Pacific Rim Mining seeks justice in day two of arbitration proceedings

Pacific Rim Mining (PMU-T, PMU-X) wants its money back: All $77 million of it.

The Vancouver-based mining company is embroiled in a dispute with the government of El Salvador over the country’s failure to approve its Environmental Impact Study and issue mining permits for itsflagship El Dorado gold project. Pacific Rim Mining submitted its final EIS in October 2006.

In April 2009 Pacific Rim Mining filed international arbitration proceedings against the government under the Central America Free Trade Agreement (CAFTA), arguing that El Salvador had failed to fulfill its obligations and breached international and Salvadoran law.

“This conduct by the Government has resulted in significant loss to Pac Rim, the Enterprises, and the local communities, and has unnecessarily delayed normal development of these valuable deposits,” the company states on its website.

Arbitration proceedings entered their second day today at the International Centre for the Settlement of Investment Disputes (ICSID), an affiliate of the World Bank in Washington, D.C.

Pacific Rim argues that roughly US$77 million has been invested in the El Dorado project since 1993 by Pacific Rim and its predecessor companies. Before it acquired Dayton Mining and the project in 2002, the gold project was explored by Mirage Resources and its affiliates from 1993 and 2002.

The government of El Salvador has filed a preliminary objection to the arbitration proceedings and a decision is expected in August or September.

The case has angered groups on both sides of the debate. Alexis Stoumbelis, executive director of the Committee in Solidarity with the People of El Salvador, or CISPES, argues that companies like Pacific Rim Mining are using CAFTA and the threat of lawsuits against poor countries to pressure governments to do things their way.

“These kinds of lawsuits are used as a bargaining chip,” she claims. “These companies think, ‘hey, if we run into challenges with the Ministry of the Environment and Natural Resources, if our permits get denied or revoked, we’ll go through the backdoor of this trade agreement and see if we can pressure the government to give us the permits.'”

Stoumbelis adds that in the case of El Salvador, if it enforces its own laws it now “runs the risk of getting multimillion dollar lawsuits against it.”

She also maintains that in a country the size of the U.S. state of Massachusetts, mine sites are “literally in people’s backyards” and opposition to them is mounting. She also cites the murders of three activists over the last year who had organized against Pacific Rim Mining’s projects. “One of the prominent leaders organizing against El Dorado was murdered; he disappeared, was tortured, and his body was found in the bottom of a well on June 30 and there has been no one sentenced in his case.”

Thomas Shrake, Pacific Rim Mining’s president and chief executive, dismisses Stoumbelis’s arguments one by one. “These accusations are completely unfounded,” he says in a telephone interview from Washington at the close of the day’s hearings. “The real tragedy in all of this is that it’s gotten to the point — and I’m not damning all NGOs, they do play a part in checks and balances for industry — but when NGOs get to the point where they’re fabricating information and out and out lying about the technical facts – these murders are a good example – and nobody challenges them.”

Shrake noted that NGOs are using the environment as a tool to oppose foreign investment and foreign development. “If these were environmentalists, would they come onto our property armed and chase us off, and when we are gone hack down all of the trees we planted as reforestation? That doesn’t sound like environmentalists to me.”

He argues that NGOs have been successful in creating an image that a huge emotional debate exists in El Salvador over mining. In fact, he says, there is little if no debate at all. “As an issue in El Salvador, mining is hardly on the radar screen,” he asserts. “They don’t even know that it exists. The image that this country is in turmoil over mining is a PR manoeuvre.”

According to a poll Pacific Rim Mining conducted in August 2008, just 25% of the entire population opposed mining, he added.

Shrake also pointed out that opposition to extractive industries is simply ideological and those who oppose mining prefer to create an agrarian economy. “But if you really look at that argument, there is not enough tillable land to support the population base on an agro-economy,” he says. “The first thing you’d have to do is get rid of two thirds of the people.”

Finally, Shrake rejects arguments that the water used in mining operations would pollute the Lempa River — El Salvador’s largest and most important waterway and the source of San Salvador’s drinking water. “We took that issue to the drawing board five years ago and designed a mine that used absolutely no production wells or acquifers for its water needs,” Shrake explains.

Instead the mine plan envisions using the tailings pond as a reservoir to collect water in the six-month-long rainy season and use that, including recycled water, during the dry season. The mine plan also calls for a tailings pond that is double lined with a clay and synthetic liner and a water treatment plant to treat all water that is discharged.

As for the arbitration proceedings, Shrake describes the El Salvador government’s attempt to file a preliminary objection to the case “frivolous” and without merit.

The advanced stage exploration project in San Isidro, Cabanas, is about 65 km east of the capital of San Salvador. The project spans a 144-sq-km area and hosts a 12 km by 4 km low-sulfidation epithermal gold system.

Pacific Rim has completed several resource estimates as the project has evolved and new deposits discovered. The most recent resource estimate was completed in December 2008 and demonstrated a total measured and indicated resource of 4.28 million tonnes grading 9.42 grams gold per tonne for contained gold of 1.3 million oz. and 68.96 grams silver per tonne for 9.48 million oz. silver.

In addition El Dorado contains an inferred resource of 839,300 tonnes grading 9.45 grams gold for 255,000 oz. of contained gold and 70.89 grams silver for 1.9 million tonnes silver.

The resource was based on a gold-equivalent cut-off grade of 4 grams gold-equivalent per tonne. (Gold equivalents were based on a silver- to-gold ratio of 70:1).

In February 2009, the company deferred completing a feasibility study due to the unpredictability of capital costs, wildly unpredictable commodity prices and the economic downturn. (It had completed an earlier feasibility study in January 2005 based on the Minita deposit, only one of the project’s six deposits.)

Pacific Rim applied to the Ministry of the Environment and Natural Resources (MARN) for exploitation permits for its El Dorado gold mining project in 2005 and 2006 but was refused permits “due to severe deficiencies in the Environmental Impact Assessment (EIA) and failure to complete a Feasibility Study,” CISPES states. “In a 2005 technical review, independent hydro-geologist Dr. Robert Moran concluded that Pacific Rim’s EIA ‘would be unacceptable to regulatory agencies in most developed countries.”

Pacific Rim sees it differently. It submitted its first EIS to MARN in September 2004 for a 750-tonne per day operation from the Minita deposit alone. In September 2005, the finalized EIS, incorporating initial comments from MARN was resubmitted. At that point MARN allegedly conveyed its technical approval of the EIS, and instructed Pacific Rim to submit the EIS for public comment, which it did in October 2005.

In March 2006 the company then received a list of issues from MARN that had been raised during the public comment period and was asked to amend its EIS to address them.

An amended EIS was then submitted to MARN in October 2006, “which included the requested clarification on a number of items,” the co
mpany explains on its website. MARN has yet to approve it.