Mining in Decline: An Opportunity for the Peoples

By  |  5 / November / 2015

This post is also available in: Spanish

fuera-de-crucitasFor the first time in many years, the mining industry has taken a dip in Latin America. The fall in international prices and increased production costs, and the resulting decrease in profits, is compounded by society’s growing resistance to its environmental and social impacts.

“The extractive mining model is a problem of power and therefore of political power,” states the latest report of the Observatory of Mining Conflicts in Latin America (OCMAL) .[1] Despite the fall in international mineral prices, the region continues to receive the majority of mining exploration investment worldwide.

The report adds, “extractive mining is a human rights issue.” It notes that large multinational companies are taking advantage of the state’s neglect of its obligations “to promote an image of social responsibility that satisfies the needs of the population.” OCMAL finds that “It is false that mining companies develop infrastructure for communities—they just build roads for transporting mining company equipment and personnel. They don’t address the communities’ rights to health or education either, when what they do tax-deductible manipulation of poverty, while polluting the environment and eroding the short, medium and long-term health and living conditions of the people.”[2]

On Oct. 15, 2015, the Economic Commission for Latin America and the Caribbean reported that Latin America has seen foreign direct investment decrease by 21% in the first half of the year because of the “fall in mining and hydrocarbons investments due to international price drops, the slowdown in China, and negative economic growth in the region.”[3]

Foreign investment fell by 16% in 2014, which shows this is not a matter of short-term downturn, but rather that the type of investments focused on the extraction of raw materials have tended toward deterioration. By country, Brazil has experienced the largest decline, of 36%, largely because of the crisis affecting the domestic market. In Chile, Colombia, and Peru, the decrease in foreign direct investment is especially concentrated in the mining sector.

Three factors have produced the decline in investment: consistently low international mineral prices, increased operating costs, and strong opposition of indigenous and campesino communities, which leads governments to demand more from the mining multinationals.

A step back?

Many political leaders and analysts lament the decline in mining investment, but in reality it presents a new opportunity to achieve sustainable growth. CELAC’s annual report on foreign investment notes that the fall of mineral prices began in 2012, two years before the fall of oil prices, and that this was reflected in lower investments in 2014.

Bloomberg’s index of commodity prices, which includes gold, oil and soybeans, has declined by 50% since its record high in the first half of 2011. The multinational Glencore-Xstrata, which controls most of the mineral and grain production in the world, posted losses in the London Stock Exchange of over 30% in late September, totaling a drop of 74% so far this year.[4]

It’s not the only case. “In the same trend were, among other transnationals, Anglo-American, with losses of 10% in September and 60% in the year; BHP Billiton, with falls of 40%; and Antofagasta Minerals with 33%.”[5] The mining sector crisis leads to mine closures as part of attempts to reduce production and recuperate prices, which in turn creates massive job loss.

In October, Goldman Sachs reported that mineral prices will continue to fall. In the case of copper–the principal mineral in Latin American production–prices fell to $4968/ton in August, the lowest in several years. But analysts expect that by the end of 2016, the price will decline further to $4200/ton. According to experts, the market price is getting closer to the production price ($4000/ton for copper), and companies have been unable to stem the decline.[6]

“Prospecting budgets experienced a reduction of 26% between 2013 and 2014, and 47% compared to 2012.”[7] Other data from the same report confirm the fall: in 2010, 389 “mining milestones”–such as the opening of new mines—took place, but in 2014 there were only 96.

On the other hand, production costs are rising. The global average cost of extracting a pound of copper grew from $1.37 in 2009 to $2.11 in 2012.[8] This increase of 54%, coupled with falling prices, leads to a crisis situation. Both data confirm we face not a conjunctural downturn, but rather a cycle of declining prices, investment, and production.

Latin America almost triples the global average of mining investments. For the world, the percentage of foreign direct investment in natural resources does not exceed 10%, but in Latin America it is 26%, and in countries like Bolivia and Chile, it’s over 50%. The more industrialized a country, the less investment comes to natural resources.

