Monday, April 6, 2009

A new environment towards mining

Just five years ago, the Glencairn Gold Corp. said Central America was “a top destination for mining companies” where the political situation “encourage[s] mineral exploration and mining.” Yesterday, the Global Post published this article on the changing prospects for mining companies in the region, largely due to strong anti-mining campaigns.

The Catholic Church has been vocal in the anti-mining protests that seem to be impacting the government’s stance toward mining. In Guatemala, two mining activists were murdered and a bishop received a death threat, which may have prompted the government to halt the distribution of mining permits. During this six month moratorium, the Guatemalan government will consider a new law that which would require mining companies to give 4% of the profits to the government, an increase from the current requirement of 1%.

The environmental advisor in Costa Rica similarly proposed to halt giving new mining permits, and Honduras has stopped issuing new permits while it devises a new tax structure for mining.

The changes in policy and strong opposition from the people are driving mining companies out of the area. In 2002, Canada spent $41 million on Central American mining operation, and in 2006 spent $1.6 billion. However, between 2006-2007, spending dropped 32%, reflecting the new attitude toward the region.

In El Salvador, where for a few years the Canadian company Pacific Rim has been exploring for gold, the government has officially denied them an extraction permit. While the company can now legally arbitrate under CAFTA for the rights, it is refraining to do so until the economic situation improves.

One of the biggest concerns against mining is the use of cyanide to extract the metal from the surrounding ore. Many fear that the cyanide will contaminate the water, affecting the residents and killing water animals and livestock. A recent cyanide spill at a mine in Honduras actualized these concerns.

Despite the advantage of bringing foreign investment and jobs, it seems the mining industry will be facing a lot of obstacles due to the strong resistance of the people. Indeed, Pacific Rim said that the laws and anti mining atmosphere are “undoubtedly a major deterrent to future investment in the region.”

A Guatemalan environmentalist and journalist commented on the situation: “Around the region, something very interesting is happening. The people are leading the fight against gold mining and its working.”

- Leslie O’Bray, SHARE Grassroots Education and Advocacy Intern

*Picture taken from the Global Post


Anonymous said...

"While the company can now legally arbitrate under CAFTA for the rights, it is refraining to do so until the economic situation improves."

I'm confused about what you're trying to say here. Could you explain more about why they are refraining to arbitrate under CAFTA rights in your opinion?

The SHARE Foundation said...

Here’s an overview of the situation between Pacific Rim and the government of El Salvador, and why Pacific Rim hasn’t begun arbitration yet:

The Salvadoran government gave Pacific Rim exploration rights over El Dorado, allowing Pacific Rim to survey the land but not allowing them to begin extracting any minerals. Having found significant deposits, Pacific Rim asked the government for extraction rights, which the government denied due to strong civil resistance.

On December 9, 2008, Pacific Rim filed a Notice of Intent (NOI) to arbitrate against the Salvadoran government under CAFTA-DR. Pacific Rim argues that as a foreign investor under the free trade agreement, the government is required to give them extraction rights. Pacific Rim and the Salvadoran government have 3 months from the date of the NOI to solve the dispute amicably before going before judges.

During his presidency, Saca said he would not grant extraction rights until he knew what the full environmental implications would be. Recently, he unambiguously stated that he would not grant an extraction permit to Pacific Rim, saying he would rather pay the CAFTA arbitration suit than grant the permit. Further, he said that giving exploration rights does not mandate the government to give an extraction permit.

Pacific Rim has budgeted several million dollars for arbitration proceedings, and seeks compensation for:
-The money Pacific Rim has spent in El Salvador
-The loss of potential profits
-Costs associated with the arbitration proceedings
-Pre and post award interest on all claims.

The three month period for an amicable resolution ended on March 9, 2009, meaning Pacific Rim now has the ability to commence arbitration proceedings. In a press release in February, Pacific Rim said it would freeze spending on its feasibility study in El Dorado until the markets stabilize. The economic climate has made prices artificially low for capital and labor. CEO Tom Shrake said, “We see no need to spend precious capital to complete a study with an already invalid cost basis. We will wait for clarity on the timing of our permit and stabilization of the prices for capital and operating inputs.” Additionally, Pacific Rim’s quarterly fiscal reports reveal that it has been operating at a loss according, so its financial situation is not conducive to a multimillion dollar suit.

- Leslie O'Bray, SHARE Grassroots Education and Advocacy Intern

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