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  • GDP, US$bn: 26.8
  • GDP per capita, US$: 4,223.6
  • Population, mn: 6.1
  • Inflation, CPI ave: 0.6
  • FX, LCY/US$: 1.0
  • Budget Balance, % of GDP: -2.8
  • Mining GVA, US$bn: 0.1
Regulatory Risk Rating
31
0
100
Score: 31
Severe Risk
El Salvador has no modern mines and in 2017, the country placed banned all metallic mining, prohibiting all related exploration, extraction, exploitation and processing in any form. The prohibition does not cover all minerals and it is still possible, at least in theory, to mine other non-metallic minerals. That being said, it is unlikely that a modern mine will be developed in El Salvador under the current legal regime.

Corruption Potential Index

Score: 30
Very High Corruption Potential

Corruption Risk Index

Score: 68
Low Corruption Risk

Regulatory Risk Rating

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Mining Overview Commentary plus sign

EL SALVADOR – MINING REGULATION

GENERAL

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.

DEVELOPMENT CONSIDERATIONS

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.

ENVIRONMENTAL REGULATION

See El Salvador – Environmental Overview Commentary.

Revision History

Updated: MineHutte 21 Aug 2018

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Environmental Overview Commentary plus sign

EL SALVADOR – ENVIRONMENTAL REGULATION

GENERAL

El Salvador, officially the Republic of El Salvador is located in Central America, bordering the Pacific Ocean to the south, Guatemala to the north and northwest and Honduras to the north and east. With a total area of 21,040km² and a population of over six million, it is both the smallest country in continental America and the most densely populated in Central America. Due to its location on the Ring of Fire, El Salvador, known as the ‘Land of Volcanoes’, is highly susceptible to seismic activity, including earthquakes and volcanic eruptions, with over 20 of the country’s volcanoes still classed as active.

El Salvador has over 300 rivers, yet only the Lempa River, which originates in Guatemala and is the country’s longest and most important, is navigable. Controversy has exploded in respect of the country’s only major mine development project, as a result of the fact that it is located within an area that drains into the Lempa River. Further controversy has been stoked by the fact that Guatemala has approved a mine held by another Canadian company (Goldcorp) that is upstream and also drains into the Lempa River. In 2011 the government commissioned a strategic environmental assessment of the metal mining sector which concluded that metal mining poses significant environmental and social risks and impacts. Findings from the assessment and political pressure from various interest groups contributed to El Salvador imposing a prohibition on metal mining in the country.

The majority of El Salvador is dominated by a central plateau and two parallel mountain ranges that cross the country, with the remaining area occupied by a coastal plain on the Pacific coast. Seismic activity in the country has resulted in the formation of many crater lakes including Lake Ilopango, located to the east of San Salvador and Lake Coatepeque, located in the Santa Ana department. El Salvador’s climate is tropical, with a wet season between May and October and a dry season between November and April. Temperatures remain constant throughout the year and are highest in the Pacific coastal belt, while the plateau and mountain regions are more moderate.

Jaguars, armadillos, monkeys and tapir are amongst notable native fauna; the country is also home to over 500 species of birds, a variety of venomous and non-venomous snakes, and a rich sea life with whales, sharks and turtles found in its waters. Many types of tropical fruit are grown in the region, as well as medicinal plants, while mangroves, dogwood, mahogany and cedar are amongst indigenous trees.

PRINCIPAL LEGISLATION AND REGULATOR

Article 117 of the Constitution states that it is the duty of the state to protect the natural resources and the diversity and integrity of the environment. The Ministry of Environment and National Resources (Ministerio de Medio Ambiente y Recursos Naturales (MARN)) is responsible for assessing the environmental impact studies and issuing environmental permits. The National Environmental Management System (Sistema Nacional de Gestión del Medio Ambiente (SINAMA)), coordinated by MARN and comprised of the environmental departments of other ministries and the autonomous and municipal institutions, is in charge of the coordination and management of environmental policies. The environmental legislation includes the Environmental Law (Decree 233/1998) and its Regulation (Decree 17/2000). As well, certain provisions of the Mining Law and its Regulation are also relevant, including the requirement in the Regulation (Decree 68/1996, Art. 25) to avoid and mitigate environmental pollution.

EIA PROCESS

According to Article 21(e) of the Law, all exploration and mining activities are subject to an environmental impact assessment (EIA). Thus, all projects must be categorized to determine whether or not they require an EIA. The mining operator submits an environmental notice in order to engage MARN and have it determine the degree of anticipated environmental impact. In the event the project is categorized as having moderate / high impact, the mining operator must submit an environmental impact study (EIS) that must be assessed within 60 days (with the possibility of an extension in exceptional cases). If approved, MARN will issue an environmental permit.

The Environmental Law includes a requirement for public consultation following the submittal of the EIS. During the assessment, the mining operator must provide a form of financial security that is enforced in the event of noncompliance, as well as a closure and mitigation plan.

Revision History

Updated: Emma Beatty (21 Aug 2018)

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