Fénix suspension a further blow to Guatemalan mining

A Guatemalan court suspended Solway Investment Group's Fénix nickel operation in a further blow to the country's ailing mining sector.

The constitutional court declared admissible an appeal against the energy and mines ministry, relating to its decision to grant a mining exploitation license for Fénix in 2016.

The license will be suspended until an injunction hearing filed against the ministry is concluded, the court said on Twitter, without giving further details.

Members of indigenous communities in the El Estor municipality filed for an injunction against the ministry over the granting of the Fénix license in 2018, citing alleged irregularities, Prensa Comunitaria reported on its website at the time.

RISING PRODUCTION

Switzerland-based Solway declined to comment on the ruling, but the suspension is a significant setback for the company, following recently reported output growth and substantial investments.

Fénix, which comprises mining and metal processing operations, is the company's flagship nickel producer, with 14,688t of nickel in ferronickel produced in 2018, up from 12,416t the previous year, according to results released earlier in the week.

Capex at the asset, operated by Solway subsidiary Compañía General de Minería (CGN), was US$32mn last year, including new equipment purchases and exploration.

Solway also has a nickel plant in Ukraine and a global portfolio of mining projects.

GUATEMALA SUSPENSIONS

While few details regarding the ruling were given by the constitutional court, Solway appears to be the latest in a string of mining companies to fall foul of rules regarding consultations with indigenous communities set out in the International Labour Organization's (ILO) convention 169.

Pan American Silver's Escobal silver-lead-zinc mine – the only other large mining operation in Guatemala – has been halted since mid-2017 due to a license suspension, also related to the ministry's failure to properly consult indigenous communities.

The ministry is currently conducting a court-ordered consultation, required for a possible restart at Escobal, one of Latin America's largest silver producers.

Kappes, Cassiday & Associates is pursuing a US$300mn arbitration claim against Guatemala following the 2016 suspension of its Tambor gold mine, which followed a similar injunction launched by local NGO Calas, also based on ILO 169.

ANALYSIS

The Fénix ruling is further bad news for Guatemala's mining sector, which has taken a battering as a result of mine suspensions, anti-mining protests and rumored royalty hikes.

The country ranks among the 10 worst places to invest, according to the latest Fraser Institute Annual Survey of Mining Companies.

Miners claim the apparent failings in the licensing process lie solely with the energy and mines ministry.

While at least three mines have been suspended due to the lack of prior indigenous consultations, projects in other sectors, such as hydroelectric plants, which have failed to meet ILO 169 requirements, have been allowed to continue operating while retroactive consultations are conducted, industry leaders have said.

If the Escobal suspension is anything to go by, Solway will face years of legal wrangling and consultations before being able to restart production at Fénix.

Resolving Guatemala's mining crisis will be a key challenge for the winner of the presidential election, with Sandra Torres of the social democrat UNE party battling it out with Alejandro Giammattei of the conservative Vamos party, in the second round of polls in August.