Rock Bottom Mining: Unemployment and Crisis in Peru

The mining bubble in Perú has popped. With world demand at it’s lowest, international metal prices have cascaded and as of November 2008 more than 8 thousand mining workers have joined the ranks of the unemployed. The mining bubble in Perú has popped. With world demand at it’s lowest, international metal prices have cascaded and as of November 2008 more than 8 thousand mining workers have joined the ranks of the unemployed[i].

In November of 2007, Minister of Economy and Finance, Luis Carranza maintained that the “extraordinary trend of high mineral prices… could last 10, 15 or 20 years”[ii]. He went on to affirm that the world was headed for a long period of economic growth.

He calculated wrong.

Wall Street came apart at the hinges, thousands of people were left homeless and jobless throughout the United States and Europe, the banks broke down and the automobile giants crashed. Between January 2008 and January of 2009 the Peruvian stock market lost two thirds of it’s worth.

On the international scale, copper, which quoted at $4 US a pound in June of 2008, is now hovering around $1[iii]. Zinc, which at the end of 2006 maxed at $2 a pound, is currently at $.50[iv]. Lead has endured the same fate. Silver, tin and molybdenum, an element used to fortify steel, have also fallen. The only metal to maintain it’s high price is gold, which is protected as a store of value.

Since the final months of 2008, the ill fated succession of financial and corporate collapses has left an almost comical impression in the grimacing faces of the stock market operators: strapped to their seats, begging with desperate hands to the heavens, pleading through gritted teeth and hair pulling torment; executives left in tears and bankers returned home defeated.

The underbelly of this drama, the shadow side of the great despair of the world’s financiers and businessmen is found amongst the eleven million unemployed in the United States alone[v]. The tidal wave of recent unemployment is beginning to swell as far as Perú, amongst the workers in the mining, textile and agricultural export industries. The National Society of Industries has calculated that 300,000 people will lose their jobs in 2009[vi].

Out the Door

In the Peruvian mining sector, 8,000 unemployed workers form part of a labor force that at it’s peak in 2008, was approximately 130,000 workers strong[vii]. Two thirds of these workers are not on the mining corporations direct payroll. Instead they are outsourced, contracted by the mining corporations through specialized companies. The laxity of these contracts disempowers the workers and the company’s refusal to renew them is feeding the growing masses of unemployed.

“The companies take a very simple stance: if you want to lower costs to maintain a certain level of competitiveness, draw from the labor sector, it is the weakest link in the chain of production”, points out Felipe Vargas, Economic Advisor for the National Federation of Miners, Metalworkers and Steelworkers of Perú. (FNTMMSP) [viii].

The Mining Federation is reporting the non-renewal of these fixed term contracts as “layoffs”, even though technically they aren’t. In accordance with the law, a company has the right not to renew a contract with an employee, once that contract has expired. However, the growing number of fired miners -call them “laid off” or not- clearly reveals an economic deceleration in the mining sector.

“Today, the companies are protecting themselves for the period of 2009-2012… and we are already seeing the problems. The principal consumers are the automobile and household appliance manufacturers in China and now that they have no more orders for new products, they won’t be seeking more minerals. The operations programmed for the mines will be cancelled… and they are going to stop contracting those who have seasonal or flexible contracts, explained Limberg Chero, Economist for the Labor Program for Development (PLADES)[ix].

A mining crisis isn’t like there is a shrinking demand for tropical Amazon fish. It’s the opposite. Mining activity is central to the Peruvian economy: minerals made up 60% of the worth of all of the country’s exports in 2008[x]. The most grave indicator of this situation lies in the estimation that during the first trimester of 2009 there will be a 30-40% decrease in purchase orders, and in the case of copper, demand will drop by 80%[xi].

Take for example the shares of Southern Copper, quoted in the New York Stock Exchange at almost $100 at the beginning of 2008, now does not even reach $15. A similar case is that of BuenaAventura, whose shares have fallen by two thirds in the last year on Wall Street.

If we can hear the soft crying echo through the halls of the rich, then surely the lair of the miners is drowning in a flood of tears. Congresswoman María Sumire tells the story: “It was just yesterday that the wife of a miner was sobbing to me, ‘In Cerro de Pasco they are firing. And they don’t say why’. One day her husband went to work, they shut the door before him and a guard told him ‘do not enter, do not enter’. There were 100 other workers standing there without any explanation given to them. They were told to run to go collect their checks”[xii].

Similar cases are unfolding amongst the most important mines in Perú. Since the closing of Pasco, “The Royal City of the Mines”, Gonzalo Cristóbal, Secretary of Defense for the Volcan Mine Workers Federation has stated about the firings: “Of those directly contracted by the company we are talking about an average of about 200 workers. Of those from the specialized companies, an average of 2000 workers will no longer be offering their services to Volcan because the company has rescinded it’s contract with the contracting companies”[xiii].

