard O'Brien sent a letter to the employees of the now suspended Conga project, stating the company will continue with the construction of water reservoirs to serve the surrounding communities.
"While we remain focused on the construction of the water reservoirs, the security and safety of our employees and contractors is our first priority," he said, emphasizing the project has not been indefinitely suspended, as erroneously reported in some media outlets.
Jimenez said the government would give Newmont two years to come up with a way to guarantee water supplies for residents of the region where the project is located.
But the Denver-based company has a tough road ahead, as an opinion poll divulged last week showed that about 4 in 5 local oppose to Conga.
Pollster Ipsos-Apoyo said that 78% reject the project, while only 15% approve. The rest had no opinion.
Minas Conga is being developed in the Cajamarca region of northern Peru by Minera Yanacocha, of which Newmont Mining, the world's number two gold producer, holds a 51.35% interest and Compañía de Minas Buenaventura a 43.65%. The IFC owns the remaining stake.
Newmont had said it hoped to begin production either in 2014 or 2015, generating between 155 and 235 million tons of copper a year at the site, provided it gets permission from the Peruvian government.
The U.S.-based miner had proposed four high altitude lake reservoirs be substituted with artificial lakes, which triggered massive strikes and protests that ended up forcing Newmont to suspend the project in November last year and the Peru’s government to declare a state of emergency in the area.
The contentious Conga, which was to begin production in early 2015, was designed basically as an extension of the Peru's Buenaventura's nearby Yanacocha, Latin America's largest gold mine, which is approaching the end of its life.
Conga is capable of producing up to 350,000 ounces of gold and 120 million pounds of copper per annum with a 19-year life of mine.
The project is the largest ever single private investment in the country and has turned into a political minefield for the Humala administration with many in the opposition and within his own party calling for drastic changes to his handling of recent protests.
But negative reactions to mining projects are not unusual in Peru. Large-scale protests against exploration and extraction activities have swept the country in recent years, making of social conflicts the main risk for investors in the local industry.
Peru’s extractive sector, which accounts for some 60% of the economy, is expected to bring the country $50 billion in future investment over the next decade.