November 17, 2008

Heads They Win, Tails You Lose

Canadian companies will do anything for the big nickel in Guatemala

by Dawn Paley

The Dominion - http://www.dominionpaper.ca

An elder from the community of Barrío Revolución. The community was evicted in January of 2007 to make room for Skye Resources' failed nickel project. Photo: Dawn Paley

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EL ESTOR, GUATEMALA/VANCOUVER–

INCO's Guatemalan plans have been gathering dust for nearly a decade. I thought by the end of 1962 we would start a project and I have thought so ever since.
— Harry S. Wingate (former INCO chairperson), Fortune Magazine, March 1970.

Mining companies have long built up Guatemala's nickel deposits as among the largest and highest grade in the world, but operations in the small Central American country have been plagued with serious problems since the get go. Skye Resources' short-lived venture left nothing more than a black eye for the junior mining sector, as video circulated showing company employees burning peoples' houses to make way for the project.

"Over the last 15 years, the government has officially proclaimed the reconstruction of this road three times. It was one of the first things President Berger announced when he was elected four years ago," says Eloida Mejía, an El Estor resident and member of the Association of Friends of Izabal Lake.

We were talking in the back of a beat up pickup truck, carrying us and a dozen other people from Fronteras to El Estor on a Tuesday evening.

All along the road the water in the potholes reflected the moonlit sky above. The narrow bridges required careful steering, and the 35 kilometres of gravel took over an hour to cover. The route where the company — according to its technical report — was already supposed to be running twenty tractor trailer round trips day and night, was quiet save for the odd oncoming bus or pickup truck.

Fireflies, of which there are estimated to be 25 species in the region, offered the only distraction from the pitch darkness on either side of the road.

Just a few weeks after our truck ride, on October 10, 2007, Andrew Grant from Vancouver's Skye Resources officially announced a new beginning for nickel mining in the Izabal region in northeast Guatemala. The press touted the creation of 6,000 jobs and a 39-year mine life. Guatemalan vice minister of Energy and Mines Jorge García Chiú broke down how, starting in 2009, the government will collect $54 million in taxes from the company each year.

Three months later, on January 30, 2008, Skye announced that they could not get the financing needed for the project, and that the mine would not go ahead until US financial markets improved. Since then, Skye's CEO, Ian Austin, and William Enrico, the VP of Operations, have resigned from their positions. The project was sold to Hudbay Minerals Inc, a Canadian mining company that runs the nickel mines in Flin Flon, Manitoba.

While Hudbay and it's predecessor Skye Resources try and convince shareholders to believe otherwise, this massive nickel mining project seems to have met the same fate that its predecessor did some thirty years ago: on hold until further notice.

The story of Skye Resources in Guatemala is one that's been told before, almost to the letter. The dominant narrative is about the wonders of economic development thanks to a large, Canadian-owned nickel project.

Instead of Skye Resources, the major player in Guatemala's past was one of Canada's top hats: the International Nickel Company (Inco).

The history of North American mining projects in the region is a window to understanding the current activities of Skye Resources in the area, and it puts today's race for minerals, led by Canadian mining companies, in context.

War Metal and a Flurry of Coups

Before Inco arrived on the scene, the Hanna Mining Company acquired licenses from the military government of Castillo Armas to mine in the Izabal region in Guatemala in 1956. The licenses were granted two short years after the US State Department and CIA planned, organized, and financed a coup d'état against Jacobo Arbenz, the country's democratically elected president.

Hanna Mining Company was a major donor to the Republican Party. The former president of Hanna, George Humphrey, was Secretary of the Treasury during the Eisenhower administration, and is said to have maintained close relationships with John Foster Dulles, Eisenhower's Secretary of State. In addition to Hanna's appearance in Guatemala two years after the coup, the company established or bolstered operations in Iran after the 1953 coup, and in Brazil following the coup in 1964.

Inco bought an 80 per cent share in the Guatemala project, known as Exmibal, from Hanna in 1960.

According to a report written for the North American Congress on Latin America in 1974, "Exmibal was to make a $250 million investment in Guatemala, doubling all previous foreign investment, and causing a major shift in the Guatemalan economy; Exmibal was granted the right to mine, refine, and export 60 million pounds of nickel annually for the next 40 years."

In 1954, the US Defence Department noted that nickel "comes closest to being a true 'war metal'," because of its importance in building modern engines for airplanes and jets, as well as in armour plating for warships. During the Korean War, more than half of the US supply of nickel was used for military production.

Nickel has long been designated a "strategic mineral" by the US Department of Defence. Today, nickel is an essential metal that still plays a significant role in war, but also has a variety of uses in manufacturing electronics, vehicles, and as an alloy with other metals, such as stainless steel.

