Canada’s Bear Creek Mining Corp. threatened legal action Monday after the Peruvian government cancelled the company’s plans for a silver mine in the country’s southern highlands.
The Vancouver-based company said it hoped a political solution could be found, but that it would "vigorously defend" its rights.
Bear Creek stock plunged 27 per cent, or $1.39, to $3.77 on the TSX Venture Exchange after Peru shut down the company’s Santa Ana operation, a move the company called "illegal and unconstitutional."
"Our intention is to take immediate, strong legal action to vigorously defend our rights," CEO Andrew Swarthout said on a conference call.
The Peruvian government revoked a decree granting approval for the mine on Friday after weeks of protests against the Bear Creek project and others that paralysed the region with road blockades.
Last week, six people were killed and at least 30 wounded when police turned back protesters who tried to take over an airport near the city of Juliaca in Puno state during a different protest.
BMO Capital Markets analyst Andrew Kaip lowered his price target on the company to $6 from $10 and cut his rating from "outperform (speculative)" to "market perform (speculative)" on Monday.
"BCM is set to contest the decree; however, the probability of success is uncertain as political power in Peru moves toward a more socialist agenda, given the recent presidential election of (Ollanta) Humala," Kaip wrote in a note to clients.
President-elect Humala, who takes office on July 28, was once an admirer of Venezuelan President Hugo Chavez, but he has since taken a more moderate centre-left stance.
Jamie Kneen of MiningWatch Canada suggested that Humala won’t take a hard-left, Chavez-like approach to governing.
"I think in order to get elected he had to soften his rhetoric a fair bit and I think the realities of dealing with established interests will constrain what he can do," said Kneen, a spokesman for the watchdog group, which keeps tabs on Canadian mining companies around the world.
"I think the hope in Peru is that any sort of recognition of the valid concerns of these communities would actually allow for some of this conflict to be resolved."
Kneen noted that Bear Creek was the focus of protesters because it has one of the most advanced projects in the region, which is home to dozens of proposed mines.
Mining accounts for two-thirds of Peru’s export earnings and has been the underpinning of a decade of robust economic growth. But the rural poor have benefited little from mining and complain it contaminates their water and crops.
Swarthout called the deadly protest — at an airport 160 kilometres from the mine — "politically motivated" and said it originated outside the communities concerned with a "small radical element with political motives."
He said the company has followed Peruvian law and has held extensive consultations with local residents and developed an environmental plan that makes it impossible for the mine to pollute Lake Titicaca as the protesters have alleged.
"We designed a very environmentally sound mining project which is a zero-discharge heap leach facility of which there are dozens operating in Peru. Plus it is located in a completely separate drainage basin from Lake Titicaca," he said.
The company has said it already spent $96 million on the Santa Ana project.
Bear Creek had hoped to start producing silver in Santa Ana in 2012.
Swarthout added that Santa Ana comprises about 20 per cent of the company’s silver reserves in Peru, with the in-development Corani project representing about 80 per cent