Volcan has cancelled half of it’s contracts with the 64 companies that it does business with. In turn this has suspended the exploitation of the strip mines that corrode the city of Cerro de Pasco and the explorations to expand it[xiv]. The contraction in the mining activity of Volcan can be seen since the third trimester of 2008, when the company reported net earnings of $35 million, 66% less than in the same period of 2007[xv].

According to the Mining Federation, the corporations with the most layoffs are Yanacocha (800 people), Sider- Perú (600), Doe Run at the Cobriza mine (457), Minera Rosaura-Quenuales (370), Cerro Verde (300), the Huallanca company in the Pucarrajo mine in the Department of Áncash (246) and Pan American Silver’s Perú-Argentum in the province of Yauli, Department of Junín(200)[xvi].

Nothing to See Here Folks

Victor Andrés Belaunde, Director of Institutional Issues for the mining company Doe Run issued the statement: “There are contractors whose contracts expired on December 31st and due to the new economic situation there services are no longer necessary… there haven’t been any layoffs of personnel on our part… the company, on the contrary, has as one of it’s current priorities the adoption of measures to defend the employment of our 3,700 workers(85% of the labor force)”[xvii].

The list put together by the Mining Federation includes 65 dismissed workers from the company Minas Buenaventura. According to Carlos Gálvez, Director of Finance for Buenaventura: “The case of (the mine) Uchucchacua is not related to the deceleration of the world economy. Simply put, 13 contracted people have finished their contracts. In the case of (the mine) Antapite 65 people were cut back and not at the will of any world crisis, rather at that of the communities opposing our continued exploration of the area”[xviii].

Another emblematic case is that of Aceros Arequipa, a company which at the end of 2008 suddenly and without apparent reason decided to award massive vacations to 1,500 of it’s workers. In spite of persistent rumors of an overstock due to weak world demand, Luis Otárola, Aceros Arequipa’s head Personnel Administrator at their plant in Pisco, insisted: “There hasn’t been any type of reduction in personnel… we have only had one plant shut down in the month of December for a maintenance issue. We have since restarted normal activity as of January 12th. At the moment, all of our production is normal”[xix].

But…Now the Part’s Over

They’ve flicked on the lights and as the intoxication of the macroeconomic boom turns into a terrible hangover, the root problems begin to twinkle in the distance. In 1993 there were 33,000 workers directly contracted by the mining enterprises and by 2006 this number had jumped to only 38,000. However, in the same time period and, in particular, at the zenith of metal prices, the number of workers contracted through labor intermediation skyrocketed from 9,500 to 72,000[xx].

“In times of crisis you can see how the diffusion of seasonal labor damages the wellbeing of the population. They are precarious working conditions and the effects are more negative today under the current labor regime. There is a lack of foresight of the Labor Minister and of the laws, in a country whose governor should defend the rights of the workers and the wellbeing of the population and in broad terms he isn’t doing it”, stressed Limberg Chero, Economist for the Labor Program of Development.

These days the initiatives to change the state of affairs in the labor legislation and attend to the most urgent demands of the miners are completely stuck. For eight years debate over the general law of labor has carried on in the National Labor Council, and the debate should continue onto Congress. In Parliament there are bills relating to retirement for miners and profit sharing for workers that are also awaiting debate.

Luis Castillo, Secretary General of the Mining Federation, has indicated that amongst their principal demands are the reinstatement of all of the workers laid off since November of 2008, Congressional approval of bills involving the mining sector and the establishment of negotiation mechanisms between the mining companies and it’s work force in order to put an end to the reductions in personnel.

The Vice Minister of Labor, Augusto Eguiguren, considers “unfeasible” the reinstatement of workers whose contracts have not been renewed[xxi]. While the ghost of unemployment materializes to haunt Perú, Eguiguren highlights the urgency of implementing, as soon as possible, a restructuring plan that would reposition the unemployed from one sector into other more dynamic activities within the economy, like construction. Nevertheless he went on to warn: “If the government does not create a strong program in which companies invest more, produce more and in which the people who have been left without work can obtain work or “restructure themselves”, then we will have to cry”[xxii].

In a country where large investment projects take an average of five years to be approved[xxiii], the red tape science should yield to the adverse international situation that is already slamming Perú. Procedural bureaucracy is commonplace within the public administration of Perú. There are two bargaining tables from which to resolve the demands of the mining sector, one pertains to the Labor Minister and the other belongs to the President of the Cabinet; there is also a multi-sector anti-crisis commission of the executive branch and another in the Parliament. Until now, they have not made any advances towards the implementation of concrete solutions.

There’s Enough Crisis for All of Us

Given the interconnections of globalization, the growing unemployment in the mining sector is not the story of an isolated phenomenon. Many mining companies throughout the world are shutting down their operations and cutting back their crews, slowed even more by the sudden crashing of the construction boom in China. You can see the same thing happening in South Africa, Australia, Canada, Russia and throughout Latin America[xxiv].

In Colombia, production has ceased in the carbon mines of Samacá, and the metalworkers of Boyacá are cutting costs and employees[xxv]. In Venezuela, workers in the aluminum sector are organizing themselves in response to layoffs[xxvi].

