Mining companies face rising risks in Central America

Mining companies in Central America are facing rising political risks as legislators push to halt new projects and impose steep royalty hikes.

Politicians and NGOs are calling for a suspension of new mining licenses in Honduras, Panama and Guatemala, along with royalty hikes in the latter two nations which industry leaders warn would stop investment.

MINING MORATORIUMS

In Honduras, President Xiomara Castro’s leftist Libre administration announced plans to outlaw open-pit mining around a month after coming to power in late January.

A release from environment ministry MiAmbiente on February 28 detailed plans to cancel mining permits and declare the country free of open-pit mining, on grounds that the activity is harmful to the State, causing damage to public health and limiting access to water.

The release added that the government plans to impose a moratorium on new exploration and mining projects and to revise, suspend and cancel environmental permits and concessions.

Areas of high ecological value will also be immediately protected to ensure their conservation and to benefit people.

But the government later clarified that the proposals will not affect existing operations, which include Aura Minerals’ San Andrés gold mine.

“The measure never had a retroactive effect to strip those who have already obtained their licenses, nor strip them of their previous [licenses],” environment and mining minister Lucky Medina told reporters.

The minister also signaled that the focus of the ministry’s oversight actions is aimed at non-regulated mining and that firms with operating permits in good order will be allowed to continue activities, Aura said in a release.

‘BAD BUSINESS’

Politicians are also pushing for a moratorium on new mining projects in Guatemala amid concerns over environmental impacts.

The Semilla party says projects should be halted for 10 years and expiring licenses not be renewed.

Legislator Román Castellanos called the industry a “bad business” for Guatemala, saying the current legal framework has led to the country’s heritage being squandered and public officials, politicians and business leaders getting rich.

The party also called for mining licenses covering more than 5km2 to be canceled and for operating mines to pay a 51% royalty – compared to the 7.5% rate levied in neighboring Mexico.

While the proposal is unlikely to gain traction – with Semilla holding just six out of 160 seats in congress – it comes at a challenging time for the mining industry in Guatemala, following allegations of pollution and bribery by nickel miner Compañía Guatemalteca de Níquel (CGN), a subsidiary of Switzerland-based Solway Investment Group, which operates the Fénix mine in the country.

Solway rejected what it termed false accusations but has launched an investigation into the claims.

The Fénix mine restarted operations earlier this year after its mining license was restored following a court-mandated consultation with indigenous communities.

Guatemala’s other main foreign-owned mines, Pan American Silver’s Escobal primary silver asset and Kappes, Cassiday & Associates’ Tambor gold operation, are also suspended, with a similar consultation ongoing at Escobal, where production was halted in 2017.

PANAMA PROPOSALS

Panama’s association of professionals (Fedap) has also presented a proposal calling for a halt to new mining projects, warning mineral concessions are harming biodiversity across Central America.

“From Honduras to Costa Rica laws have been issued that prohibit metallic mining, and this proposal… is just a reflection that 90% of citizens oppose the development of this industry,” Fedap president Donaldo Sousa was quoted as saying by Bloomberg.

But a bigger concern for Panama’s mining sector is a bill calling for a sharp increase in royalties, which passed an initial debate in congress last year.

The motion would see royalties charged at up to 40% of gross sales for metallic miners – far higher than in other countries in the region, and the 4-8% currently charged for gold and silver operations.

Mining chamber Camipa, which has launched a campaign against the proposals, has warned the planned royalty rates would close the door on the industry.

“The challenges of the mining sector should be faced with seriousness, common sense, with technical and scientific rigor and based on technical consultations, and achieving informed consensus, not in the heat of political considerations and private interests,” it said on Twitter.

The proposal also comes at a tricky time for the industry, following a steep royalty rate hike agreed for First Quantum Minerals’ US$6.5bn Cobre Panamá copper-gold mine.

Trade and industry ministry MICI is continuing to draft the new contract, which needs to be approved by congress.

The previous 2% revenue royalty at Cobre Panamá will be replaced by a 12-16% gross profit levy under the contract, with the state receiving US$375mn/y in benefits from the mine.

SUB-REGIONAL PICTURE

In the Dominican Republic, government ambitions to reignite mining growth have stalled, with Barrick Gold’s US$1.3bn Pueblo Viejo expansion project (pictured) facing an uncertain future following opposition to a planned tailings dam.

Despite Nicaragua’s slide into authoritarianism during Daniel Ortega’s fourth consecutive term in office, the country remains a rare example of a relatively stable mining jurisdiction, with companies investing in a new wave of growth projects.

Anti-mining legislation continues to put a halt to investment in Costa Rica and El Salvador.

Mining risk in Central America and the Caribbean is not new. The Dominican Republic, Panama, Guatemala and Nicaragua all placed in the bottom eight of 83 jurisdictions globally for investment attractiveness in the Fraser Institute’s Annual Survey of Mining Companies in 2018.

In the latest 2020 survey, all the countries had dropped off the list due to a lack of industry responses with the exception of the Dominican Republic, which had risen to 59^th out of 77 jurisdictions.