The governor who supported protests against Newmont Mining Corp. (NEM:US)’s Minas Conga gold project in Peru was ordered to jail amid a probe into allegations he took bribes.
Judge Mercedes Caballero authorized the 14-month detention of Cajamarca Governor Gregorio Santos while prosecutors prepare their case, Peru’s judiciary said in an e-mailed statement. Segundo Matta, a spokesman for the regional government, didn’t immediately return a call to his mobile phone seeking comment on the governor’s detention.
Newmont and local partner Cia. de Minas Buenaventura SAA postponed work on the $5 billion Minas Conga project in Cajamarca in 2012 after farmers staged protests over its impact on water supplies. Santos, who said in 2011 and 2012 the project wasn’t viable environmentally, will now be unable to run for re-election, possibly allowing mining companies to revive projects in the state, said Cesar Perez-Novoa, head of research at BTG Pactual in Santiago.
“It could potentially unlock investment in the region, and of course, Minas Conga,” Perez-Novoa said by telephone. “If the perception of risk changes as a result, it will trigger the deployment of capital, de-bottleneck some mining projects and increase the incentive for exploration.”
Minas Conga would mitigate the declining output at Newmont and Buenaventura’s Yanacocha gold mine in Cajamarca, Peru’s biggest, where output fell 24 percent last year.
Santos will be transferred from a holding cell to the Piedras Gordas prison in the north of Lima, Andina reported on its website.
A former school teacher who’s in the last year of his four-year mandate, Santos denied any wrongdoing in a May 16 interview with newspaper La Republica. His party, the Movement for Social Affirmation, registered him this week as their candidate to run for re-election on Oct. 5.
Newmont and Buenaventura are considering plans to develop Conga as a smaller mine than initially planned, Buenaventura Chief Executive Officer Roque Benavides told reporters May 22. Building the mine hinges on obtaining political and community support, he said.
Newmont gained 0.8 percent to $25.07 at the close of trading in New York. Buenaventura climbed 6.9 percent to $11.33, a seven-week high.
Santos is the third of Peru’s 25 state governors to have been detained this year as part of separate corruption probes into their administrations.
Police have issued an international arrest warrant for a fourth governor and the attorney general’s office today requested the detention of a fifth, Lima-based Canal N reported.
Rio Tinto Plc, Anglo American Plc and China Minmetals Corp. plan to develop mine projects in Cajamarca. Mining investment in the state fell 55 percent to $579 million last year, according to the Energy and Mines Ministry.
The economic slowdown that followed the suspension of Minas Conga reduces the chances that Santos’s movement will win the election, said Perez-Novoa, who visited Cajamarca last year.
“People are tired because the poverty rate has jumped in a meaningful manner,” he said. “You’ve got a GDP contraction, unemployment is high and you’re seeing a brutal reduction in the investment flow towards the region.”
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