Industry Trend Analysis - Unregulated Mining Challenges Future Industry Growth - SEPT 2015
BMI View: Increasing illegal gold mining activity in Peru exacerbates an already tense relationship between the formal mining sector and local populations. This trend threatens the Peruvian mining business environment and growth.
We expect illegal gold mining to continue in Peru, creating a myriad of negative externalities. When extracted unprofessionally, gold mining results in mercury contaminated water sources, vast deforestation and population dislocation - side effects most visible in the Amazonian region of Peru, Madre de Dios. In addition to the detrimental social impacts of illegal mining operations, other criminal activity associated with illicit mining disrupts the business atmosphere for legitimate international players. As Peruvian citizens continue to protest primarily against the larger mining corporations, the government is stretched too thin to control the informal sector and enforce regulation while protecting legal mines. A worst-case scenario could see lower investment in Peruvian resources than anticipated over the next few years due to the hostile and corrupt environment.
The gold sector is particularly susceptible to illegal extraction due to the relatively low tonnage of the precious metal required to make a profit. Peru produces 5.8% of global gold output, placing it among the top ten world producers of the precious metal. According to some estimates, 20% of Peruvian gold is produced illegally. Although the multinational mining corporations attract the brunt of public criticism, unregulated mines commit the more harmful acts. Madre de Dios, the region with the most heavily concentrated illegal gold mines, has suffered the loss of over fifty thousand hectares of rainforest; the indigenous people are also highly exposed to mercury. Despite strong opposition to any mining developments from citizens, the Peruvian government continues to support deregulation of the mining industry in an effort to counterbalance falling metal prices. Project delays are now common due to the increasing unrest.
|Gold Production to Rebound Slowly|
|Peru Gold Production|
|f=BMI forecast Source: National Sources/BMI|