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Growing security risk highlighted by deadly gold mine attack in Peru, and its costs

A dramatic and deadly attack on a gold mine in Peru on Saturday has cast a spotlight on illegal miners and criminal gangs targeting mines, which have left scores dead and cost billions of dollars in losses in recent years, according to industry and government officials.

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Nine workers were killed and 10 others seriously injured in the latest attack, in which men armed with explosives stormed a mine owned by Poderosa , one of Peru’s top gold producers, and took hostages. The government blamed illegal miners and criminal groups.

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The attack has highlighted a growing risk for miners in the Andean nation, the world’s no. 2 copper producer and a major source of gold and silver.

“Security is now one of the main costs,” Poderosa’s corporate affairs manager, Pablo de la Flor, told Reuters after the attack. “Illegal miners and criminal groups are a terrible alliance for the sector.”

Attacks on Poderosa last year left seven people dead and 10 transmission towers destroyed. In another incident not involving Poderosa, a confrontation between artisanal gold miners over land in southern Peru in June last year left 14 dead.

The impact is showing up on balance sheets, a headache for companies and Peru’s government as it struggles to pull out of a recession in which mining is the country’s main economic engine.

A recent study by the local industry chamber, the National Society of Mining, Petroleum and Energy of Peru (SNMPE), said that illegal gold mining was responsible for annual losses of around $6 billion, or about 2.5% of the country’s GDP.

Poderosa itself has seen its profits and production hit this year as operating costs have risen by a third, according to a company filing, which it blamed on higher ‘security and surveillance costs’.

The miner has been Peru’s biggest gold producer for the past two years, accounting for 10% of output, but fell to second place in the first nine months of 2023.

De la Flor said Saturday’s attack would not stop the company’s operations.

Bigger than drug trafficking

Illegal mining in Peru moves more money than drug trafficking, between $3 billion and $4 billion a year, according to government figures.

De la Flor says illegal mining has grown thanks to a programme to formalise artisanal miners, called REINFO, which gives temporary licences to small mines.

“It is the umbrella under which they protect themselves, because having a REINFO prevents the police from intervening in illegal mines,” he said.

The executive said artisanal miners initially hired “criminal gangs” to protect their operations, but the groups then took over the operations when they saw it was profitable.

Peru’s Ministry of Energy and Mines did not immediately respond to a request for comment on the issue. The ministry released a statement on Sunday night saying it would look at REINFO to identify those taking advantage of the programme.

Poderosa said earlier this year that its mine in Pataz province had been “invaded by Peruvian and foreign criminals allied with illegal miners” to control its operations. Thousands of trucks of illegal gold were taken away, it said.

While the main destinations for Peruvian gold are India, Switzerland and Canada, which account for nearly two-thirds of the country’s exports, experts say black-market gold is flooding into nearby Bolivia.

“There is a black market for minerals,” said Gustavo Ramirez, who studies illegal mining for the SNMPE. “It’s not that difficult to assume that the gold is Peruvian and that it goes across the border.”

Peru’s gold production, which has been falling for a decade due to a lack of new operations, rose to 97 tonnes last year, according to the Ministry of Energy and Mines. Illegal miners are estimated to produce another 30 tonnes.

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