El Salvador warned of CAFTA-DR lawsuit by mining company

By Damon Vis-Dunbar
12 December 2008

A Canadian mining company and its American subsidiary have threatened the government of El Salvador with a lawsuit after it failed to receive regulatory approval to begin digging for gold and silver in an area some 65 km from San Salvador. The proposed mine has drawn intense opposition from civil society and church-based groups, although the mining company maintains that it enjoys broad public support in El Salvador.

Pacific Rim, a company head-quartered in Vancouver, has explored its El Dorado property for metals, but, like other potential mines in the El Salvador, it has not been granted license to begin mining as the government wrestles over proposed changes to the country’s mining laws.

On 9 December 2008, Pacific Rim and its Nevada-based subsidiary, Pac Rim Cayman LLC, served El Salvador with a Notice of Intent under the Dominican Republic – Central America – United States Free Trade Agreement (DR-CAFTA), setting in motion a 90-day cooling-off period before the companies can serve a claim.

Pacific Rim invested US$77 million exploring El Dorado on the pretence that a permit to mine was eminent, said the company’s President and CEO, Tom Shrake, in a conference call. The company will seek hundreds of millions of dollars in lost profits if the dispute proceeds to arbitration, said Shrake.

During the same conference call, Shrake lashed out at non-governmental organizations, including Oxfam America, for their opposition to the mine, calling their resistance “anti-development”.

In July 2008, Oxfam America published a report* that threw doubt on the economic benefits that derive from mining sector in El Salvador, noting that manufacturing is up to 50 times more important than mining in terms of its contribution to the country’s GDP. Some civil society groups say the proposed mine would also compete for scarce water supplies and pollute rivers that cross large swathes of Central America.

Counsel for Pacific Rim, Timothy McCrum of Crowell & Moring, LLP, who also took part in the 9 December conference call, said that the NAFTA case Metalclad v. Mexico set a positive precedent for Pacific Rim.

Metalclad, a California-based company, sued the government of Mexico after it was denied a permit to construct a hazardous waste landfill by the a municipality. The landfill faced opposition from the local community, who feared that it would lead to health problems in the area.

In a decision that sparked some controversy, the Tribunal held in 2000 that Mexico failed to provide transparent rules and procedures when it decided to not approve Metalclad’s permit. Metalclad was awarded Metalclad some US$16 million for actions on the part of Mexico that were deemed tantamount to expropriation.


*“Metal mining and sustainable development in Central America: An assessment of the benefits and costs”, by Thomas M. Power, published by Oxfam America, July 2008