Panama - Renewal Of Mining Activities

PANAMA

* Renewal of mining activity likely amid opposition and protests * Exploitation license for Petaquilla mine authorized; operations could begin in 2007 * Legal complaints presented against mining company Petaquilla Minerales SA * Proposal to reform Mining Law "on standby" CENTRAL AMERICA REPORT (CAR) June 30 2006

In recent years, Panama's mining sector has been virtually dormant due to low international metal prices, opposition from civil society and the fact that the mining concession and permitting process under current law is "not as attractive to investors as it could be". However, last November, the government authorized a license renewing the Petaquilla mining project - which could signify operations commencing in 2007.

Other signs of revival for the sector include an increase in exploration authorizations owing to the recent rise in mineral prices. However, concerns have been raised by civil society over Panama`s current mining legislation and who will most likely benefit from the renewal of mining activity. Meanwhile, a proposal to reform the Mining Law that theoretically would benefit the indigenous sector remains suspended, with the Director of the Mining Chamber (CAMIPA) stating that neither the government nor CAMIPA is interested in the proposal and furthermore, that other changes to legislation are unlikely in the short term.

Renewal of Mining Activity.

On November 9 2005, the government authorized a license for Petaquilla Minerales SA, (a Canadian-Panamian mineral company) for the Petaquilla mining project located in the Colón province, Donosa district.

According to local daily, Panamá América, it is expected that extraction operations will begin in 2007 at the latest. (Panamá América 28/05/06).

The company's license was initially authorized by the government in 1998 although activity was suspended due to the drop in international metal prices.

The media reported that, according to company estimates, the recoverable metal content contained in these reserves could total 4,000 million ounces of copper, 10 million ounces of silver and 5 million ounces of gold (Panamá América, 28/05/06).

After Cerro Colorado, Cerro Petaquilla is the second most important mine in the country and, if operations commence in 2007, would be the first active mine in seven years. According to CAMIPA director, Zorel Morales, the last mine in operation was that of Santa Rosa in 1999.

Protests and Complaints.

On April 17 2006, the NGO Caritas issued a declaration against the Petaquilla mining project.

The document warned that the mining company was "violating national law and international agreements, undertaken with the backing of the national authorities".

The statement also highlighted the fact that Petaquilla Minerals SA was proceeding with preparations for openpit mining despite having failed to comply with the required Environmental Impact Assessment (EIA).

Legal complaints have also been presented, accusing the company of violating article 23, Law 41 of the 1998 Environment Law and arguing that, since May 23 2005 the company has begun preparations for the construction of a highway in the Nuevo San José community, without authorization.

Doubts also surround the general manager of Petaquilla Minerals, Richard Fifec. In February 2005, the national media reported the Richard Fifer was charged with two acts of embezzling public funds when he was governor of Coclé province between 1999 and 2002 (Prensa, 2005/02/12).

Pastor Durán of the National Front Against Mining (FRENALCOM) told CAR that "as far as I know, the law has not been applied - his crimes go unpunished".

A Dormant Sector? While Panama has a high mineral potential, with world class gold and copper deposits, the mining industry has seen relatively little activity in recent years.

Legal expert from the Popular Legal Assistance Center, Héctor Huertas, explained that the inactivity previously owed to low international copper prices and partly to civil society protests.

However, the approval of the license to Petaquilla Minerals SA could be considered a sign of revival for the sector. Also indicative of this trend is the increase in exploration activity over the past year following the rise in international mineral prices; according to Morales, 15 contracts for exploration activity were authorized in 2005.

The CAMIPA president also told CAR of his expectations that the increase in exploration operations would continue, attributing the surge of interest in the sector in part to efforts by the government to speed up the process of authorizing exploration and exploitation contracts.

This process was started in 1988, with modifications to the Mineral Resources Law. A Panamanian Tourism Institute (IPAT) document states that the Law currently offers "attractive incentives to investment" relating to mining activity such as "20% discount on income tax, 2% in State royalties, exemption from export taxes and tax exemption from import taxes and customs for all equipment, spare parts and materials required for the development of mining operations".

According to the IPAT document, in addition to Cerro Petaquilla, there are currently both national and foreign companies interested in the following mines; Cerro Colorado, Remance, Cerro Quema, Minas Santa Rosa, Cerro Viejo, Minas los Hatillos and Minas del Rio Pito.

Meanwhile, a "Mineral Inventory Report" financed by the Inter-American Development Bank (IADB) and carried out by Panama's Department of Mineral Resources and the Swedish Geological International Company (SGAB) identified the following areas as being of commercial interest to mining companies; Rio Mamoni (Panama Province, Chepo District), Capira and Cacao (Panama Province, Capira District), Hato Chami and Cuvibora (Chiriqui, in the Remedios District), Rio Liri Areas, (Veraguas Province between Palmas and Mesa), Rio Cricamola (Bocas del Toro Province), Calizas de Rio Boquerón (Chiriqui Province).

Weak Legislation; Who Benefits?

Durán explains that "according to the Mining Law, authorizations for mining activity should be considered in accordance with the social interest".

However, for Huertas, "the State is the only beneficiary, with indigenous communities and campesinos forced to move and denied payments to which they are entitled". Meanwhile Durán considers that the 1988 reforms to the legislation, in which legal obstacles were "removed", served only the interests of transnationals, leaving the indigenous sector at a further disadvantage.

Specifically in terms of the indigenous sector, contradictions exist between the comarcas (indigenous reserves) and mining projects.

Huertas explained that mining concessions for gold, bronze and other materials found in indigenous territory have been granted.

Meanwhile, analysts consulted agreed on the problematic nature of the legislation. In 2001, the IADB financed a project to reform Panama's mining laws and regulations, in conjunction with the University of Montana. Project supervisor David Aronofsky made the following observations to CAR regarding the current legislation; "the mine concession and permitting process under current law is not as attractive to investors as it could be because mining sector investment rights are too ambiguous and generally do not meet international legal standards".

"In addition, most of Panama's unexploited precious metals involve environmentally sensitive areas located on or adjacent to Panamanian Indian land. A number of international law standards applicable to Panama through the American Convention on Human Rights need to be incorporated into Panamanian laws regarding environmental protection and indigenous peoples. Mine safety standards also need updating. Dispute resolution is also somewhat problematic (although not as problematic as these other issues)."

Huertas also added that "the supposed royalties received by the State constitute a kind of fraud" and criticized the lack of controls imposed by the government either during or after mining operations. He cites the example of the Santa Rosa mine in Canazas, Veraguas: "when it was closed down, the company left without paying the workers what was owed to them".

He also highlighted as a further loophole the fact that "the company which processes the concession - a contract often obtained through government connections - rarely carries out exploitation work on the reserve itself but sells it often at a third of the price to a Canadian or US company...these companies then undertake exploitation activity with no sense of environmental, social or economic responsibility."

Reform Proposal Remains "On Standby".

Huertas told CAR that the proposed reforms to mining legislation include a chapter on the indigenous sector which would considerably advance indigenous rights, providing more control over resources. However, according to Morales, the proposal has not reached the Legislative Assembly nor is it being sent for consideration owing to "other legislation priorities" and the fact that "it is not completely accepted by the sector...as it would involve an increase in bureaucratic procedures...Neither CAMIPA nor the government is interested." He added that "legal changes in the short term future are unlikely given the belief that changes can be carried out within the context of the current legal framework".