Early on the morning of April 17, 2012, in the coastal region of Santa in northern Peru, six assailants fired seven shots at point-blank range into the head and stomach of public prosecutor Luis Sánchez Colona as he was leaving his home for work. He died instantly. A few hours later his wife gave birth to the couple’s first child. Only 29 years old at the time of his murder, Sánchez was the youngest magistrate in this section of Peru. He had rapidly made a name for himself after becoming chief of the prosecutor’s office in a part of the country where illicit gold mining is rampant. Local police officials immediately suspected a hired killing, a grim rejoinder to Sánchez’s unusually dogged investigations. Notably, these investigations included a soon-to-be-released report that was expected to name Víctor Rivero, the mayor of a provincial district, as the author of the murder of a journalist looking into the area’s illicit gold trade.

Sánchez’s assassination should not have come as a surprise, given the extraordinary money being made in Peru’s gold boom, the roots of which lie in the recent explosion in the global price. Between 1983 and 2005 the price of gold never topped $500 an ounce; today, thanks to speculation by Western investors and banks, that same ounce is worth around $1,700. The stratospheric increase has drawn an estimated 10 to 15 million people worldwide into the largest gold rush in history. In Peru, which probably has the most extensive non-mined gold reserves in the world, over 300,000 of its often desperately poor citizens have entered the trade. Peru also has the mixed blessing of holding sizeable gold reserves all throughout its national territory. Over the next ten years, to provide one indicator, around $50 billion in mostly foreign investment is expected to pour into Peru’s mining sector alone.

While the current gold boom has touched almost all regions of the vast and rugged country, the grizzly underbelly of the Peruvian industry is most visible in the Kansas-sized region of Madre de Dios in the Amazon basin. Made famous by the classic Werner Herzog film Fitzcarraldo, Madre de Dios is the site of massive deforestation at the hands of mostly illegal and informal miners. Over the past century, successive booms in Peru’s jungle—rubber, timber, petroleum, coca—have usually enriched outsiders far more than local communities.

The notoriously underperforming Peruvian state cannot keep up with all this new activity. Sky-high gold prices have combined with the completion of the Brazil-Peru Interoceanic Highway, which links this once remote region to major port facilities in both countries, to create a perfect extractive storm. In Madre de Dios alone, about 20 tons of gold, worth roughly $1 billion, are extracted annually from land and watersheds rich in biodiversity. The sweltering port city of Puerto Maldonado, the capital of Madre de Dios, has become (mostly for the worse) the commercial hub for an often nasty but lucrative business of off-the-books gold extraction and sale. 

Peruvian authorities are trying, somewhat belatedly, to reign in this upsurge of illegal extraction. Five years ago there might have been fewer than a hundred miners working among thousands of wildcat mines in the area; today, there are around 40,000, three-quarters of whom are considered informal or “artisanal” miners engaged in the trade for subsistence. These informal miners are not regulated and pay no income or sales taxes. The Peruvian state has identified this gap (upwards of $500 million in lost revenue annually in the entire country) as a crucial missed opportunity: Local and national coffers sorely need revenue to offset the country’s still large social deficit and lack of credible government presence in isolated locales like Madre de Dios. Enforcing a gold tax offers a solution, but the catch is that the informal miners are still not paying it. 

The president of the Madre de Dios regional government recently estimated that roughly 15,000 miners have set up shop along a 14-kilometer stretch of highway. In turn, to cater to the needs of these migrants workers with their relatively strong purchasing power (the average worker can mine up to four grams of gold per day, earning a profit of $900 per month, three times the country’s minimum wage) scores of impromptu mining “villages” now run along the side of the Interoceanic highway in both directions out of Puerto Maldonado. To be sure, these wildcat towns would not exist without the Peru-Brazil highway. The long-anticipated road was heralded for giving Brazil access to Peru’s Pacific Coast ports and providing Peru with access to the large Brazilian domestic market. While that economic boon is still in the cards, the more immediate destruction in Madre de Dios from highway-induced mining is here with us today, and it is impossible to overlook.

