Pacific Rim Does Battle In El Salvador

With its patience wearing thin, Pacific Rim Mining (PMU-T, PMU-X) is preparing to play hardball with the government of El Salvador.

By filing a “notice of intent,” the company has taken the first step towards bringing the government to international court. There, Pacific Rim will argue that the Salvadorian government has violated the Central America-Dominican Republic- United States Free Trade Agreement (CAFTA-DR) with regards to its handling of Pacific Rim’s El Dorado gold and silver property.

El Dorado sits roughly 65 km from San Salvador and has 3.7 million tonnes of ore grading 9.35 grams gold per tonne and 62.24 grams silver for 1.22 million gold-equivalent oz. in the measured and indicated category.

But even though the decent deposit sits in a poor region desperate for development, progress at the site has been halted by the government’s unwillingness to issue the necessary permits.

That resistance, Pacific Rim’s president and chief executive Tom Shrake says, is coming from the top and it could well be costing the country the chance to diversify its economy to include gold mining.

Shrake says there is congressional support for the mining industry as a whole and Pacific Rim specifically, but such support stops with Salvadorian President Elias Antonio Saca.

While Saca is the head of the right-leaning and ostensibly probusiness ARENA party, he has effectively killed the mining industry in the country by not issuing any permits to miners for the last two years.

Shrake can only speculate as to Saca’s reasons, but a looming March presidential election may well be the cause.

Fearful of losing to the left-leaning FMLN party — which is currently ahead in the polls — Saca may be trying to appear less friendly to foreign investors in a country that has long been wary of American business interests.

Such suspicious tendencies have been stoked by some groups in the country in an effort to raise animosity towards miners like Pacific Rim.

The company says it has heard radio broadcasts accusing it of injecting cyanide into the ground with its exploration drill rigs, extracting gold with those same rigs, and even removing uranium with the intention of creating a nuclear bomb.

In rural El Salvador, where much of the population is uneducated, such assertions can find receptive ears despite Pacific Rim’s best efforts to run a transparent operation and to actively educate people in the community.

The company’s educational efforts have yielded some positive results — Shrake says support in the communities around El Dorado is extremely strong and growing — but it hasn’t been enough to quell an opposition that at times has grown violent.

According to Shrake, a non-governmental organization in the region, ADES, has been at the centre of hostility directed toward the company. Pamphlets that call for the death of Canadian miners (Pacific Rim has its head office in Vancouver) and demonstrations against the company that brought masked gunmen to the project who hacked down trees the company had planted, all lead back to ADES, Shrake says.

Furthermore, he says, ADES receives some of its financing from Oxfam America. At presstime, Oxfam had not confirmed or denied this claim.

Andres McKinley, program officer for extractive industries in the region for Oxfam America says his organization is non-violent and doesn’t condone the use of any type of physical confrontation.

“We are not the enemy of Pacific Rim and we’re not trying to battle it,” McKinley says. “We have legitimate and sincere concerns about the environmental well-being of El Salvador from here and into the future.”

McKinley says that El Salvador’s “fragile” environmental status — he says only Haiti has seen more environmental degradation in the Western Hemisphere — means that any mining in the country should be out of the question.

Specifically, McKinley points to the scarcity of water and the protection of the Lempa River — El Salvador’s largest and most important in terms of providing hydro electric power and potable water — as key reasons to oppose mining in the country.

Shrake lets out a frustrated laugh when confronted with the idea that a mine at El Dorado would further jeopardize El Salvador’s environment.

Pacific Rim has designed a mine plan that would collect rain water and recycle water used in the extraction process, freeing it from the need to drill any wells or draw from any rivers.

Furthermore, the company’s plans call for a tailings pond to be built with a double clay barrier and a synthetic lining placed over top of it — far exceeding accepted environmental standards.

What is more, the high-grade gold and silver veins at El Dorado would be mined underground, thus nullifying any of the arguments that arise from opposition to open-pit mining.

As for concerns with deforestation, the mine would not require any forest to be cut and the company has planted some 60,000 trees as part of its reforestation plan.

“If you can’t build this mine, you can’t build any mine,” Shrake says. “The reality is Oxfam uses the environmental argument but is really politically opposed to development of any kind.”

McKinley says Oxfam favours a return to an agrarian-based economy in the region and pointed to Costa Rica — a country that has recently begun to re-open its economy to mining — as a good example for its development of ecotourism, cattle ranching and fishing.

With NGOs and the industry entrenched in contrary positions, the best chance either has at achieving its aims lies in winning the support of the public.

Unsurprisingly, both sides claim to have the upper hand in this department.

Pacific Rim says it enjoys broad public support for the project and that a recent survey commissioned by the company found only 25% of the population to be opposed to mining.

“I don’t know where Pacific Rim got those numbers from,” McKinley says of the company’s findings.

Shrake says two polls were conducted for Pacific Rim by third parties — one of them the same pollster used by the president’s office –with both finding similar results.

McKinley counters with a recent public opinion poll conducted by UCA — a Jesuit University in the country — that found 80% of people in mining areas to be opposed to mining.

“They are lying,” Shrake says of the contention that four fifths of the population in mining regions are against the industry. “That’s just nonsense.”

With the two sides so far apart, reconciliation seems a dim prospect at best. Still, Shrake says he has met with McKinley with “open arms” hoping to find common ground, and McKinley says Oxfam is not as vehemently opposed to mining as is often portrayed.

“We do believe mining is a necessary industry, we realize that we need metals to live in this civilization, and we think it could contribute to sustainable development under certain conditions — but we don’t think those conditions exist in El Salvador,”McKinley says.

Such words fall flat with Shrake, however.

“The first thing Oxfam America will tell you is that they’re not against mining,” Shrake says. “But the fact is they can’t point to a single mining project in Latin America that they’ve ever been in support of.”

Pacific Rim says it has invested US$77 million in the project and will be looking to be reimbursed that sum, plus “hundreds of millions” in damages through its court action.

With the notice of intent to file delivered to the government, actual legal proceedings are expected to get under way in early March. It will be a long and expensive process that Shrake estimates could take three years and US$3 million before a verdict is reached.

That process, however, could be avoided if the government relents and issues the long-delayed permits. And that scenario may not be as unlikely as would first appear.

There is a rumour circulating that the government’s inaction on the permits was an intentional
act aimed at driving down the stocks of miners active in the country. Once at lower prices, the theory goes, officials in the know would buy them and wait for future positive announcements to come from the capital.

Recent high trading volumes could be seen as lending some support to the idea.

But Shrake isn’t taking any chances and says the legal proceedings are insurance for Pacific Rim shareholders so that even in a worst-case scenario, the company will come out of it with something.

As for whether or not it has any chance of defeating a sovereign country over the development of a project within its own borders, Pacific Rim points to the case of Metalclad, a California-based company that sued the government of Mexico.

Metalclad won roughly US$16 million in court, arguing that the country had violated the North American Free Trade Agreement by not allowing it to build a hazardous waste plant in Mexico.

In Toronto at presstime, Pacific Rim shares traded at 18¢. The company, which has traded as high as $1.24 in the last year, hit a 12-month low of 9¢ on Dec. 8.