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Christian: El Salvador Mining Ban Won't Impact Supply But Limits Economic Potential

Kitco News

(Kitco News) - The El Salvadoran government’s decision to ban all mining for gold and other metals won’t have a major impact on the sector in the short term since there is little, if any, production anyway.

Further, while the move was taken to protect water resources in the nation, it could also mean the loss of potential jobs and modern amenities – such as electricity -- for many poor El Salvadorans, said Jeffrey Christian, managing director of CPM Group, in an interview with Kitco News. But then, he pointed out, other nations that initially frowned upon mining have been known to change their minds.

Lawmakers voted to prohibit mining Wednesday, making the country the first in the world to impose a nationwide ban. The vote in essence turned a decade-old moratorium into a law.

“I don’t think there is any significant mining in El Salvador,” Christian said. However, he added, there have been exploration efforts over the years.

The bottom line is there will not be a bunch of mines shut down, so there will not be an impact on the current supply pipeline. But this does limit potential economic expansion in the country.

“It means that a lot of people in rural El Salvador who would have gotten electricity, plumbing and jobs won’t get electricity, plumbing and jobs,” Christian said.

Supporters of the ban said it was needed to protect the country’s water supply. The New York Times reported that a number of nations do have bans on the use of cyanide to extract gold from ore, and Costa Rica has a ban on open-pit gold mining.

Christian pointed out that a number of nations over the years have been lukewarm toward mining, before some eventually actively sought out the industry to bolster the local economy.

“This is the first one (El Salvador) I’ve heard of that seems to be an all-out ban on mining,” he said. “There are many countries that waver back and forth on restrictions on mining.”

Some government regimes have imposed restrictions that “basically precluded effective development of mining and energy resources,” he said. “And then you can find other countries that have changed their laws and all of a sudden have to start generating large amounts of revenue and taxes for the government and export earnings.”

As a specific example, he cited an effort by the Ecuadorian government to clamp down on mining a decade or so ago.  “But now the Ecuadorian government has a large program to try to foster foreign direct investment in the mining sector to try to rebuild and undo the damage it did,” he said.

According to news reports, a number of international gold and silver companies have expressed an interest in El Salvador. One such effort nearly a decade ago led to a court case in which the producer lost.

In October, a World Bank tribunal dismissed a $250 million claim against the country filed by OceanaGold Corp. The company had filed the claim demanding compensation after the country refused to allow it to dig for gold. The original claim had been made by another company, Pacific Rim, which eventually was acquired by OceanaGold. Not only did OceanaGold lose the case, but it was ordered to pay $8 million to cover El Salvador’s legal costs, according to news reports.

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.
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