Once the miners deplete the gold from one mine or area, they usually move along the highway to another “virgin” site and start the destruction again. Where small farms and thick jungle vegetation existed a few months ago, there are now barren lands and flimsy plastic-sided buildings that house restaurants, hostels, machinery stores, barbershops and brothels. As the wildcat mining and ramshackle towns have sprung up in Madre de Dios, so have the prostitution, drugs and booze, delinquency and other social ills that are inseparably linked to this sort of largely unregulated extractive trade. Most worrisome are the legions of Peruvian minors who are sexually exploited in the outpost cantinas and brothels that line the remote mining towns of Huepetuhe, Delta, and La Pampa, among others.

The environmental effects of Peru’s gold boom are just as pernicious as the social ones. In these towns one can buy anything from plastic flip-flops to tractors, but, interestingly, not fish—thanks to river contamination from the mines. At the mine sites themselves, the transformation from thick jungle to vast, Verdunesque mud scars can be observed literally taking form hour by hour. Much of the extraction takes place in ostensibly protected national parks and their “border zones”, such as the Tambopata National Reserve in Madre de Dios, which also happens to be the most visited attraction in Peru’s vast rainforest. 

Not surprisingly, too, the global gold boom has driven up the demand for mercury, which is still used, as it was at Sutter’s Mill back in 1849, to collect and separate gold from the water, rocks and soil. Mercury is widely available, affordable and easy to use; it is also highly toxic. For each kilogram of gold extracted, 2.5 kilos of mercury and other chemicals are dumped into Peru’s soils and rivers. That sums to 50 tons of these elements annually leached into the environment.

Mercury damage is very difficult to detect in humans until long after exposure, and most miners are unaware of the dangers it poses. Interestingly, some of the worst contamination is occurring not in the mines, but among the merchants and family members who work or live near the shops where the gold and mercury are sold and separated. Remarkably, twelve mining entities imported an estimated 186 tons of mercury into Peru from the United States and Spain in 2011. Not surprisingly, half of these outfits are operating illegal mines in Madre de Dios and nearby Puno. 

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he informal mining boom in Madre de Dios has also created sizeable fortunes for some unexpected participants. In the district of Huepetuhe along the Interoceanic’s “corridor of destruction”, one woman, Gregoria Casa Huamanhuillca, known simply as “Goya”, has created a virtual “empire of informality and illegality.” It has brought her family enormous riches that include real estate in the United States. The regional Peruvian government appears either unable or unwilling to do anything about it. As the “Gold Queen of Puerto Maldonando”, as a Peruvian magazine recently dubbed her, Goya is the sole buyer, carrier and otherwise “meta middle-woman” in this sparse outpost.¹ The informal mines in Huepetuhe generate roughly $27 million in revenues annually. Since the miners lack access to bank accounts, ATMs, and other modern ways to store and save their profits, they have little choice but to unload their relatively meager income to predatory operatives like Goya who feed off the profit margins generated by the informality and lack of state presence. 

Along with the gold boom has come another boom of shady “trading companies” that buy the informal or illegal gold at bargain prices from the desperate miners and then effectively launder it by consolidating these “mom-and-pop” purchases and then “legally” exporting it abroad. These operations reap profits far greater than their declared taxes would suggest. While they do little to none of the extracting themselves, these shady outfits are some of the biggest winners in the gold boom. In 2011 alone, upwards of $1 billion worth of gold left Peru in this semi-legal manner. In this same year, the Peruvian daily El Comercio reported that one of the largest trading companies, Universal Metal Trading, exported over 19 tons valued at $900 million—and listed only 28 employees! Some super-efficient employees, huh? Not entirely coincidentally, Universal Metal has an office in Huepetuhe, just down the street from Queen Goya’s throne room. 

