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Canadian mining firm threatens legal action against Peru

Demonstrators march against violence in Juliaca, southern Peru, on June 25, 2010. Canada's Bear Creek Mining Corporation said it will use "all available avenues" to insist on its right to open a silver mine in the mountains of southeastern Peru, after authorities suspended its concession.

STR/AFP/Getty Images/STR/AFP/Getty Images

Canada's Bear Creek Mining Corp. is threatening a legal challenge against Peru after its mining rights were revoked in a move that raises the risk for other resource companies doing business in the mineral-blessed South American country.

"We have done nothing wrong," Bear Creek chief executive officer Andrew Swarthout said in a telephone interview on Sunday from Peru.

The company has been working for more than a decade in Peru with some challenges, but Mr. Swarthout said this is the first time its mining rights have been pulled.

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The Santa Ana mine was expected to produce about 47-million ounces of silver over its 11-year mine life and represented about 20 per cent of Bear Creek's value, behind its flagship Corani project, also located in Peru.

"This is a rather unique situation and we are scratching our heads," Mr. Swarthout said, calling the move by the outgoing government of Peruvian president Alan Garcia "the wrong reaction to a political situation."

Bear Creek is not the only victim, BMO Nesbitt Burns analyst Andrew Kaip noted in a report Sunday, "with protesters demanding that concessions be revoked for all mining companies over concerns about potential pollution." He cited permits for the Inambari hydroelectric development project that were recently revoked under similar circumstances.

While Bear Creek's stock has already been hit hard as a result of the protest in recent weeks, having fallen more than 50 per cent since April, BMO said it expects the decision to "spook the market, with investors questioning the security of the company's larger Corani project."

Other Canadian companies with operations in Peru include mining giant Barrick Gold Corp., which has two mines in the country. Canadian miners such as HudBay Minerals Inc., First Quantum Minerals Ltd., Sulliden Gold Corporation Ltd. and Trevali Mining Corp. all have projects under way there. While none of them have reported problems with their projects in recent weeks, investors are expected to express caution.

"I think it's safe to say the whole investing world is waiting to see what the government does," Mr. Swarthout said. "What happened isn't going to calm anyone's nerves."

Mr. Swarthout is hoping for a solution, but said his company is threatening legal recourse if the government's decision isn't reversed. The company stated that it plans to "immediately and vigorously defend its rights" through action under the Canada-Peru Free Trade Agreement as well as Peruvian appeal processes.

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Its legal team is working on what actions the company could take and this will be decided within the week, Mr. Swarthout said. The company is also hosting a conference call on Monday morning for investors to explain the situation in Peru.

Bear Creek said there are up to 15 other foreign companies investing in mineral exploration projects under similar decrees to the one it had revoked, and that it plans to discuss the problem with them.

"I expect that many exploration and mining companies are very concerned about this precedent, and we will be reaching out to all of them," he said.

Some companies operating in Peru say they aren't worried about similar actions against their operations.

"These are specific issues related to specific projects," said David Garofalo, CEO of Toronto-based HudBay, which recently entered Peru with the purchase of Norsemont Mining Inc.'s Constancia copper project last year.

HudBay's project, now in the pre-construction phase, is in a remote region and hasn't been the target of grassroots protesters, he said.

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"I don't think it speaks to the receptivity of mining in Peru," he said.

Swiss-based Xstrata plc said there has been no unrest at the company's operations in Peru.

Xstrata said its $4.2-billion Las Bambas copper project and its $1.47-billion Antapaccay project "are both advancing according to plan," a company spokesperson said in an e-mail on Sunday.

Still, Bear Creek is not the first miner to have its project shelved as a result of social unrest in Peru.

U.S.-based Southern Copper Corp., a unit of Grupo Mexico, recently put its $1-billion Tia Maria copper project in Peru on hold due to opposition from farmers worried about area water shortages. In recent years, three towns in northern Peru voted against Chinese miner Zijin's $1.4-billion Rio Blanco copper project because of fears the mine would pollute rich agricultural lands. Meanwhile, Newmont Mining halted plans to look for mineral deposits in Cerro Quilish.

With a report from Reuters

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