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LIMA (Reuters) - Canada-based Hudbay Minerals has begun building its $1.5 billion Constancia copper mine in southern Peru after keeping a low profile to win crucial support from local communities, company President David Garofalo said.
The groundbreaking ceremony on Wednesday, in which Garofalo participated along with local leaders, came a week after Peru shelved Newmont Mining Corp's $5 billion gold mine in the northern Cajamarca region due to intractable opposition.
"We stayed focused on the people that are affected and tried not to create too much of a profile for us across Peru," Garofalo told reporters late on Wednesday. "Because outsiders and interlopers get involved and they can disrupt our engagement with communities."
Opponents of mining projects like Newmont's say they want to protect important local water resources and prevent pollution, but mining advocates say local concerns have been hijacked by politically ambitious ideologues who polarize negotiations.
Production at Constancia is slated to start in 2014, with full production seen by the second quarter of 2015. Hudbay plans to roughly triple the size of its copper output over the next four years to 125,000 metric tons (137789 tons) a year, largely on the back of production from Constancia.
Peru faces more than 200 pending social conflicts, many related to mining projects, and President Ollanta Humala has replaced two prime ministers during his one-year administration after protests against mining turned violent.
"Even as issues were flaring up in Cajamarca, we got our beneficiation concession," he said, referring to a construction permit granted in June. "The regulatory process in Peru still works."
In July, five people died in demonstrations against Newmont's proposed mine in Cajamarca, and in May two were killed in clashes with police in the southern province of Espinar, some 70 kilometers (43 miles) from Hudbay's Constancia project.
Garofalo said this neighboring protest movement at Xstrata's copper mine, Tintaya, has left Hudbay's development "largely untouched."
"We've had - knock on wood - harmonious relationships."
Hudbay agreed to labor guarantees and has already employed 1,000 locals from the 2,500 who live in the two nearby communities in the district of Chumbivilcas, Garofalo said.
The company is also paying for the relocation of 36 families that live within the 22,500 hectare concession to new homes, and has agreed to invest in roads, sewage systems, schools and health clinics.
Silver Wheaton Corp will fund $750 million of the Constancia project in Peru in exchange for a share of the precious metals produced there and at another Hudbay mine.
Hudbay announced a second-quarter loss earlier this month, due to an impairment charge and decreased sales.
Garofalo said Hudbay hopes Constancia will replicate the successes of its mining complex in the Canadian province of Manitoba. Hudbay's Lalor mine in Manitoba pulled up its first ore two weeks ago, and the nearby Reed project will begin production next year.
He said Hudbay will probably focus future investments in coming years in Canada and Peru.
"Ninety-nine percent of mining goes on quietly and unfettered in Peru," he said.
Editing by Hilary Burke and Kenneth Barry