Peru is starting to build a system of tunnels this week to drain a soggy hillside that engineers fear could collapse and pour thousands of tonnes of toxic mine tailings into Lima's main source of drinking water.

The tailing ponds, built on a hill called Tamboraque, contain about 744,000 metric tonnes of waste from the Coricancha gold mine, owned by Gold Hawk Resources (CGK.V: Quote) of Canada, a tiny metals company.

The ponds overlook the Rimac River, which runs into the Pacific Ocean, and sit 55 miles (90 km) east of Lima, the capital, where about 7 million people live.

This is part of a series of actions being taken to prevent an emergency in the area, Peru's mining ministry said.

All of the hill is unstable, which could cause a slide that would reach the Rimac River, said Ivan La Negra, who works on environmental issues at Peru's ombudsmen's office.

The tailings ponds existed for years, but recently farmers in the area started irrigating their crops.

The government issued an emergency decree in July that helped stop farmers from irrigating crops on the hills above the tailing site over concern the water could put pressure on the walls of the ponds, which contain toxic chemicals such as arsenic.

Gold Hawk had stopped production at the processing plant for the Coricancha mine in May over worries about the stability of old tailings ponds.

This month, Gold Hawk said it obtained the final permit needed to open a new tailings pond in a safe location 18 miles (30 km) away from the plant.

(Reporting by Teresa Cespedes and Terry Wade; Editing by Walter Bagley)

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