Pacific Rim Mining locked in closely watched fight with El Salvador

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Tom Shrake, the American mining industry veteran who heads Vancouver-based Pacific Rim Mining Corp., is nothing if not an optimist.

He’s had no end of troubles: His staff in El Salvador have faced intimidation at gunpoint by local opponents of his proposed mine. Anti-mining groups have accused his company of involvement in the killings of local activists, charges he vehemently denies and for which he says there is no evidence. And the government of the tiny, impoverished country has decided to block all mining within El Salvador’s borders out of fear that a mishap could contaminate the country’s water supply.

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Pacific Rim in El Salvador

But Mr. Shrake says he remains committed to digging for gold and, he argues, digging the local population in northern El Salvador out of poverty.

This month, he got a green light to keep fighting for that plan from a World Bank investment tribunal in Washington – a fight being watched closely by the mining industry, international trade lawyers and anti-mining activists.

“We don’t want to go to court. We never wanted to go to court … But they left us no choice,” Mr. Shrake said in an interview from Reno, Nevada, where he is based.

It is in Washington, far from the volatile politics of Central America, that Pacific Rim launched a controversial move to take the government of El Salvador before a panel of arbitrators over the dispute.

It’s a growing practice in a world where foreign investors increasingly seek to resolve conflicts before supposedly neutral arbitration panels instead of rolling the dice in a country’s local courts.

Pacific Rim is challenging the government’s decision not to issue permits for its proposed El Dorado gold mine. This “creeping expropriation,” the company alleges, has left it with nothing to show for the $77-million it has invested. It has demanded hundreds of millions in compensation.

In a much-anticipated preliminary decision dated June 1, the tribunal of the International Centre for the Settlement of Investment Disputes (ICSID) tossed out Pacific Rim’s attempt to use a U.S. subsidiary to claim redress under the Central America Free Trade Agreement (CAFTA). But it ruled that the company’s case against El Salvador could go ahead under the country’s domestic investment law, which allows disputes with foreign investors to be referred to arbitration tribunals.

Since the dispute began, Pacific Rim has cut itself to the bone and seen its stock sink.

Mr. Shrake attributes the local opposition that his mine has faced to “rogue” non-governmental organizations, including Oxfam America, which he accuses of sanctioning local groups that have used threats and intimidation. An Oxfam America spokesman denied that it has supported or encouraged any violence.

Mr. Shrake contends that the accusation that his mine would imperil a key river is unfounded. The company’s designs include state-of-the-art environmental protections and the use of cyanide in the mine would feature the latest safeguards, such as a lined pool meant to contain any leak, he said.

Luis Parada, a former El Salvadoran diplomat who is now a Washington-based lawyer with Foley Hoag LLP and is acting for the country in its dispute with Pacific Rim, said the government was entitled to say no.

“There are legitimate environmental concerns,” Mr. Parada said, noting that the country is prone to earthquakes and landslides and that any contamination would be a “potential disaster” for the country’s water supply.

El Salvador argues that Pacific Rim does not own all of the land, or have the needed authorization from the landowners for its mining concession. The company says it has secured the required approvals from landowners.

El Salvador also accused Pacific Rim of an “abuse of process” for moving its Cayman Islands subsidiary to the United States in part to try to take advantage of the provisions of the CAFTA treaty, which does not include Canada.

Lawyers on Bay Street who watch the growing number of disputes between countries and investors say companies like Pacific Rim have been trying to get creative by moving or setting up subsidiaries in advance to ensure they can take advantage of trade treaties. Although in this case, Pacific Rim’s attempt to use CAFTA failed.

More and more disputes are expected to be referred to this kind of tribunal, as Canada signs more investor protection treaties and its mining firms continue to pursue minerals all over the world. Critics say the tribunals unfairly constrain governments.

Despite everything that’s happened, Mr. Shrake says he doesn’t want to win money from El Salvador: He wants permission to set up his mine, which he says would employ 700 people and be the country’s single largest taxpayer.

“I don’t have any kind of grudge. I love the people of El Salvador. I’ve worked in seven different countries and they are the hardest-working people I’ve ever seen in my life. They deserve better.”

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