Politics of Poverty

Why did Goldcorp really pull out of Tahoe Resources’ troubled Guatemalan mining project?

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Farmers work on land next to the silver mine plant in San Rafael Las Flores, Guatemala. Photo: James Rodriguez/Oxfam America

Investors require a comprehensive picture of investment opportunities to make an informed decision. Tahoe’s current and future investors should strongly consider the political and social risks of the company’s operations in Guatemala.

This blog was co-authored by Uwe Gneiting, Research and Evaluation Advisor at Oxfam America, and Sofia Vergara, Senior Advocacy Advisor, Extractive Industries Program, Oxfam America

Mining in Central America is risky business for companies and communities, alike. Nowhere is this more evident than in Guatemala. Goldcorp’s recent sale of its 26 percent stake in Tahoe Resources Inc., the US-Canadian mining company that operates the Escobal mine in Guatemala, raised a huge a pile of cash—about US$795 million. But it should also raise a lot of questions. Namely, new investors in Tahoe Resources should consider the significant political and social risks surrounding the company’s operations.

Goldcorp, which bills itself as one of the world’s fastest growing gold producers, explained the sale like this: “Divesting non-core assets has been instrumental to Goldcorp’s growth and consistently sound financial position, and the sale of the Tahoe position supports that strategy.”

Reaction to the news

The initial reactions of Goldcorp’s latest sale, managed by a group of banks led by GMP Securities and Bank of Montreal, have been positive for Goldcorp but negative for Tahoe. Investors and analysts upgraded their recommendations for Goldcorp stock, while Tahoe shares fell more than 9 percent.

Given Tahoe’s sluggish stock performance over the past year, it is not surprising that the initial demand for Tahoe stock has been tepid. Tahoe’s market valuation has been buffeted since mid-2014 by declining silver prices and the prospects of a royalty hike in Guatemala. According to industry sources, GMP Securities and BMO Capital Markets had difficulties finding new investors despite a discounted stock price.

Risky business

The biggest risks of investing in Tahoe are likely to be social and political in nature. Goldcorp’s divestment follows that of Norway’s Government Pension Fund-Global, which divested from Tahoe in January 2015. Norway’s Government Pension Fund-Global’s Council on Ethics recommended “the exclusion of the company Tahoe Resources Inc. due to an unacceptable risk of the company contributing to serious human rights violations through its mining activities in Guatemala.” More details are available in the Council’s Annual report for 2014.

While Tahoe has downplayed risks to its community relations in its communication to investors, and Goldcorp has dismissed its sale of Tahoe shares as a divestment of “non-core assets,” Tahoe shareholders should consider Tahoe’s numerous social and political risks:

  • Community resistance to mining is strong in Guatemala. Burdened by the legacy of decades of civil conflict, indigenous, and other rural communities have been mobilizing against many planned and ongoing mining projects. In fact, mining has been one of the primary triggers of social conflict in the country, leading to violence and deadly force in several instances. Data show that social conflict exists in 78 percent of municipalities with mining licenses (compared to 10 percent of municipalities without mining activity), despite the relative insignificance of mining for the country (fiscal income from mining only constitutes a mere 0.3 percent of the government’s revenue).
  • Communities’ grievances are based on the violation of their fundamental human rights, including the right to free, prior, and informed consent (FPIC), as covered by international and Guatemalan laws. Individual companies, including Tahoe, don’t have the wherewithal to manage or legitimately mitigate communities’ opposition to these projects. Five municipal-level and nine community assembly-level consultations have been carried out—all of which have resulted in the overwhelming rejection of mining.
  • Tahoe Resources and its fully owned subsidiary, Minera San Rafael, are facing a series of legal challenges in Guatemala that could result in significant financial penalties and even the possible revocation of the company’s mining operation license at Escobal. A constitutional tribunal ordered the Ministry of Mining to reinitiate the license granting process and to consider the right of community members to oppose the Escobal license. Similarly, a Guatemalan judge has provisionally suspended the approval of the environmental impact assessment for a new exploitation license in the small farming community of San Juan Bosco.
  • The company has also been under criminal investigation by Guatemala’s Public Prosecutors’ Office for alleged crimes against the environment for industrial contamination of water supplies near the Escobal mine (resulting in the preventive imprisonment for the general manager of Minera San Rafael in April 2015). In Canada, Minera San Rafael and Tahoe Resources face a civil lawsuit for negligence and battery in connection with the shooting of seven peaceful protestors near the mine by private security personnel.
  • The political context in Guatemala is increasingly fraught with instability. The country has been rattled by a large-scale corruption scandal, further eroding the already low level of public trust in government institutions. The scandal has not only led to the resignation of the country’s vice president but also the minister of energy and mines. This could call into question the legitimacy through which Tahoe’s Minera San Rafael subsidiary obtained its concession to operate the Escobal mine and also will likely contribute to creating a hostile operating environment for mining companies.

Investors require a comprehensive picture of investment opportunities to make an informed decision. Tahoe’s current and future investors should strongly consider the political and social risks of the company’s operations in Guatemala.

We wonder whether Tahoe’s potential and existing shareholders including, Fidelity, Vanguard, USAA, and Wells Fargo have fully considered how these risks might affect their own bottom line and reputation.




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