Of the seventeen private enterprises registered in mining operations in Bolivia, only three have utilities, according to analyst Hector Cordova of the Fundación Jubileo, while mining in general had a 50% drop in profits in that country.[9] In Chile, the state company Codelco made its lowest contribution to state coffers in decades, half of that of 2014.

A sea of conflict

But the mining sector crisis is not only due to the fall in prices. A decisive factor is the resistance of populations that many times succeed in slowing down or closing the mines. According to CEPAL, mining conflicts occur throughout the world, especially in Latin America.[10]

Conflicts proceed in different ways in each country. In Uruguay and Chile, for example, they are often channeled through the law. In April 2013, the Canadian company Barrick Gold was forced to indefinitely suspend operation of the Pascua Lama gold mine on the border between Argentina and Chile, by a court ruling that took up the demands of the indigenous communities that accused the company of damaging water access.

It is the largest mining project suspended on the continent, which led to $5 billion in losses for the company. In Colombia, the government halted the coal exports of US company Drummond because of marine pollution, while other projects were delayed by protests. Something similar happened in Uruguay with the Indian company Zamin’s iron ore project.

In Peru, communities have had to resort to direct action, which managed to paralyze the Yanacocha mine, as well as other projects in both the north and the south. This country has become the epicenter of the mining conflict. Entire regions–with dozens of municipalities and thousands of campesinos involved–have been drawn into serious conflict, with a series of injuries and deaths.

The strong growth in investment and the multiplication of projects are not enough to explain the rapid conflict escalation. There are three additional reasons.

The first is that the affected communities have greater access to information and show a renewed capacity to make their voices heard. Campesinos and indigenous people have woven networks of solidarity with environmental NGOs and social organizations, both rural and urban. And they have institutional support in human rights organizations, local and state authorities, as well as the media.

The second is Convention 169 of the International Labour Organization (ILO), an important legal instrument adopted by fifteen countries in the region that requires governments to consult indigenous peoples when projects affect their communities.[11] Almost all indigenous peoples appeal to this mechanism in their process of empowerment in the face of governments.

The third is related to the detection of high environmental damage in places where there are mining projects, and the certainty that the multinationals have huge profits. On the one side: powerful environmental liabilities and severe water pollution. On the other: extractive industries consume a lot of energy. There is a “more intensive use of energy because existing mines have less and less mineral quantity per volume of extracted material.”[12]

Las Bambas: the last great conflict

With the echoes of the conflict between the people of the southern region of Arequipa and the Peruvian mining company Tía María–with its resulting deaths and injuries, with the military occupation of towns and cities–remaining, there was a new massacre in the Apurimac region of the south-central Andes.

Four people died in the midst of a strike to protest the Las Bambas mine.

The incident occurred in the afternoon of September 28th, when police shot at the people of Cotabambas province. There were also twelve wounded.

Las Bambas is the largest mining project in the country with an investment of $10 billion, and starting in January 2016 it will produce 400,000 tons of copper per year. The production from this mine alone will increase the country’s annual GDP by 1.5%. Mining is Peru’s main source of revenue; 60% of the state’s exports come from the industry. The numerous mining ventures are located in the poorest regions of the country, usually in the Andean highlands. In the Apurimac region, poverty levels exceed 40%.

The Las Bambas mine was bought in April 2014 by the Sino-Australian consortium MMG from Glencore-Xstrata for € 6.5 billion, one of the largest transactions in the history of Peru. The mining complex began ten years ago with the promise to improve the living conditions of local people. Ten thousand workers were needed for the construction of this colossal complex, whom have since been laid off, as the operation of the mine only requires 2000 highly qualified employees. But the lives of the local population did not improve. A Lamula.pe report highlights that a decade after the mine’s arrival, “half of the local population cannot meet their needs for essential goods and services, the illiteracy rate is 24%, 40% of children under age five are anemic, and chronic malnutrition affects 27%, according to official data.”[13]

