sustain legitimacy, even in contexts of contested authority. This paper argues that illegal mining in Peru represents a case of legitimacy competition within extractive governance systems. By combining social acceptance, economic scale, and political influence, illegal mining creates a hybrid governance environment in which formal and informal systems overlap. This dynamic poses direct risks to responsible mineral supply chains, ESG credibility, regulatory stability, and territorial security. Understanding illegal mining as a legitimacy-based governance challenge allows for a shift in analytical perspective: from reactive enforcement toward institutional innovation. In the context of rising global mineral demand, the capacity of states and industry to restore trust, strengthen traceability, and reinforce regulatory authority will determine long-term supply integrity. 2. Context and Problem Statement Global demand for gold and critical minerals is accelerating due to the energy transition, digital infrastructure expansion, and financial market dynamics. As supply chains face increasing scrutiny under ESG standards, traceability, transparency, and regulatory stability have become essential pillars of responsible mineral delivery. However, in several producing countries, illegal mining has evolved into a structural governance challenge that directly affects the reliability and integrity of mineral supply. Peru, one of the world’s top gold producers, illustrates this systemic tension. Over the past two decades, illegal mining has expanded territorially, consolidated economic influence, and integrated into formal value chains. Financial intelligence data indicates that suspicious transactions linked to illegal mining accumulated more than USD 80 billion between 2014 and 2024. At the same time, up to 600,000 livelihoods are connected to small-scale and informal mining activities, generating high levels of regional economic dependence. The problem is no longer limited to environmental damage or isolated criminal operations. Illegal mining increasingly overlaps with formal concessions, pressures legislative processes, exploits quasi-formal registration systems, and blends into gold commercialization channels. More than 50% of informal activity operates within third-party concessions, creating territorial friction and operational uncertainty for formal operators. This situation produces five systemic risks for responsible mineral supply: 1. Traceability erosion due to blending of legal and illegal gold. 2. Regulatory volatility resulting from political pressure and temporary formalization mechanisms. 3. Territorial insecurity affecting concession stability. 4. Financial contamination risks within formal banking and export systems. 28
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