Aid Money to the Private Sector: The Inco Precedent

Inco's Exmibal mine was delayed a number of times before production began.

Despite the construction of a smelter, power plant, and furnace – and the rewriting of both mining and income tax laws after years of wrangling by Inco's lawyers – the mine operated for only three years, from 1978 until 1980. A grand total of 11,000 tons of nickel was produced, out of a planned 1.2 million tons. The lack of a stable and cheap energy source to run the operation is the reason that it was mothballed, and remains one of the principle logistical challenges to the project today.

Such an operation, producing only a fraction of the nickel predicted, was only made possible by huge subsidies and financing given to Inco by the US and Canadian governments and international financial institutions.

As of 1977, financing of Exmibal included a $15 million loan from the International Finance Corporation of the World Bank, a $13.5 million loan from the US Export Import Bank, a $17.25 million loan from Canada's Export Development Corporation, and $6 million from the Central American Bank for Economic Integration (itself a creation of USAID).

"That the Canadian state would contribute to something like this should not in itself cause surprise," states Jamie Swift in his book The Big Nickel: Inco at Home and Abroad. Swift writes that "the history of Canadian government support to private industry dates back to the construction of the CPR [Canadian Pacific Railway] and Confederation."

Penny Lernoux explains the preferential treatment extended to Inco by North American governments in the book Cry of the People. Lernoux writes, "While Washington had no qualms about advancing the Guatemalans $13.5 million for the nickel project, for years it refused to lend them money for a road to the Atlantic Coast that would have put United Fruit's inefficient International Railways out of business."

Meanwhile, the World Bank recently came under renewed scrutiny in Guatemala because of its 2004 loan of $45 million to Glamis Gold (now Goldcorp) for the construction of the controversial Marlin mine.

Repression as a Rule, in Times of War and Times of Peace

Swift notes that "just as the United States had made Guatemala 'safe for democracy' in 1954, so Colonel Carlos Arana Osoria made even these provinces safe for Inco in 1968."

Many academics and labour leaders who denounced the Exmibal project were assassinated or forced into exile as part of making Guatemala a "safe" place for Inco.
In Alta Verapaz, home to a large section of the Exmibal concession, there were 65 massacres during years of internal conflict. The Panzós Massacre, which took place 30 years ago last May, was rooted in repressing indigenous demands for land titles in the midst of an influx of foreign direct investment. Panzós is the next town west from the Exmibal project, in the heart of Guatemala's so-called "nickel district."

Descendants and relatives of people who were killed or disappeared for speaking out against the Exmibal project still live in the area. Entire Mayan Qeq'chi communities who were displaced to make way for Inco persist in demanding that authorities honour their historical right to land for housing and harvest.

In September 2006, five landless communities occupied territory over which they have a historical claim, but which Skye Resources claims likewise to own. The communities were violently evicted from the lands in November 2006, and again in January 2007.

Skye Resources' chief of security during the evictions was a military man named Mynor Padilla.

During the January evictions, community members’ houses were burnt to the ground and the army participated in intimidating the communities, in a blatant betrayal of the 1996 Peace Accords. People present at the evictions said that they were reminded of "wartime" by the violent and threatening actions of the company.

After a video circulated on YouTube.com showing the evictions, the company's representatives who had once stated that they would evict the communities "as many times as is necessary," started negotiating with the communities about their right to stay on the land.

Through the process, the company has settled with two of the communities.

The Ghost of the Nickel Project that Never Was

It's not just the road between Fronteras and El Estor that makes the company's plans seem far from reality.

It's the history, the ghost of the great nickel project that never was. When they took over the concession in 2004 from Inco, Skye Resources was expecting to drive up their share price and sell the company to a major nickel mining company. When they didn't get any bids, Skye Resources announced that they would build the mine and carry out the project alone.

The company's plan required them to raise nearly a billion dollars by 2014. More than half of the funds are needed to build a petroleum coke-fired power plant to power the mine. In December 2007, the company contracted Morgan Stanley to raise the bulk of the funds, and in January the company announced that they had defaulted on their financing.

Ian Austin, who stepped down as president of Skye in February, cashed in $480,000 worth of Skye shares in late March, a nice retirement bonus for the president of a company whose balance sheets have never been out of the red.

The company claims that it is "preparing to initiate construction once financing is in place." Tension is high in the surrounding towns. After the project delays were announced, the congressperson for Izabal, Byron Chacón, blamed the people who occupied company lands for the failure of Skye Resources to begin mine construction.

It remains to be seen if HudBay is able to kick start the nickel project, a venture which seems less and less likely given that nickel has been devalued by nearly two thirds of its market price over the last 8 months.

A version of this article appeared previously in Upside Down World. Dawn Paley is a contributing editor with the Dominion.

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