Illegal mining in Peru is now a bigger industry than drug trafficking, according to Elmer Cuba, the associate director of local consultancy firm Macroconsult.
Illegal mining exports are estimated to have totaled at least US$1.79bn in 2011, while drug trafficking is believed to have accounted for US$1.21bn, Cuba said, adding: "And the figures for mining do not include Madre de Dios [region]."
All yellow metal output in Madre de Dios is thought to be illegal and the region accounted for 14% of Peru's production in 2011 or 728,000oz, which is a 35% jump compared to 2008.
Profits are thought to be at least US$1.00bn, which would mean the state is losing around US$300mn/y in tax income.
The key to resolving the problem of illegal mining is comparing gold production registered with the mines and energy ministry (MEM) and the exports registered with tax agency Sunat, Cubo said.
Approximately 1.14Moz gold was not registered with MEM last year, which accounts for 22% of total exports.
"The formalization will start by hitting their pockets and not with violence because we know who is exporting and therefore they can be found," Cuba said.
Illegal gold production has increased fivefold in the last six years and is estimated to provide 100,000 direct jobs in the country.
The eradication of illegal mining in Peru will take at least five years, according for former environment minister Antonio Brack.
"The process is highly complex and will be gradual," Brack said.
In addition to a special fund, MEM should set up an entity that can take charge of the issue, according to Brack.
"There are huge economic interests involved [as opposed to small subsistence operations] and that is where Sunat must intervene," he said.
Cuba and Brack were guest speakers at the 10th International Gold Symposium, held in Lima from May 14-16.