Peru's Garcia makes mining key pillar of his presidential campaign

Peru's Garcia makes mining key pillar of his presidential campaign

(Image courtesy of Peru’s Government photo archives)

Peru's former president Alan García has kicked off his campaign for a third term with a promise to deliver economic growth of at least 6% a year mainly by attracting more mining investment.

The 66-year-old long-time leader of the centre-left American Popular Revolutionary Party, said he planned to achieve such goals by reducing red tape to a minimum, while working with local governments to re-start a long list of stalled mining projects.

He also vowed to significantly reduce poverty to less than 10% by 2021, from last year's 23%, if he won a new term in the elections scheduled for April. “We will then be at the same level than developed countries,” he said according to local newspaper El Comercio (in Spanish).

García last governed Peru from 2006 to 2011, when prices for the key minerals mined in the country, such as copper, gold and silver, were skyrocketing and the nation’s was able to reach annual economic growth rate of 9%. But his administration also saw Peru become the world’s No. 1 cocaine exporter.

In an earlier interview with El Comercio, the sociologist and politician said Peru is, undoubtedly, “a mining country” and, as such, it should work on easing opposition to projects, especially those in poor Andean regions.

García is proposing to do so by transferring royalties from mining projects directly to nearby communities.

Mining opposition has stalled $21.5 billion worth of mining projects in recent years, disrupting major projects such as Southern Copper’s (NYSE, LON: SCCO) $1.4 billion Tia Maria copper mine and Newmont Mining Corp's (NYSE:NEM), (TSX:NMC) proposed $5 billion Conga copper and gold mine.

García promised to build trains to transport minerals from operations, mostly located in the Andes Mountains, to ports on the Pacific coast, and said he would quickly formalize small-scale gold miners.

Peru's Garcia makes mining key pillar of his presidential campaign

Illegal miners clash with police during a 2014 protest against a law criminalizing their activities (Photo from archives).

Peru’s current administration began such process in 2012, before making informal mining a criminalized activity. But despite the efforts, illegal gold production in the South American nation has increased fivefold in the last six years and it is estimated to provide 100,000 direct jobs in the country, 40% of which are in the gold-rich Madre de Dios region. At one point, experts calculated the activity was bringing more profit into the country than drug trafficking.

Peru’s Supervisory of Banking, Insurance and Pensions (SBS) recently disclosed it has reported to police and investigators over 3,000 suspicious transactions worth $8 billion among financial institutions since 2010. The financial regulator attributed 44% of that to illegal mining, 31% to drug trafficking and 7% to corruption, with the rest stemming from contraband to tax evasion, according to Peru Reports.

Peru is the world’s No. 3 copper, silver, zinc and tin producer and it is seventh-ranked in gold output. Mining makes up about 60% of the nation’s export earnings.

Peru's Garcia makes mining key pillar of his presidential campaign

EY’s Peru’s mining & metals investment guide 2015/2016.