Not Golden

The Manhattan Minerals plan looks like a good deal for the folks of Tambogrande, Peru. The Vancouver-based firm wants to invest $405 million to mine gold at Tambogrande, a town of 16,000 people in Peru's impoverished, northwest Piura state. Manhattan has promised to build new public infrastructure and to erect new, modern homes for any relocated residents about a third of the town's population. The neighborhood would have electricity, potable running water, sewerage and paved streets amenities now available to only 15% of the people in that area.

But Tambogrande seems to want none of it. Although two-thirds of the people in Piura live on less than $2 a day, 90% of Tambogrande's voters rejected the Manhattan Minerals project in a nonbinding referendum late last year. Many are fearful that the open-pit mine will corrupt their farmlands, even though Manhattan pledges not to sully or siphon off the area's precious irrigation canals and reservoirs. "We are not going to allow a mine to destroy our way of life," says Tambogrande Mayor Francisco Ojeda.

The only consolation for Manhattan Minerals is that it has a lot of company these days in Peru where U.S., Canadian and other foreign firms are suddenly mining a mother lode of resentment. In the 1990s, when then bankrupt Peru opened its statist economy to foreign investment, the nation drew almost $10 billion in mining capital. That sector now accounts for half of Peru's $8 billion in exports, and Peru has become the world's seventh largest gold producer almost overnight.

Yet if mining saved Peru's macroeconomy, many Peruvians say they have seen too few benefits under their own roofs. It is a complaint heard from Nigeria to Papua New Guinea: national governments make deals, and the locals get shortchanged. As a result, local protests are stalling at least 10 mining-investment projects in Peru that are worth $1.4 billion. In the northern town of Cajamarca, whose decade-old Yanacocha gold mine is the world's second largest, residents are loudly demonstrating against expansion plans by the mine's U.S. co-owner, Denver-based Newmont Mining Corp. (2002 revenues: $2.75 billion). Yanacocha mined 2.3 million oz. of gold last year and earned $700 million, but 75% of the town's population lives in poverty. Cajamarca resident Silvio Suarez likes to show tourists the "ransom room," a stone building that the last Inca Emperor, Atahualpa, filled with gold for the Spaniards in 1532. Then they killed him. Foreign-owned mines, says Suarez, "are taking our gold the way the Spaniards took the Inca gold to their king."

That's a simplistic, if inaccurate, charge. Yet those historical grievances, says Peruvian economist Hernando de Soto, are something foreign investors have too quickly forgotten not just in Peru but throughout Latin America, where politics are turning sharply leftward after the capitalist reforms of the '90s left more of the region in poverty.

It's hard to believe that Peruvians could pine for the days when incompetent and corrupt state ownership made their mines a global laughingstock. But in most of rural Latin America, globalism is still an obscure term, and the communal economy is still a strong tradition. So "this is now as much about people's minds as their pocketbooks," warns De Soto. He concedes that mines usually pay almost twice Peru's minimum wage of $135 a month; but for most Peruvians, that doesn't compensate for "the loss of their sense of environmental and economic sovereignty." If so, Peru's government bears blame. Yanacocha paid Lima $50 million in royalties last year. But only $850,000 of it found its way to Cajamarca. That fact angers even the 7,000 locals directly employed by the mine, which has reserves to stay in operation for another 30 years.

Most other Peruvian mining towns are similarly deprived. As a result, the private National Society of Mining, Petroleum & Energy is urging the foundering government of President Alejandro Toledo to adopt reforms that immediately give at least 20% of the royalties to on-site communities instead of Lima bureaucrats. Manhattan Minerals CEO Lawrence Glaser thinks local communities should receive an even bigger cut making the towns, in effect, feel more like shareholders. "These community leaders should be worried that the backlash is turning Peru into a much less attractive place for international investment," says Glaser. "But the cultural legacy does matter here, and trickle-down just didn't work in the '90s so we have to figure out how to give these local communities more of a stake in these mines."

Yanacocha's general manager, Carlos Santa Cruz, a Peruvian, agrees: Lima and the foreign firms "need to define where we can collaborate on projects that ensure long-term development" in rural Peru development, he adds, "that will be here when the mine closes." Toward that end, Toledo has at least reversed rules that restrict gold to export only. Letting more of it stay inside Peru, he hopes, will help on-site communities develop jewelry industries.