Identifier
Created
Classification
Origin
07SANSALVADOR2440
2007-12-26 16:17:00
UNCLASSIFIED
Embassy San Salvador
Cable title:  

MINING FIRMS PROTEST PERMIT DELAYS

Tags:  ECON EMIN SENV EINV ES 
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VZCZCXYZ0016
PP RUEHWEB

DE RUEHSN #2440/01 3601617
ZNR UUUUU ZZH
P 261617Z DEC 07
FM AMEMBASSY SAN SALVADOR
TO RUEHC/SECSTATE WASHDC PRIORITY 8759
INFO RUEHZA/WHA CENTRAL AMERICAN COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
UNCLAS SAN SALVADOR 002440 

SIPDIS

SIPDIS

E.O. 12958: N/A
TAGS: ECON EMIN SENV EINV ES

SUBJECT: MINING FIRMS PROTEST PERMIT DELAYS

UNCLAS SAN SALVADOR 002440

SIPDIS

SIPDIS

E.O. 12958: N/A
TAGS: ECON EMIN SENV EINV ES

SUBJECT: MINING FIRMS PROTEST PERMIT DELAYS


1. SUMMARY: U.S. and Canadian mining companies have protested the
delays in approving their environmental permits for gold mining
projects in northern El Salvador. The GOES has indefinitely
postponed the issuance of new mining permits while it conducts a
study of the environmental impact and economic benefits of the
mining sector in El Salvador. Several environmental groups have
vocally opposed these projects due to potential groundwater
pollution and environmental damage. Funding constraints and
political controversy are likely to delay the completion of the
study and issuance of new mining permits until after the 2009
elections. END SUMMARY.


2. The Ministry of Environment and Natural Resources (MARN) and the
Ministry of Economy (MINEC) are preparing to conduct a nation-wide
study of the potential benefits and environmental impact of mining
before approving any individual environmental permit requests. MARN
Executive Director Oscar Diaz told Econoff the ministries were
finalizing terms of reference and hope to begin the study during the
first trimester of 2008. He suggested the study may yield
preliminary results by mid-2008. (Comment: This timetable appears
optimistic given the GOES' lack of expertise and funding for the
study. The GOES may also prefer to defer politically controversial
review of mining policy and approval of mining permits until after
the 2009 elections. End Comment.) As of late 2006, there were 36
active concessions for mineral exploration in El Salvador but no
active exploitation permits.

MINING FIRMS PRESSURE FOR PERMITS
--------------


3. U.S. and Canadian mining companies are pressuring the GOES to
approve environmental permits and exploitation agreements for gold
mining concessions in northern and eastern El Salvador. A Canadian
mining company, Pacific Rim Mining Corporation, has grown
increasingly frustrated by MARN's failure to approve an
environmental permit for its "flagship" El Dorado gold mining
project. Pacific Rim has invested $30 million in exploration and
plans to invest an additional $100 million during the initial phase
of the El Dorado project. It estimates that the El Dorado mine will
generate 400-600 jobs during construction and 250-270 jobs during

operations, all but 5 of which will be done by locals. Pacific Rim
has estimated that there is a total potential of 9-15+ million
ounces of recoverable gold in El Salvador, with an estimated in situ
value of $5.4-$9-billion, at a price of $600/ounce.


4. Pacific Rim completed an Environmental Impact Study for the El
Dorado project in September 2004. It was approved by MARN in August
2005 and submitted for public comment in October 2005. In a
parallel process, the company applied in December 2004 for
conversion of its exploration permit to an exploitation licese.
Pacific Rim's website indicates an anticipate production decision
was expected by late 2006, contingent upon approval of its
environmental permit and exploitation concession. After two years
with little apparent progress on its environmental permit request,
Pacific Rim has raised the possibility of filing an investment
dispute against the GOES.


5. Pacific Rim has consulted with political parties, church leaders
and local population adjacent to its mining permit in order to allay
environmental concerns and enlist support for its project. Embassy
officials have met several times with Pacific Rim officials and have
followed up with the MARN, expressing the company's concerns.
Pacific Rim argues that the El Dorado project would exploit an
underground deposit of low-sulfide deposits with lower environmental
risks than open-pit mining of high-sulfide deposits. The company
has emphasized its commitment to environmentally responsible mining
and has sponsored trips to Chilean gold mines to show legislators
how similar mines operate.


6. A U.S. mining firm, Commerce Group, has filed a lawsuit against
MARN with the Salvadoran Supreme Court after MARN revoked its
environmental permit for the San Sebastian gold mine in eastern El
Salvador. Commerce Group held the most recent exploitation license,
which had been approved in 2002, and re-approved in January 2006.
In September 2006, MARN revoked Commerce Group's environmental
permit, automatically revoking its exploitation license before it
was able to start mining.

NGOS CONTINUE VOCAL OPPOSITION
--------------


7. Local and international environmental groups have vocally opposed
mining projects in El Salvador with some calling for a ban on all
mining projects. They argue that the gold mining process carries
high risks of contaminating ground water with cyanide and sulfuric
acid. Several NGOs, including Share, Caritas, Oxfam and UNES, have
helped to organize local demonstrations against mining operations
including a December 11 march to call for a moratorium on mining as
legislators were holding a mining forum.


8. One environmental group, Asociacisn de Desarrollo Econsmico
Social, Santa Marta (ADES),commissioned a technical review of
Pacific Rim's environmental impact study that criticized technical
weaknesses in the study and lack of transparency in the public
review process. It faulted the study for failure to include
baseline water quality data and estimate water use costs. ADES also
cited the GOES failure to include independent data sources in
addition to studies contracted by the mining company.


9. Environmental groups have continued to criticize a road project
funded by the Millenium Challenge Corporation (MCC) which they say
will facilitate mining projects. The Share Foundation organized a
letter writing campaign to get U.S. Congressional support to stop
mining, emphasizing that the industry's practices are counter to the
sustainable development goals of the MCC. At post and in
Washington, the MCC has met with various NGOs to assure them that
there is no connection between the MCC Compact in El Salvador and
mining in the country.


10. In the legislative assembly, the controversy has generally
pitted pro-government legislators open to potential benefits of
mining against opposition parties allied with environmental groups.
During a mining forum sponsored by the Assembly on December 11,
members of the pro-government ARENA, PCN and PDC parties encouraged
open discussion of the potential costs and benefits of mining, while
some opposition FMLN legislators called for a ban on mining. Two
proposals in the legislative assembly would substantially increase
royalty payments by mining firms, including one proposal by the
pro-government PCN party to increase mining royalties from 2 to 50%.
Pacific Rim has enlisted two influential advisors, former Foreign
Minister Fidel Chavez Mena and Francisco Escobar Thompson
(brother-in-law of Vice President Ana Vilma de Escobar) but has had
less success enlisting public support from the opposition.

COMMENT
--------------


11. Having staked its reputation and company value on its
"flagship" El Dorado project, Pacific Rim is understandably
impatient to move forward with this project. The GOES has an
interest in conducting independent analysis of the mining sector to
minimize environmental risks but also needs to maintain clear and
consistent rules for investors. In addition to the delays in
conducting a mining study, proposals to revise the mining law could
further postpone new exploitation and may affect royalty rates for
mining projects. Political controversy appears likely to delay
completion of the mining study and issuance of new permits until
after the 2009 elections.

GLAZER