Canadian mining firm threatens legal action against Peru

Globe and Mail, Toronto

Canadian mining firm threatens legal action against Peru

By Brenda Bouw, Mining Reporter, Vancouver

26 June 2011

Canada’s Bear Creek Mining Corp. is threatening a legal challenge
against Peru after its mining rights were revoked in a move that raises
the risk for other resource companies doing business in the
mineral-blessed South American country.

“We have done nothing wrong,” Bear Creek chief executive officer Andrew
Swarthout said in a telephone interview on Sunday from Peru.

The company has been working for more than a decade in Peru with some
challenges, but Mr. Swarthout said this is the first time its mining
rights have been pulled.

The Santa Ana mine was expected to produce about 47-million ounces of
silver over its 11-year mine life and represented about 20 per cent of
Bear Creek’s value, behind its flagship Corani project, also located in

“This is a rather unique situation and we are scratching our heads,” Mr.
Swarthout said, calling the move by the outgoing government of Peruvian
president Alan Garcia “the wrong reaction to a political situation.”

Bear Creek is not the only victim, BMO Nesbitt Burns analyst Andrew Kaip
noted in a report Sunday, “with protesters demanding that concessions be
revoked for all mining companies over concerns about potential
pollution.” He cited permits for the Inambari hydroelectric development
project that were recently revoked under similar circumstances.

While Bear Creek’s stock has already been hit hard as a result of the
protest in recent weeks, having fallen more than 50 per cent since
April, BMO said it expects the decision to “spook the market, with
investors questioning the security of the company’s larger Corani project.”

Other Canadian companies with operations in Peru include mining giant
Barrick Gold Corp., which has two mines in the country. Canadian miners
such as HudBay Minerals Inc., First Quantum Minerals Ltd., Sulliden Gold
Corporation Ltd. and Trevali Mining Corp. all have projects under way
there. While none of them have reported problems with their projects in
recent weeks, investors are expected to express caution.

“I think it’s safe to say the whole investing world is waiting to see
what the government does,” Mr. Swarthout said. “What happened isn’t
going to calm anyone’s nerves.”

Mr. Swarthout is hoping for a solution, but said his company is
threatening legal recourse if the government’s decision isn’t reversed.
The company stated that it plans to “immediately and vigorously defend
its rights” through action under the Canada-Peru Free Trade Agreement as
well as Peruvian appeal processes.

Its legal team is working on what actions the company could take and
this will be decided within the week, Mr. Swarthout said. The company is
also hosting a conference call on Monday morning for investors to
explain the situation in Peru.

Bear Creek said there are up to 15 other foreign companies investing in
mineral exploration projects under similar decrees to the one it had
revoked, and that it plans to discuss the problem with them.

“I expect that many exploration and mining companies are very concerned
about this precedent, and we will be reaching out to all of them,” he said.

Some companies operating in Peru say they aren’t worried about similar
actions against their operations.

“These are specific issues related to specific projects,” said David
Garofalo, CEO of Toronto-based HudBay, which recently entered Peru with
the purchase of Norsemont Mining Inc.’s Constancia copper project last year.

HudBay’s project, now in the pre-construction phase, is in a remote
region and hasn’t been the target of grassroots protesters, he said.

“I don’t think it speaks to the receptivity of mining in Peru,” he said.

Swiss-based Xstrata plc said there has been no unrest at the company’s
operations in Peru.

Xstrata said its $4.2-billion Las Bambas copper project and its
$1.47-billion Antapaccay project “are both advancing according to plan,”
a company spokesperson said in an e-mail on Sunday.

Still, Bear Creek is not the first miner to have its project shelved as
a result of social unrest in Peru.

U.S.-based Southern Copper Corp., a unit of Grupo Mexico, recently put
its $1-billion Tia Maria copper project in Peru on hold due to
opposition from farmers worried about area water shortages. In recent
years, three towns in northern Peru voted against Chinese miner Zijin’s
$1.4-billion Rio Blanco copper project because of fears the mine would
pollute rich agricultural lands. Meanwhile, Newmont Mining halted plans
to look for mineral deposits in Cerro Quilish.

With a report from Reuters