Second gold-mining arbitration

Although most of the attention has been on the Canadian gold mining company Pacific Rim and its international arbitration suit against the government of El Salvador, there is a second US gold mining venture which has also commenced an arbitration. The Commerce Group and San Sebastian Gold Mines filed a notice to demand arbitration under the DR-CAFTA trade agreement. The companies, which are both headquartered in Milwaukee, Wisconsin, assert that El Salvador has a de facto ban on the operation of gold mines in El Salvador by foreign companies and that this has deprived Commerce and San Sebastien of their investment interests from operation and exploration of gold mines in the country. They claim damages exceeding $100 million.

On July 2, 2009, the companies commenced their arbitration against El Salvador. In announcing the commencement of arbitration, the Commerce Group's 8-K filing states:
The Company contends that the government of El Salvador has frustrated its efforts to develop its mining interests in the country of El Salvador in violation of CAFTA-DR. On September 13, 2006, the government of El Salvador, without justification or any forewarning, revoked the Company's permits which it had issued for the San Sebastian Gold Mine exploitation concession and the San Cristobal Mill and Plant, effectively terminating the Company's right to mine and process gold and silver. On October 28, 2008, the government of El Salvador denied the Company's application to extend its exploration permits in connection with the New San Sebastian Exploration License and the Nueva Esparta License.

The risk for the government of El Salvador in these cases, is that it does not appear to have followed its own set of rules. Rather than going through the steps of evaluating environmental impact statements and then issuing a decision about the environmental impact which denies a mining permit, both Pacific Rim and Commerce allege that licenses were simply revoked or not granted without explanation. That's a mistake by the government. An international arbitration panel is not going to second-guess El Salvador's evaluation of the environmental evidence, even if that evaluation seems flimsy. However, the arbitrators can understand and rule against a government which does not go through the motions and issue an explanation for its actions. In other words, a wrong decision is more defensible than no decision at all.


humble_pie said…
in his final paragraph, Tim has turned the focus onto a significant issue, which is that El Salvador "should" have replied to Pacific Rim's application for an exploitation concesson within the appropriate delay.

true. But you know what? All over the planet the issue of mining-or-not is in an uproar fiercer and more furious than the uproar over shariah law. Countries like Kyrgyzstan and Turkey are shutting down modern, fully-permitted mines for no reason. Countries like Mongolia are signing full-blown operating agreements for new mines, then cancelling them frivolously with the next election. Countries are denying mining permits for nothing more than the rote reasons that can be downloaded from each and every oppose-mining website. I know a mining company that recently sent an advance team to a west African nation to look at a coal property. As soon as they arrived, the geologists learned that the rebel army was talking about cancelling the recently-enacted laws that guaranteed 20-year stabilization agreements for foreign miners. This was a prudent miner intending to avoid trouble, so bang, that did it. The team left on the next plane.

in short, there is now severely elevated sovereign risk for miners in many countries on the planet. Unlike Pacific Rim, the majority of mining companies have learned to either deal intelligently with such grossly elevated sovereign risk or else locate themselves in what are now known as mining-friendly jurisdictions.

so there's a schoolmarmish air to the critics who say Oh Dear, Tch, Tch, San Salvador Bad, they never RSVP'ed nicely to the miner's cute little application. There's a hint of priggishness, today, to such criticism. Mining, especially today, is not a tea party.

at the same time, even those who want Pacific Rim to leave el Salvador can see that reparations are necessary. Take the mere matter of the land purchases, as just one small example among the company's grievances. The miner bought land in several municipalities in Cabanas and should be appropriately compensated if it does not receive the coveted mine license.

in the case of Commerce Group, any balanced article - and Tim's blog above all others is well-balanced - any balanced article about this US miner should also discuss the lawsuits against Commerce Group for widespread contamination caused by decades of untreated toxic waste dumping in the san Sebastian river. These lawsuits, brought by Salvadoran communities in la Unión, have been making their way up the ES legal system for several years. To date, no el Salvador court will allow operation of the substandard Commerce facilities to resume.

the Commerce mine and mill were shut down by ES because large components were more than 50 years old and in severe states of disrepair. In short, they were dilapidated, leaking, and possibly dangerous for personnel to work in. On its own website, Commerce discusses its need to repair its broken-down el Salvador mine structures. Commerce explains that it cannot repair these until it can raise the capital to pay for repairs; and it cannot raise the capital until it shows some profit from operations; and it cannot show such profit until operations resume. This is a classic catch-22; but it is certainly not the responsibility of the GOES to solve Commerce's problem.

finally, it appears that Commerce Group tore a me-too copy-cat page from Pacific Rim when it launched its own petition under CAFTA. It's worth noting that the sole Commerce lawyer is the son of the owner. To the best of anyone's knowledge, this attorney is not a specialized or experienced international trade litigator. There are, in fact, very few of these practising anywhere in the world. Pacific Rim, to its credit, has hired a team of such counsel. Trade agreement litigation is complex, long-drawn-out and treacherously difficult. How likely is it that a do-it-yourself CAFTA petition from Commerce Group, set in the context of damage to the Salvadorean environment that it has caused over many decades, can succeed.
billmart said…
Well these are precisely the results of the famous Free Trade Agreements! ... every one thinks that FTA means freedom to step on somebody else's sovereignty in disregard of the damage to the local population, environment, legal system, culture, tradition, and way of life in general. El Salvador is by far the least indicated country in the world where mining projects should be allowed, it's size, it's topography, it's fragile environment, it's almost depleted flora and fauna by years of negligence and more than a decade of civil war has exhausted its limits. Enough is enough! ... leave us alone! ... mining companies are like vultures in the African plains running after every carcass left by the mayor predators in the field, no body wants them, no body recommends them, no body admire them, but every one despise them, every one reject them, every one fear them. The sequel of damage they leave after the have finished their dirty and repugnant job and blood sucking-like work it's really enough for their history to be so bad referenced.
Our hope in our beloved El Salvador for now is that with the new mentality of a newly elected leftist government in place all those mining projects agreements signed by previous right wing pushed administrations could be put aside and out in the name of our real national interest and people - since MF/FMLN are so far the first and only govmt. elected which promised to put such interest ahead of anything else - We just hope that such govmt. don't succumb to the temptations and pressure of foreign predators and vultures whom don't feel the lightest regard for our population and its needs, so go to hell with your projects and mega-money making ideas, we nicely suggest you of course to try your own countries where not only its geographic size favor you but may be your own govmts. are a little more tolerant to your ugly and repulsive nature businesses. Thanks buy no thanks.
Anonymous said…
Billmart you took the words right out of my mouth.

I work in the mining arbitration/mediation system. it is difficult enough doing it in a western country that is, on the whole, meticulously governed and the mining industry is heavily regulated.

Any FTA's El Salvador is signed up for must be scrutinised and reevaluated with the primary concern of maximising El Salvador's economic and social development in mind and at the same time securing a protected future for the environment which has for so long being sidelined by previous governments.

El Salvador can no longer say "how high" when the US, Canada or Asian multinationals and corporations say "jump". We must stand and be the grown ups that should negotiate fair and equitable deals keeping in mind what will be best for the countries environment and people.
Anonymous said…
Interesting to note; reported on 25 August 2009 anti-mining campaigners in the small town of Victoria (Sensuntepeque, Cabanas, El Salvador) have received numerous death threats, violence threats and even their transmission tower destroyed by unidentified persecutors because of the very work they do.


I have blogged about it on my blog.
Anonymous said…
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