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 
 
¶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