Guatemala aims for cultural change in mining law overhaul

Tackling negative perceptions of mining will form a key plank of a regulatory overhaul in Guatemala, as the country seeks to kick-start growth in the industry following years of stagnation.

Cultural change is one of six main pillars of a new mining code, work on which started on August 27, energy and mines minister Alberto Pimentel told a press conference.

Mining has significant growth potential which could spur Guatemala’s economic recovery, Pimentel said.

But the sector has been held back in part by local opposition.

The country’s three main mines are currently suspended following court rulings over the past five years, while Pan American Silver’s Escobal silver-lead-zinc asset (pictured) and Kappes, Cassiday & Associates’ (KCA) Tambor gold mine have also been impacted by a roadblock and violent protests.

“In terms of communication, everyone must understand why this industry must exist, the benefits it generates, the need for minerals for the lifestyle we have in the 21st century, and we have to generate this cultural change through the mining code,” Pimentel said in a presentation on the energy and mines ministry’s (MEM) activities.

DRAMATIC GROWTH

The overall aim of the new mining policy is to pave the way for growth in the sector while overhauling environmental regulations and seeking to resolve anti-mining conflicts.

Guatemala is among the least favored mining jurisdictions globally, ranking 73rd of 79 jurisdictions for investment attractiveness in the Fraser Institute 2019 Annual Survey of Mining Companies.

The country dropped off the survey in the latest 2020 report due to a lack of responses.

“What we are looking for … is to establish conditions that demonstrate how this industry can most effectively be a driver of development for the country, but to do so in a sustainable way,” Pimentel said.

“This implies establishing guidelines that allow for the preservation of the environment and also allow a reduction in or a search for social consensus.”

On the economic front, the ministry is seeking to pave the way for a sustainable and competitive mining industry.

“Mining is one of the few industries in this country that have the potential for short-term and dramatic growth,” according to Pimentel.

Mining has the potential to grow to more than 5% of GDP, compared to less than 0.5% currently, the minister added, which he said was due to the lack of an adequate political framework.

ROYALTY SHAKE-UP

Another key component of the policy overhaul is to ensure communities – and the state – share in the benefits generated by mining, which could go a long way to winning the support of local residents for operations in their areas.

This will involve changes to the royalty system, and new rules to define how royalty proceeds are used to better help the country and, particularly, local communities.

“In this country there has been a discussion over the state’s share of the economic benefits of the mining industry,” Pimentel said.

“We need to open up this discussion, and define, probably, a modification to the way that we charge royalties, but I am convinced that the most important thing is not the amount, but what we are going to do with the money.”

Mining companies currently pay a 1% gross revenue royalty, but authorities are evaluating variable rates depending on the mineral produced and the size of the operation, with potentially lower rates for non-metallic mines and artisanal or small-scale operations, Pimentel said.

ENVIRONMENTAL REGULATIONS

The ministry is also aiming to define environmental regulations in the new policy, which will follow international standards.

This will give clarity to investors over what is expected, but also provide some level of guarantee that the rules will not change significantly over time, Pimental told the conference.

Other elements of the new policy include regulatory improvements, including increasing the capacity of staff on tax oversight and speeding up paperwork, which could include scrapping unnecessary documentation.

RESOLVING CONFLICTS

Another aim is to resolve mining conflicts.

The MEM is conducting consultations with indigenous communities under International Labour Organization convention 169 rules with the aim of restarting operations at Escobal and Solway Investment Group’s Fénix nickel operation.

This process has been delayed due to COVID-19, but the consultations are expected to conclude in the coming months, MEM deputy minister of sustainable development, Óscar Pérez, told the event.

The ministry has also met with indigenous communities at Tambor, also known as Progreso VII, Pérez said.

KCA has lodged an arbitration claim against the country over the suspension of the mine.