Update on Pacific Rim Mining Company

It has been over three years since Pacific Rim closed down its operations in El Salvador and filed a notice of intent to seek arbitration against the Salvadoran Government for denial of mining permits.

Pacific Rim, a Canadian company that bills itself as “an environmentally and socially responsible exploration company,” reports that in the first half of fiscal 2012, their “cash and cash equivalents increased $1.4 million from $0.3 million at April 30, 2011 to $1.7 million at October 31, 2011. The company’s short-term investments increased from $0.8 million to $1.1 million over the same period, resulting in a $1.8 million total increase in assets.

The increase in assets does not indicate that they are all of a sudden profitable. According to a Pacific Rim’s press release announcing their quarterly report, the increase “reflects the cash proceeds of a private placement equity financing undertaken by the Company.” This means that Pacific Rim found new private investors to finance their operations. In fact, the press release states clearly that they have “no source of revenue, and will require additional cash to continue fund legal, exploration and administrative expenses.”

While Pacific Rim’s El Dorado project in San Isidro, Cabañas is their most advanced, the company recently acquired an option to earn 65% interest in the Hog Ranch gold property in Nevada and has begun field exploration. Pacific Rim also has the opportunity to acquire a 100% interest in the Remance property in Panama – an interest they secured in 2010. While they have begun “phase 1 drilling” at Hog Ranch, Pacific Rim reports that the Remance project is “in doubt” and they have no plans for exploring the property.

The biggest question mark for Pacific Rim remains their ICSID claim against El Salvador, which is potentially worth $100 million dollars and the rights to mine gold in Cabañas. In their press release, Pacific Rim says,

“Expenditures related to Pacific Rim’s CAFTA/ILES arbitration claim are expected to continue at present or modestly higher levels during the coming months, and are directly related to the level of arbitration activity. The Company has currently accumulated a liability of approximately $1.4 million related to the CAFTA/ILES arbitration action and is currently discussing vendor-specific alternative financing opportunities that will reduce this accounts payable position.”

The ICSID Tribunal will likely hand down a ruling any day on the last round of preliminary objections filed by El Salvador. If the Tribunal finds in favor of El Salvador, part or all of Pacific Rim’s claim could be dismissed. If the Tribunal finds for Pacific Rim, the case moves a little closer to a full hearing.

In anticipation of the decision, a group of labor, union, environmental and other civil society leaders will hold a rally outside the World Bank tomorrow (Thursday, December 15) protesting Pacific Rim’s claim. Those attending the rally will present a letter to World Bank and ICSID officials calling on them to respect El Salvador’s decision to prohibit mining in order to protect their local communities and water resources from environmental damage.

Though Pacific Rim continues to engage in minor exploration activities, their primary activity and asset is this lawsuit. A favorable outcome of the ICSID arbitration would be a windfall for Pacific Rim’s investors, possibly allowing them to recoup their $77 million investment and perhaps damages and lost profits.

Corruption, El Salvador Government

Former Minister of Health Arrested on Corruption Charges in El Salvador

On Tuesday, April 5, the Salvadoran National Civil Police (PNC) arrested ex-Minister of Health José Guillermo Maza Brizuela and seven others on charges of corruption. Ex-Minister Maza was the Minister of Health under President Tony Saca, who left office on June 1, 2009 when the current President Mauricio Funes took office promising to root out corruption within the government agencies.

El Faro reports that the corruption charges stem from efforts to rebuild seven hospitals damaged in the 2001 earthquakes. In 2003 the World Bank approved a $169.4 million loan package to rebuild the hospitals, and CPK, a large Salvadoran contractor, won a contract with the Ministry of Health. Though the project was to be finished by 2006, only two hospitals are complete and the project is $73.4 million over-budget.

The charges filed against ex-Minister Maza include fraud and falsifying documents involving several aspects of the CPK contract. According to El Salvador, the type of contract between the Ministry and CPK prohibited altering the value of the contract or the deadlines for completing projects. On several occasions, however, ex-Minister Maza approved an increase in the amount of the contract, increasing the amount for rebuilding the Santa Theresa Hospital in Zacatecoluca, La Paz by $1.8 million.

Charges also claim that ex-Minister Maza approved payment for work that was never completed. Though CPK had only completed 47% of the work on the Santa Theresa Hospital, Maza approved payment for 70% of the value of the contract – a loss of almost $3.3 million.

Another charge stems from the purchase of $1.1 million in medical equipment for the Santa Theresa Hospital that was paid for but never received. CPK claimed that they had purchased the equipment and that it was in their facilities. Though the contract stated that they would receive payment when the medical equipment was installed, the Ministry approved payment because CPK claimed it was in their possession.

Among the others arrested with ex-Minister Maza is César Rolando García Herrara, an attorney who negotiated the contract between the Ministry of Health and CPK. Mr. García was the sub-director of the PNC under President Calderon Sol (1994-1999). He is accused of falsifying documents and fraud. The other six detained are Arturo Ernesto López Mejía, René Arturo Portillo Montano, José Mauricio Serrano Martínez, José Alexander Ramírez Jiménez, Herbert Leonel Perdomo Ulloa, Guillermo Rafael Alfaro García, all of whom are accused of corruption-related charges.

Ex-Minister Maza has faced allegations of corruption in the past. While he was Minister of Health, the two CT scan machines that were owned by the public health system were broken, and instead of having them repaired, hospitals sent patients to Maza’s private clinics. The Minister admitted that there was a conflict of interest, but insisted that he gave patients from the public system a discount, and he was not charged with any wrong doing.

These arrests were made as Attorney General Romeo Barahona has been coming under fire for his office’s inability to take on organized crime and prosecute politically sensitive cases. In recent weeks, President Funes has indicated that his administration is taking the steps necessary to form an international investigative body that will investigate organized crime and take on cases that the Attorney General’s office has been unable to prosecute. El Faro also reports that Barahona is currently seeking financial support from the U.S. Embassy to support their efforts in taking on organized crime.

If the ex-minister and executives from CPK are guilty of corruption in building hospitals it will have meant that tens of thousands of people in Zacatecoluca and other cities around EL Salvador have gone without adequate health care. Arresting ex-Minister Maza and the others was a good first step, but the real challenge lies ahead in successfully prosecuting them.