Gold mining loses its luster

SANTA ANA, El Salvador — Crime is on the rise and the economy is tumbling in this small city. But when Antonio Rodriguez cast his ballot for a new president last month, the key issue was where the candidates stood on gold mining.

Rodriguez, 26, said he protested the El Dorado mine, even though it is proposed for a town that's a three-hour drive from Santa Ana. “I have cousins there and they will be the ones harmed,” he said. “Mining is about the people and the land. If you allow mining, you’re choosing corporations over the people and that’s what has caused other problems in El Salvador.”

In the end, leftist candidate Mauricio Funes — who says he opposes mining based on the damage it allegedly causes — won the election. El Salvador’s government has yet to issue permits for the El Dorado mine, more than two years after it was first proposed. The mine’s owner, Vancouver-based Pacific Rim Mining Corp., does not expect to receive them any time soon.

Across Central America, gold mining has become a divisive political issue. Drawing on environmental concerns, including the use of cyanide, anti-mining activists — led by outspoken Catholic bishops — have prodded governments to rebuff the industry.

In Guatemala, where a bishop received death threats and two anti-mining activists were killed in 2005, President Alvaro Colom has called for a six-month moratorium on mining permits while the congress considers a new law. The proposed law would tax as much as 4 percent of mine profits, up from 1 percent currently.

Costa Rica’s top environmental advisor, meanwhile, suggested a six-month stay on new permits. And in Honduras, where the archbishop accused a mine of destroying the local ecosystem, the government is not issuing new permits while it considers a new tax structure for gold mining.

The political changes — coupled with ongoing protests — are causing mining companies to pull out of the area, observers say.

“Concerns with the costs of mining have led to political barriers being created that have effectively slowed down the boom in gold mining that mining companies saw so palpably in front of them just a few years ago,” said Thomas Power, a University of Montana professor and author of a recent Oxfam report on gold mining in Central America.

Five years ago, a report by Glencairn Gold Corp. called the region “a top destination for mining companies,” and an area where government policies “encourage mineral exploration and mining.”

At the same time that the region was becoming increasingly attractive to mining companies, the the price of gold on international markets exploded: The price surged from around $300 an ounce in 2000 to more than $900 an ounce this year.

Mining companies from Canada — home to many of the world’s largest mining firms — began investing heavily in the area. In 2002, they spent $41 million on Central American operations. By 2006, they were spending $1.6 billion, according to Natural Resources Canada, the federal environmental agency.

But spending fell as Latin American governments considered new laws. It dropped 32 percent from 2006 to 2007, according to the most recent data available from the Canadian government.

“We stopped all of our work last July and made it abundantly clear that we're not moving forward," said Barbara Henderson, senior vice president of investor relations for Pacific Rim, which has three mining sites in El Salvador. The laws and protests are “undoubtedly a major deterrent to future investment in the region.”

Through its Nevada-based subsidiary, Pacific Rim plans to sue El Salvador under the Central America Free Trade Agreement to recoup some of the $75 million it has invested in the El Dorado project.

“They say there are environmental concerns. But that’s a red herring,” Henderson said. “In reality, this would be one of the most environmentally benign and environmentally mitigated mines in the region.”

The impact on the environment — particularly the use of cyanide — is a central theme for mining critics.

Gold is rarely found in the thick underground veins that long ago drew prospectors to explore caverns with pickaxes. In modern mining, huge tracts of earth are dug up and crushed in search of tiny specs of gold scattered throughout the crushed rock. Sodium cyanide is then sprayed over crushed ore, dissolving gold and carrying it to a basin, where it is collected and formed into bullion.

Opponents say the use of cyanide contaminates water supplies, kills wildlife and livestock and can lead to health problems for area residents. Cyanide breaks down when exposed to sun and oxygen, but critics of the process say it leaves behind harmful heavy metals.

In the U.S., the Environmental Protection Agency estimates metal mines were responsible for 27 percent of all toxic waste released in 2007. Environmental concerns prompted the state of Montana to ban cyanide gold mining.

But some developing countries see the industry as a source of foreign investment that will create jobs and pad tax rolls.

Twelve years ago, Guatemala adopted a new law designed to attract mining exploration. In 2005, the Marlin Mine opened in a rural area deep in Guatemala’s Western Highlands with the help of a $45 million loan from the World Bank. It was one of the largest direct foreign investments in the nation’s history. In 2008, the mine milled 1.8 billion tons of ore and recovered 241,400 ounces of gold.

The mine’s owner, Vancouver-based Goldcorp Inc., says it has created thousands of jobs, paid millions in taxes, and planted thousands of trees. Last year, it launched an advertisement blitz that boasts of its accomplishments on billboards throughout the country.

The advertising campaign was meant to offset waning support for mining in Guatemala.

Late last month, Catholic Bishop Alvaro Ramazzini led a demonstration against the mine, one of several he’s organized in recent years, at times to his own peril. According to the Guatemala Human Rights Commission, the bishop and members of his diocese have received numerous threats for his anti-mining position.

Last year, two men reportedly confronted a diocesan nun, pressed a gun to her side and gave her a message: “Tell that good-for-nothing bishop … his days are numbered and that he should stop getting involved in things that are none of his business," according to reports in the Guatemalan press.

He’s continued calling for a change in policy. “A moratorium would be the most sensible thing, given all the conflict mining generates,” Ramazzini said after the February demonstration.

A moratorium might not be needed.

“At this point, I think it would be very hard, nearly impossible, for a new mine to open in the Western Highlands,” said Magali Rey Rosa, an environmentalist and columnist who writes about mining for Guatemala’s largest daily newspaper. “Around the region, something very interesting is happening. The people are leading the fight against gold mining and it’s working.”

More Dispatches on Latin American economies and industry:

Throwing BRICs

Brazil's (unofficial) economic forecast

A new sort of offshoring