Chinese miner builds high-altitude experiment in Peru

MOROCOCHA, Peru Sun Jul 1, 2012 7:27am EDT

A miner stands next to a sign at the Morococha town in the Andes May 13, 2010. REUTERS/Pilar Olivares

A miner stands next to a sign at the Morococha town in the Andes May 13, 2010.

Credit: Reuters/Pilar Olivares

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MOROCOCHA, Peru (Reuters) - High in the Andes mountain range, a Chinese mining company is now in the housing construction and demolition business as it works to relocate a Peruvian town that sits in the way of its $2.2 billion Toromocho copper mine.

By late July, state-owned miner Chinalco says it will finish building a new city of paved roads and multi-story homes for 5,000 people currently living on the side of a giant red mountain of copper 15,000 feet above sea level.

Residents from the poor, ramshackle town of Morococha, where children attend school steps away from discarded mine tailings, will get access to amenities they currently lack, like modern water, sewage and electrical systems. They will all also own their homes and no one will need to pay rent.

Chinalco calls the new $50 million town the biggest privately funded social project in Peru's mining history and it may help the company avoid community opposition that has stalled other major projects, like U.S. miner Newmont's $4.8 billion Conga project in the northern Andes.

If Chinalco persuades residents to move to Nueva Morococha, or "New Morococha," 15 minutes away by car - a feat that is still not certain - it could change ideas about corporate responsibility as President Ollanta Humala struggles to resolve hundreds of conflicts over natural resources that threaten $50 billion in pledged private investments.

"A project of this size has generated very high hopes," said Pedro Salazar, Chinalco's representative in Nueva Morococha, standing in front of rows of homogenous homes with white walls and red roofs. "Other mining firms are looking at this as a point of reference."

Toromocho is expected to open in late 2013, operate for 35 years, and produce 250,000 tonnes of copper a year - nearly a quarter of Peru's 2011 output. A free-trade agreement with China will ease exports of the red metal to the world's No. 2 economy.

The town of Nueva Morococha, if successful, could improve the reputation of Chinese companies operating far from home. Many have been accused of running roughshod over workers and residents in Peru and other developing countries in the past.

Chinalco says 75 percent of Morococha residents support the move. It says residents were consulted about the new town's layout - which will have a central plaza, a school, a hospital and churches. It looks a bit like a Peruvian version of Levittown, the suburban towns built in the United States in the 1940s and 1950s.

NO PLANS TO MOVE

Chinalco expects to persuade more residents to move by taking them on visits to the new town that broke ground two years ago. Nueva Morococha sits in a shallow valley near picturesque alpine lagoons but, because it is still under construction, lacks the organic feel of a living town.

"Some want to move to the new city because now they live in rented rooms. Others don't want to go because the company hasn't taken account of all of our needs," said Rebeca Antonio. She sells trinkets and sodas from a stall and worries there won't be enough foot traffic in the new town for her to make a living.

Residents in favor of the move said they would prefer to have homes with new kitchens and to live at a slightly lower altitude in a new place that isn't surrounded by mine tailings. They say Chinalco does more for them than their mayor in the town 92 miles east of Lima, Peru's capital.

But some villagers and local government officials are not sold on the idea, fearing they are losing control over their livelihoods without adequate compensation for their homes in a community with a tumultuous mining history.

"Nothing is certain. We don't have any plans to move," said Vilma Pariona, general manager of the municipality of Morococha.

Morococha's mayor led protests two years ago against Chinalco that were attended by some 100 people. Protesters said Chinalco hadn't offered enough to buy existing properties and the location for the new town, chosen arbitrarily, was humid.

Chinalco's Salazar said holdouts, along with people who weren't given houses because they arrived in Morococha after the company's 2006 enrollment deadline, will not delay the mine's opening next year. Residents could, in theory, stay put for five more years - if they can put up with the grit and noise.

They do not have much legal recourse as the town sits inside the mining concession granted by the government - which also required the miner to relocate residents.

Despite a decade-long economic boom helped by China's voracious appetite for the metals that Peru exports, around 60 percent of rural Peruvians remain poor, fueling distrust and discontent.

Critics say Humala's predecessor Alan Garcia, who approved the Chinalco deal, welcomed foreign mining investment almost unconditionally. Humala has asked some firms, including Newmont, to improve their social and environmental plans but has generally backed big companies since taking office a year ago.

Humala says he needs revenue from mining to keep Peru's economy humming and fund initiatives to tackle poverty, which has fallen to around 30 percent at a national level.

NEFARIOUS HISTORY

In rugged areas like Morococha where government-run social programs are scarce and residents chew coca leaves to ward off hunger and altitude sickness, companies say they are forced to play the role of the state and build schools, roads and medical facilities, or face bouts of unrest.

At least 10 people have died in disputes over natural resources since Humala took office a year ago, according to the government human rights office. Some 174 people died in clashes with police that often pit poor villagers against large multinational firms during Garcia's term.

Chinese firms have at times been flashpoints.

The stalled Rio Blanco copper project in northern Peru was stymied by bouts of violence before and after it was bought in 2007 by Zijin of China. A Peruvian iron ore mine owned by China's Shougang Group has been dogged by labor and safety tensions since it was bought in 1992.

Chinalco and other firms say they are trying to chart a different course, responding to pressure from the government and communities to be more socially responsible.

"Companies that have recently entered Peru are taking note of the conflicts and are trying to have better relations with local populations," said Carlos Monge, regional coordinator of the NGO Revenue Watch.

Mining memories in towns like Morococha in Peru's central Andes go back centuries. Residents still talk of a mining accident that killed 27 people in 1928 and many have toiled in the mines that have helped make Peru a top producer of copper, zinc, silver and gold.

Morococha also sits about 20 miles away from La Oroya, often ranked as one of the world's most polluted places because of a polymetallic smelter that is now shuttered.

People in Morococha live above abandoned tunnels and say that the mine tailings from earlier ventures were dumped into reservoirs surrounding them and cause respiratory and digestive problems.

"We don't want to be a part of this nefarious history," said Chinalco's Salazar in the tidy streets of the still uninhabited city of Nueva Morococha.

(Additional reporting by Reuters television; Editing by Terry Wade and Kieran Murray)

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