No Easy Road for Newmont Mining in Conga

Copper and gold mine promises to be a difficult development, despite government's promises to the contrary.

Jan 19, 2014 at 8:45AM

If anyone was fooled by Peru's government and its attempt to jawbone the Minas Congas project Newmont Mining (NYSE:NEM) into activity by calling opposition irrelevant and saying support for the copper and gold mine was unanimous, they've surely been disabused of that notion after hundreds of protestors stormed the site the other day, damaging a telephone tower and kidnapping a security guard.

Region Southamerica

Source: Newmont Mining.

Conga is the biggest investment project in Peru's $55 billion mining portfolio and would bolster the South American country's position as the world's third largest producer of copper as well a major producer of gold, silver, and zinc. It's estimated the $5 billion Conga development could produce 580,000 to 680,000 ounces of gold and 155 million to 235 million pounds of copper annually, but operations were suspended in 2012 after violent clashes with protestors left four people dead and indefinitely delayed production that was supposed to begin in 2015.

Southern Copper (NYSE:SCCO) finds itself in a similar situation as Newmont, as its Tia Maria project was brought to a standstill in 2011 after deadly violence broke out and three protestors were killed. The Peruvian government has been upbeat in its pronouncements about the advancement of the $1 billion Tia Maria mine as soon as it gets its "social license" from the people. The miner has submitted its environmental impact statement and is awaiting the government's decision on its environmental permits, notwithstanding whatever licensing that it's thought to need from the region's indigenous peoples.

For its part, Newmont hasn't said anything about the status of Conga beyond its statement last September that it won't be revisiting the restart of construction before 2015, after elections in the country are held. However, its local partner in the venture, Minera Yanacocha, issued a statement the other day after the clashes saying it "reiterates its respect for all kinds of social expression, provided it does not threaten the integrity of the individual, private property, and the development of infrastructure that is built for the common good of the Cajamarca region." 

Peru is counting on mining projects to keep the developing economy growing. Mining investments totaled a record $8.6 billion in 2012, and Peru is hoping to exceed that amount this year with a target of $14 billion. As commodity prices tumbled, exports were hurt and new development is being counted upon to take up the slack that's caused.

Some of the larger projects in the pipeline include the $1.8 billion Constancia project of HudBay Minerals, the $6 billion Las Bambas copper mine being developed by Glencore Xstrata, and a $4.4 billion expansion project by Peruvian copper miner Sociedad Minera Cerro Verde, an operation majority owned by Freeport-McMoRan that's located in Arequipa, the same region as Southern Copper's Tia Maria. In all, Peru is looking to more than double its copper production by 2016.

Yet miners everywhere also have come to grips with the opposition their projects engender. Barrick Gold in Chile, Yamana Gold in Argentina, Northern Dynasty in Alaska, and even another Newmont-backed project in Romania have run into a brick wall of hostility toward their developments because of perceived threats to the environment, animal habitats, water supplies, and ways of life.

However, while the impact from Minas Conga and the weak economic environment that's cast a pall over gold, copper, and other commodities has played a significant role in Newmont's seeing its market value cut in half in 2013, its also evident those events have been priced into its stock. As the world's second largest gold miner, Newmont can, I'm certain, provide investors with one of the biggest opportunities in 2014. Just don't listen to the government's happy talk about how smoothly plans are advancing.

Looking to the future
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Fool contributor Rich Duprey has no position in any stocks mentioned. The Motley Fool owns shares of Freeport-McMoRan Copper & Gold. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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