At the beginning of the year, the third leading producer of aluminum in the world, the mining company Alcoa, announced that during the first trimester of 2009 they will eliminate 13,500 jobs- 13% of their workforce-, decrease production and close various plants as part of their anti-crisis plan[xxvii].

In Bolivia, the subsidiary, Sinchi Wayra, of the transnational corporation Glencore, as well as other mining companies in the country, have made cutbacks to it’s labor force. The Union Federation of Bolivian Mine Workers initiated a strike during the first fifteen days of January 2009[xxviii]. The subsidiary companies of Glencore in Perú, Los Quenuales and Perubar, have also made substantial slashes in personnel.

Is Peru Progressing?

The more that the government of Alan García assures that his country is “shielded” from the economic recession of the world, the reality is that mining activity is decelerating, side by side with the agricultural export and textile sectors. As of today, 21 mining projects have been suspended, 22 have been curtailed and 11 have been halted[xxix].

The great crash of 1929 brought dusk upon the original age of prosperity in Perú. The “new Perú” and it’s architect, Augusto B. Leguía, had reached their end. This lesson in history proves that one of the most susceptible sectors in a crisis of unemployment is the mining industry: less than half of the 32,321 workers employed in 1929 still had work by 1932 (14,197)[xxx].

The speed with which unemployment is infecting the mining workforce will spark another national strike, likely in March. As it stands that mining is not the only industry affected, Peru will suffer the consequent spasms of discontent spread wide throughout various sectors of society. As the world crisis intensifies, there appears to exist only a delicate line between an emerging economy and an economy in emergency.

[i] Datos de la Federación Nacional de Trabajadores Mineros, Metalúrgicos y Siderúrgicos del Perú (FNTMMSP), 27.01.2009.
[ii]  “MEF: Precios de Minerales seguirían altos por 15 años”, Diario Gestión, 20.11.2007.
[iii] Infomine.
[iv] Infomine.
[v] Louis Uchitelle, “Jobless Rate Hits 7.2%, a 16-Year High”, The New York Times, 9.01.2009.
[vi] Mariela Balbi, “SNI calcula que cerca de 300 mil peruanos perderán su empleo el próximo año”, El Comercio [Perú],  14.12.2008.
[vii] Luis Castillo, secretario general de la Federación Minera, en entrevista realizada el 14.01.2009.
[viii] Entrevista realizada el 14.01.2009.
[ix] Entrevista realizada el 16.01.2009.
[x] Hugo Palomino Glener, “Perú: Exportación de minerales en el 2009”, La Industria, 23.01.2009.
[xi] Limberg Chero, economista de PLADES, en entrevista realizada el 16.01.2009.
[xii] Entrevista realizada el 16.01.2009.
[xiii] Entrevista realizada el 21.01.2009.
[xiv] Raúl Mayo, “La minera Volcan paraliza explotación a tajo abierto en Pasco”, El Comercio [Perú], 6.01.2009.
[xv] “Volcan Reports Earnings Results for the Third Quarter of 2008- Key developments for Volcan Compania Minera SA (VOL_PB)”, Business Week, 30.10.2008.
[xvi] “Relación de trabajadores despedidos arbitrariamente en el sector minero a nivel nacional 2008-2009”, Federación Nacional de Trabajadores Mineros, Metalúrgicos y Siderúrgicos del Perú (FNTMMSP), 14.01.2008.
[xvii] Entrevista realizada el 21.01.2009.
[xviii] Entrevista realizada el 23.01.2009.
[xix] Entrevista realizada el 23.01.2009.
[xx] Armando Mendoza, “Minería y creación de empleo: Luces y sombras”, Actualidad Económica, Setiembre 2007.
[xxi] Entrevista realizada el 19.01.2009.
[xxii] Ibídem. 
[xxiii] “Proyectos de inversión pasan 5 años en trámites”, El Comercio [Perú],  23.01.2009.
[xxiv] Patrick Barta (en Bangkok), Andrew Batson (en Pekín) y Robert Guy Matthews (en Washington), “Las mineras pasan en meses del auge al repliegue más abrupto de su historia”, The Wall Street Journal Americas en La Nación [Argentina], 17.11.2008.
[xxv] “Crisis mundial comienza a afectar los renglones de la economía de Boyacá”, El Tiempo [Colombia], 8.01.2009.
[xxvi] “Sindicatos del aluminio prometen responder en tiempos de ‘crisis'”, Correo del Caroní, 9.01. 2009.
[xxvii] “Por la crisis, la minera Alcoa recortará 13% de su personal”, La Nación [Argentina], 01.01.2009.
[xxviii] Eduardo García, “Mineros en Bolivia planean huelga viernes por despidos”, Reuters, 8.01.2009.
[xxix] Balbi, op. Cit. 
[xxx] Carmen Rosa Balbi, del Extracto Estadístico del Ministerio de Hacienda en El Partido Comunista y el APRA, G. Herrera Editores, Lima: 1980, p. 27.