EL SALVADOR – MINING REGULATION
El Salvador, officially the Republic of El Salvador, is the smallest of seven Central American countries connecting North America to South America; it lies to the east of Honduras and, together with Honduras, serves as a bridge between Guatemala to the north and Nicaragua to the south. Its southern and eastern borders are a shoreline to the Pacific Ocean. San Salvador is the country’s capital and largest city; in fact it is the third-largest city by population in Central America, while the country itself is the most densely populated. El Salvador’s economy is weak and mainly relies upon the services sector and the agriculture industry, in particular the production and exportation of coffee and sugar. For many years El Salvador has been faced with the challenge of developing new industrial sectors, but it has certainly failed in regard to the mining industry.
According to the US Geological Survey (2013), El Salvador produces no metals of any kind and in 2017 placed a nationwide prohibition on all metal mining. This is unlikely to change in the near term, given the negative perception that has resulted from the case of Pacific Rim (now OceanaGold Corporation) which had an influence on imposing the ban. The case pitted the mining sector against the El Salvador government and countless NGOs that were determined to stop the El Dorado project from proceeding. The latter groups were concerned about environmental damage and community displacement arising from the company’s proposed high-grade gold, heap-leach operation. The government has refused to issue regulatory approval for development, resulting in a claim under the country’s investment protection law.
PRINCIPAL LEGISLATION AND REGULATOR
The main legislation governing the mining sector consists of the Constitution of 1983, the Mining Law (1995) and its Regulation (2001). Also relevant is Decree No. 639/2017 which placed a nationwide prohibition on metal mining. By law, all minerals belong to the Republic and are administered by the central government. The Hydrocarbons and Mining Bureau (Dirección Reguladora de Hidrocarburos y Minas), which is part of the Ministry of Economy (Ministerio de Economía (Ministry)), is the regulator of exploration, mining and commercialization activities related to metallic and non-metallic minerals, though the Ministry is prohibited from granting mining concessions in respect of the exploration, exploitation, extraction or processing of metallic minerals (Art. 3, Decree No. 639/2017). The Republic of El Salvador is divided into 14 departments or states; each state has its own Governor who is selected by the political party of the President. These states are further divided into municipalities; municipalities play no role in the administration of the country’s mining law, but royalties are required to be paid to them from any production.
GRANT AND FORMS OF MINERAL TITLE
According to the Mining Law, minerals belong to the state, but exploration and exploitation of these resources are authorised through exploration licenses and mining concessions. All individuals and entities, national or foreign, are entitled to obtain mining rights, as long as they have been determined to have adequate technical and financial capacity. Mining rights may be transferred inter vivo or causa mortis. According to Article 31 of the Regulation, the principle of first come / first served applies. The Mining Law distinguishes between exploration licences and mining concessions, as follows:
- Exploration Licences: Grant an exclusive right to the titleholder for an initial term of four years, which may be extended twice for periods of two years giving a total duration of up to eight years, over an area that may not exceed 50 square kilometres. The licence grants the right to explore the minerals defined on it, but it may be extended to additional minerals if they are discovered.
- Mining Concessions: Granted for metallic minerals by means of a contract between the Ministry and the mining operator for a period of 30 years, which may be extended. The failure to commence mining activities within the first year of the contract will result in the revocation of the contract. In the case of non-metallic minerals, mining concessions are granted for a period that shall not exceed 20 years, and may be extended (although this period is not specified by Law).
Pursuant to Article 13 of the Mining Law, areas of special mining interest (for existing deposits) may be subject to a public bidding process. Of some concern to the miner is the fact that exploration and mining rights are restricted to specified minerals; if new minerals are discovered that are considered “high value” or strategic, including platinum and diamonds, then the rights to these minerals can be made the subject of public tender. Of equal concern is the requirement to meet numerous conditions, some of which are discretionary, as a condition to a mining concession. The right to mine, in short, is not at all assured in El Salvador.
Mining rights may be transferred inter vivos or causa mortis if the successorês technical and financial capacity is proved to be equal or better than the incumbent holder (Arts. 10 and 14, ML; Art. 12, Reg.). In both cases a prior authorization of the Mining and Hydrocarbons Directorate is needed.
In 2017, El Salvador placed a prohibition on all metallic mining banning all related exploration, extraction, exploitation and processing in any form whether it be underground or open pit mining (Art. 2, Decree 639/2017). The prohibition also extends to the use of toxic chemicals, such as cyanide and mercury, in any metallic mining process. The ban took effect eight days after its publication, though small-scale artisanal miners are granted two years to convert to other activities and artisan work for the manufacture or repair of jewellery or metal products are exempt from the prohibition (Art. 7, Decree 639/2017).
The titleholder, in both the exploration and mining stages (either metallic or non-metallic minerals), must submit an annual report of its activities and pay an annual surface fee. Additionally, the Mining Law stipulates a payment of a royalty every three months, based on a percentage over the total value of the mineral net sales. The mining operator has the right to access surface land via an easement that shall be registered in the Mining Registry. Easements may be voluntary or legally imposed. In essence, it would appear to be mandatory to secure the agreement of the landowner in order to acquire an easement, although the law is somewhat confused in this regard (see Arts. 45 et seq., Reg.)
The exploration and exploitation activities shall be conducted in such a way that prevents, controls, minimises and offsets any negative effects that may result from the activities. Consequently, mining operators must go through an environmental impact assessment in order to carry out mining activities and a public hearing must be held as part of this process.
See El Salvador – Environmental Overview Commentary.