But the anger of the population took off because of a serious non-fulfillment on the part of the company. The environmental impact study–consulted with the community and approved by it–anticipated the construction of a 206-kilometer underground pipeline that would move copper to the neighboring province of Cusco, where Xstrata has a processing complex. But upon being sold to MMG, it decided to cancel the pipeline and build a processing plant in the vicinity of the Las Bambas mine. This decision was made without consultation with the affected populations. The problem is that every year, moving trucks carrying thousands of tons of copper circulate through roads that cut across dozens of campesino communities, generating impacts that were not foreseen in the original study. Furthermore, the mine will consume 800 liters of water from the Chalhuahuacho River per second. The communities felt bullied and began to stage protests.

The government’s response was to declare a state of emergency, as it has done dozens of times in the face of mining conflicts, involving the militarization of entire provinces. The National Coordinator for Human Rights notes there are already 49 dead by the repression of social conflicts in four years of the Ollanta Humala government. Since 2006 125 civilians have been killed, the vast majority in mining conflicts.

The 2014-2015 report from National Coordination of Human Rights (CNDH), released last August, stated that 95% of the victims died from firearms, which allows them to claim, “we therefore find ourselves before a systematic practice that involves responsibilities at the highest level of the state.”[14]

Some of the conclusions of the chapter on the criminalization of social protest reveal a common pattern: “The Ollanta Humala government has deployed a strategy against social unrest that combines the criminalization of social protest with another strategy called ‘dialogue,’ that is aimed at reducing the level of citizen mobilization, without giving an outlet for structural problems, that is, the violation of rights.”[15] During the presentation of the report, the then executive secretary of the CNDH, Rocío Santisteban Manrique, said that throughout the continent “criminal law is still being used to demobilize vanguard sectors, detaining leaders, harassing and discrediting defenders of human rights and the environment.”

Perhaps the mining crisis is an opportunity for pueblos, if they manage to lay the groundwork for a different economic model, one oriented less to commodity exports and more toward domestic and regional markets; one that is less aggressive with nature and communities and with more specialized work involved in developing high quality products.

Raúl Zibechi is an international analyst for Brecha of Montevideo, Uruguay, lecturer and researcher on social movements at the Multiversidad Franciscana de América Latina, and adviser to several social groups. He focuses on the South America region and issues of autonomy and grassroots movements. He writes the monthly “Zibechi Report” for the Americas Program.

Translation by Paige Patchin

Notes:

[1] “Conflictos mineros en América Latina: extracción, saqueo y agresión. Estado de situación en 2014”, OCMAL, abril de 2015, p. 7.

[2] OCMAL, p. 7.

[3] “Inversión extranjera directa en América Latina disminuye 21% en el primer semestre de 2015”, CEPAL, 15 de octubre de 2015.

[4] El Economista, 28 de setiembre de 2015.

[5] Paul Walder, “Crisis del cobre golpea a los trabajadores”, Rebelion, 12 de octubre de 2015.

[6] The Wall Street Journal, 15 de octubre de 2015 en http://www.wsj.com/articles/glencore-plans-more-debt-cuts-to-help-win-upgrade-in-credit-rating-1444932487

[7] “La inversión extranjera directa en América Latina y el Caribe 2015”, CEPAL, p. 24.

[8] “La inversión extranjera directa en América Latina y el Caribe 2013”, CEPAL, p. 27.

[9] Sputniknews.com, 7 de octubre de 2015.

[10] “La inversión extranjera directa en América Latina y el Caribe 2015”, CEPAL, p. 120.

[11] “La inversión extranjera directa en América Latina y el Caribe 2013”, CEPAL, p. 27.

[12] “La inversión extranjera directa en América Latina y el Caribe 2015”, CEPAL, p. 119.

[13] Lamula.pe, 30 de setiembre de 2015.

[14] “Informe Anual 2014-2015”, p. 41 enhttp://derechoshumanos.pe/2015/08/informe-anual-2014-2015/

[15] Idem, p. 39.

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