Guatemala back on track after withdrawing mining proposal

5th September 2012 By: Simon Rees - Creamer Media Correspondent

TORONTO (miningweekly.com) – Few would argue that Guatemala’s late twentieth century history has much to recommend it; 36 years of a long and miserable civil war that only ended with a ceasefire in 1996.

Democratic moments during this period were few and far between and usually interrupted by coups. Following the ceasefires, an uneasy peace was achieved. Guatemala has since slowly developed into a fledgling democracy.

The current president, Otto Pérez Molina, assumed office in January and has major socioeconomic obstacles to overcome, including the building of a modern economy and infrastructure. Fostering new projects that tap into Guatemala’s vast and underexplored resources will help create new and vital revenue streams for the country, at both national and local levels.

Maturing the departments responsible for mining and mines will be critical, and progress so far has been rapid. “The government will get up to speed with mining […] The president is still very much in favour of mining and the project,” Tahoe Resources’ VP investor relations Ira Gostin told Mining Weekly Online.

Tahoe is developing the Escobal silver project in south-east Guatemala. In May, the company released a preliminary economic assessment (PEA) for the project, which has indicated silver resources of 367.5-million ounces at 422 g/t average grade. Inferred silver resources stand at 36.7-million ounces at 254 g/t average grade. Throughput of run-of-mine ore will initially reach 3 500 t/d, with the potential to expand to between 4 500 t/d and 5 500 t/d.

Capital expenditure for the underground mine and milling operation will total $326.6-million, with mill commissioning scheduled to start during the second half of 2013. Escobal will enter commercial production during the first quarter of 2014.

Under the PEA, Escobal is expected to produce 20-million silver-equivalent ounces a year for the first ten years. Mine life is estimated at 20 years, while exploratory work continues. Full operating permits are expected to be granted before the end of 2012.

“We won’t require a permit until mill commissioning, so we don’t see us needing it until the end of the year,” Gostin said. “We’re over 50% complete on the development side, with mill construction paralleling underground development. We’re 100% focused and moving at 100 miles an hour on building a mine. We’re on schedule and on budget.”

Goldex Resources is also keen to progress its flagship, exploratory-phase gold project, El Pato, which is also located in south-east Guatemala. The company is currently waiting for licences. “There’s been a pause for El Plato as we’re waiting for approval licensing. We need to be patient. We’re looking at possibly doing a large bulk tonnage project,” Goldex Resources president, CFO and director Charles Ross told Mining Weekly Online.

El Pato was explored by the United Nations (UN) in the late 1980s and early 1990s. The UN determined a historical resource estimate of 430 000 oz gold. Goldex now hopes to further explore the property, expand known zones of mineralisation and identify new zones. Drilling highlights for the summer season 2011 programme included 30 m at 5.04 g/t gold.

The company realises the value of developing close ties with the local community. “We’ve helped sponsor educational programmes on mining. Often mining is a new concept in eastern and central Guatemala as these areas are traditionally agrarian,” said Ross.

“The country is working to develop its transition, which takes time. There are wheels within wheels as the president tries to steer the country in the right direction. Often there is a wider political pressure,” he added.

Some of that political pressure was felt towards the end of June when the government announced proposed changes to national mining laws. One proposal outlined the right of the government to acquire a 40% stake in companies extracting natural resources.

Many investors became spooked and companies with mining properties and projects in Guatemala, including Tahoe Resources, felt the effect on their share prices.

“But the news articles didn’t understand the proposal,” Gostin said, who argued that the 40% figure was to allow the State to invest in companies to facilitate project development. “It was never about appropriation; the idea wasn’t to seize 40% of a company but to invest in a company and help bring them into Guatemala.”

Ross has a different theory. “I suggest the policy was run up the flagpole to keep left-leaning constituents happy and was then quickly pulled on the negative reaction.”

The Guatemala government withdrew the proposal by August 6.

Share prices have subsequently moved upwards. “Our share price has come back a bit and our shareholders are happy and supportive,” Gostin said.

Aside from political blips, mining companies must also contend with often strident opposition, frequently initiated by powerful nongovernment organisations (NGOs) and anti-mining lobbyists.

“[Some] NGOs put fear into people, telling them that mining companies will only destroy and cause damage,” Ross said. “But the people against mining projects aren’t locals. Many of them are bussed in and paid to protest for the day; they don’t have a stake in the community. It looks great for the press, but it’s not real.”

Aside from developing close local ties, offering local people work is also critically important. “[Tahoe Resources] has over 500 employees on site right now and 96% are Guatemalans,” Gostin stressed. “We’re training underground miners; we’re helping people grow new career paths [and] we’re very completive in terms of pay,” he added.

Given the underexplored nature of the country, the rewards for those developing Guatemalan mining projects could be substantial and lasting. However, it is up to the mining firms to disprove NGO and protester accusations. Fostering harmonious relations with local communities and the government will be critical in this.

“Guatemala is an underexplored country; there are some great opportunities there,” Gostin said. “It’s a great country.”

Ross concurred. “Guatemala has huge potential – huge potential in resources, in geothermal and in hydroelectric. It’s like a ball rolling down the hill; once things get going, the acceleration will be rapid.”