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Peruvian miners pledge legal action against the government over gold-silver mine shutdowns

Highlights

Peru government threatens to close four gold-silver mines

Hochschild shares collapse as Inmaculada, Pallancata mines named

Peruvian precious metals miner Hochschild Mining and other companies vowed to take legal action against the government after a senior official said four gold mines will be shut in the southern Andes in response to environmental protests.

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Cabinet Chief Mirtha Vasquez, who over the weekend promised communities in the Ayacucho region that mines including Hochschild's Inamculada and Pallancata would not be granted operation extensions, didn't act "in accordance with Peruvian law," Lima-based Hochschild said Nov. 22

"Hochschild categorically rejects any inference with regard to environmental pollution," the company said in a statement, adding it will "vigorously defend its position and take all action necessary to ensure that the rights of the company and its wholly-owned subsidiaries under Peruvian and international law are respected."

Inmaculada produced 79,400 oz of gold (+34% YOY) and 2.78 million oz of silver (+57%) through the first half, while Pallancata produced 7,280 oz of gold (+48%) and 2 million oz of silver (+44%), according to the company. Exploration drilling programs are underway at both underground mines.

The other mines to be shut include locally-owned Breapampa and Apumayo, which was attacked by protesters last month. Communities claim mines such as Apumayo have leaked tailings into headwaters of watersheds vital for local farmers.

Peruvian President Pedro Castillo, a 51-year-old Marxist union leader who took office in late July, rattled investors with campaign pledges to nationalize the mining and hydrocarbons industries and raise taxes. The Opposition-controlled Congress is preparing to debate an impeachment vote.

In recent months, miners including Newmont and Buenaventura have delayed projects, while Buenaventura closed down its largest silver mine and Canadian miners Barrick and Trevali Mining have pulled out of Peru.

Hochschild's London-traded shares plunged on the news, while Lima-traded mining stocks also plummeted.

"This is a clear violation of mining rights and a blow to the country's stability," Hochschild CEO Ignacio Bustamante told reporters late Nov. 21. "We were never consulted on this issue. We consider this decision arbitrary and illegal."

The National Society of Mining, Petroleum & Energy, meanwhile, warned the Ayacucho region, one of the country's mopst impoverished areas, could lose 54,000 jobs and millions in mining royalties. About 2 million Peruvians depend on the mining industry, which posted a record $29 billion in exports through the first three quarters, according to the group.

"All these achievements are at risk because investors will ask themselves which rules apply," SNMPE President Raul Jacob told reporters late Nov. 21. "The premier has taken a decision which isn't hers to take."

Peru's gold production dropped 32% to 87,303 kg and silver was down 22.5% to 2.99 million kg last year, according to the Energy & Mines Ministry. Mining accounts for 60% of Peru's export revenue.