Gold Miner Minera IRL Grants 5 Percent Equity to Local Residents

Peruvian gold miner Minera IRL (MIRL:PE) has turned local residents of the small town of Ollachea into shareholders with an agreement causing concerns among other mining companies operating in Peru.

On 29 June 2012, the website for mining news Mineweb reported that Minera IRL, a mining company registered in Lima, set out to give equity to everyone in a town near its planned mine, Ollachea. While the decision is a way to address the problem of opposition related to the opening of new mines across Peru, executives at other mining companies are already worried that it might establish a dangerous precedent for the mining sector.

Minera IRL’s Ollachea project is located in southern Peru, approximately 250 km north of Lake Titicaca. According to the company website, a significant gold discovery was announced in 2009, with a subsequent study indicating potential for a valuable underground mine with an average annual production rate of 117,000 ounces at a cash operating cost below $400 per ounce.

!m[](/uploads/story/166/thumbs/pic1_inline.png)As noted in Minera IRL’s news release, the new surface rights agreement between the mining company and the Community of Ollachea ratifies an earlier commitment of Minera IRL to grant the Ollachea community a 5 percent equity participation in the subsidiary company Minera Kuri Kullu SA, which holds the Ollachea leases, upon the commencement of commercial production. The agreement has been signed for a period of 30 years and allows for changes in the size of the Ollachea community.

The agreement with the small Peruvian community comes at a time of regular protests in Peru, with local communities complaining that they have been left behind by the country’s economic boom. As reported by Mineweb, townspeople in Cajamarca for instance have delayed the construction of the $5 billion Conga mine of gold producer Newmont Mining (NEM) on account of concerns over water supplies and pollution. Residents in the municipality of Espinar, on the other hand, have pressured Xstrata (XTA), another large mining company, to contribute more cash to the town’s budget when its Antapaccay copper mine opens.

According to Mineweb, local and regional governments in Peru receive cash from taxes paid by mining companies; however, the money often does not benefit local communities since many local governments have weak bureaucracies or lack the capacity to spend the money in question. Minera IRL has taken a different approach, with the company’s president Diego Benavides noting that “the money will go directly to each member of each family”.
And while the agreement between Minera IRL and the community of Ollachea seems to be an efficient way to secure the support and cooperation of local residents, it is as yet unclear whether it will be possible for other mining companies operating in Peru to replicate it. Although the town in Ollachea is rather small, with approximately 600 families, it took Minera IRL five years to negotiate the agreement. This in turn means that introducing a similar model will be much more complicated in the case of a larger mining project with an impact on dozens of communities.