One could justifiably ask what Universal Metal is doing with an office in a remote mining outpost other than laundering informal gold and getting rich in the process. There are supposed to be controls, such as an obligation for gold purchasers to request a certificate of origin that accredits the legitimacy of the mineral. This document is ostensibly required by the Peruvian Customs agency when the gold is exported, but in practice enforcement has been lacking to the point of non-existence. Peruvian authorities have only recently begun conducting pesquisas (inquiries), and some of these have resulted in the round-up of several of the “gold mafias” in Madre de Dios most responsible for the laundering of the informal gold. But they have a long way to go to get a grip on the challenge as a whole.

Soon after the 2011 El Comercio article appeared, it became known that the now resigned Director General of the Peruvian government’s Ministry of Energy and Mines, Luis Vicente Zavaleta, along with his brother were owners of Universal Metal. When asked about the need for a satellite office in Huepetuhe, Zavaleta responded, “I already told my brother to shut that office.”² Just imagine what Joseph Conrad, author of Nostromo, could have done with a line like that.

It also became known that Peruvian President Ollanta Humala’s prime minister, Óscar Valdés Dancuart, admitted that he held a 600-hectare mining concession, a revelation that critics said only emerged after the inappropriate holding had been exposed. These sorts of embarrassing episodes indicate that the tremendous profits in mining have yielded greater corruption and nepotism at the highest levels of government—two eternal Achilles heels in Peruvian politics and society. 

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he Peruvian government repeatedly insists that it intends to crack down on what it admits is illegal mining. Of the billion dollars reaped each year in informal mining throughout the country (income more than double what is generated from narco-trafficking), only a quarter of it comes from the truly illegal trade that involves not only avoiding taxes and registration, but true criminality like mining in national parks, using dredges and contaminating water systems intended for human usage. The other three-quarters come from the artisanal mining that, while less pernicious than illegal mining, poses an enormous social, environmental and tax-collection problem. 

Government authorities insist that they do not want to ban the hundreds of thousands of informal workers from their work; instead, they want to “formalize” them through registration and regulation. This is a Herculean goal given the administrative incapacity of the authorities, but if successful the effort could bring in sorely needed revenue annually to government coffers. Perhaps more than coincidentally, Peru’s effort to formalize this vast network of artisan miners is occurring in the very country where, with the publication of the global sensation The Other Path two decades ago, conservative economist Hernando de Soto and his think-tank the Institute for Liberty and Democracy (ILD) championed the formalizing of Peru’s millions of informal workers. 

Early this year, the government’s attempts to crack down on informal mining sparked large and at times violent protests, including in Madre de Dios. Then in March 2012, the government struck a deal with informal miner syndicates active throughout the mining regions from the long Pacific coast to the jungle. The miners agreed to stop their protests opposing any registration or restrictions and submit to a formalization process. In return, they were given a year to adjust to the new terms, especially the tax obligations that proponents hope will spark a virtuous cycle of more tax revenue leading to more government presence and enforcement in the impacted areas. Already the government has announced plans for a massive deployment of public prosecutors to the acute informal and illegal areas of public prosecutors. One optimistic representative of the Federation of Artisanal Miners in the southern department of Arequipa, César Vásquez, declared that this unfolding formalization agreement will no longer oblige his fellow miners to sell the gold to the same buyers who have virtually enslaved them for the past two decades.

While it attempts to bring the “informals” into the system, the government has also begun to strike harder at the hard-core illegals. The radical-leftist-cum-über-pragmatic President Humala promised to “take the bull by the horns” over illegal mining in early 2012 at the height of the violent protests. Lima announced prison sentences of up to ten years for the most egregious illegal mining entities. In this belated show of force, Peruvian authorities have recently destroyed 130 boats and dredges used in the illegal trade. While any attempt at a solution is daunting given the scale of the challenge, several potential policies could prove effective. For example, the Peruvian state could become a monopsony buyer of all the informal gold, and it could more effectively control the sale and use of mercury. 

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adre de Dios is not the only part of Peru—or the world for that matter—that has caught Gold Fever. In the Altiplano (Andean high plain) region of Arequipa, far away from the state scrutiny and international attention in the mining controversies in Madre de Dios, upwards of 50,000 Arequipeños are involved in gold mining. Unlike in the jungle areas where “colonist” miners are active, in Arequipa entire native families are involved in the extraction process. The male often works high up in the precipitous cliffs of this rugged and jagged land, where condors soar and mountains scratch over 20,000 feet above the sea. Seeing the miners operate, one struggles to recognize that human beings are readily performing such tasks in such inhospitable heights. After laboriously scratching out a little piece of earth, the miners then send it down to the remote camps where the spouses and children wash it and add mercury to extract the gold. 

This small-scale mining is not nearly as predatory or visibly damaging as the Amazonian variant that threatens native plant and animal species and isolated Indian communities, yet it is nonetheless a lethal and legally invisible trade. The good news from Arequipa is that miners recently agreed to the “formalization” agreement, a dispute that theretofore had led them in March of this year to summarily suspend a blockade of the critical southern Pan-American Highway. This development alone will not make the work pretty or safe, but it does represent a giant step forward for those who want to see the industry regulated. 

Perhaps inevitably, given a growing global trend in such efforts, there have been recent attempts to create “green” gold mines that offer an alternative to the shadier conventional market. Founded in 1993, the “boutique” mining collective AURELSA, located in the poor Peruvian department of Ayacucho—where the still-hated Maoist Shining Path insurgency got its start in the 1970s and 1980s—is one of the most visible and successful examples of this niche effort that seeks to exploit the gold without the social costs to the miners and local communities and negative impact on the environment. For example, AURELSA miners rely on cyanide leaching as an alternative to conventional mercury processing. Cyanide can pollute if it is dumped into a water source, but when recycled it is much more benign. AURELSA boasts that the profits taken from responsible mining have resulted in the construction of three schools for 500 children. The cooperative plans to become “fair mine-certified” in the near future. Yet the overall alterative “green gold” remains a tiny fraction of the overall gold export market.³

 Before we denounce the evils of Peru’s illegal mining trade, it is worth remembering that mercury was used in large-scale mining projects in the United States and elsewhere until the 1960s, when awareness of its ill effects led to its disuse. Over a century and a half ago, California had its own gold rush that caused severe environmental destruction for decades, including the leaching of tens of thousands of metric tons of still unrecovered mercury. Pockets of it in the sands of the American River still bubble out from time to time and cause plenty of trouble. To be sure, California miners’ gratuitous use of mercury in the 19^th century should not give Peruvian ones a free pass to be irresponsible in the 21^st century. But a dose of historical context doesn’t hurt.

And like California back then, Peru has achieved unprecedented growth rates, largely fueled by the extractive sector. The decade-long economic expansion has moved millions of Peruvians out of abject poverty into a precarious lower middle-class. People who once worried about survival now have a semblance of purchasing power, and with that rising tide of expectations come hopes of economic security and dreams of better schools for their children. Without question, when compared to the bloodthirsty Shining Path insurgency and hyperinflation that ravaged Peru (especially its poor and most vulnerable) only two decades ago, the environmental and social costs of the gold boom do not seem so bad. But if Peruvian authorities do not act quickly, the gold boom might end before gold mining can become a sustainable part of the economy and environment. Most immediately, Madre de Dios is an unsightly mess that needs to be addressed effectively regardless of the future price of gold. This same extractives boom, however, is giving the Peruvian state the very income and authority it needs to do just that. 

¹Ricardo León, “La Reina de Oro en Madre de Dios”, Poder, February 2012. I thank Augusto Chian in Lima for his invaluable research assistance on this article.

²Quoted in “Director del Minem acepta que tiene sede en Huepetuhe”, El Comercio, March 30, 2012.

³See Stephen Sapienza, “Peru’s Gold Rush: Wealth and Woes”, project of the Pulitzer Center on Crisis Reporting.