International tribunal rules against NZ gold miner

NZX-listed gold miner OceanaGold, operator of several New Zealand gold mines including Macraes in Otago, has lost an international tribunal case over its attempt to mine in El Salvador.

In a decision issued on October 14, the International Centre for the Settlement of Investment Disputes ruled in favour of the government of El Salvador and ordered OceanaGold to pay the Central American state $US8 million ($11 million) in costs.

The dispute follows OceanaGold’s acquisition of North American mining company Pacific Rim Mining for $US14.1 million ($20 million) in two tranches between 2012 and 2013.

Pacific Rim’s main asset was a scheme to develop a mine called El Dorado in El Salvador, believed to have potential for at least 300,000 ounces of gold.

However, the proposal was stalled in 2008 when El Salvador’s then President Tony Saca announced a moratorium on new mining permits.

Pacific Rim filed its arbitration claim with the ICSID in June 2009.

The claim sought $US77 million in costs plus compensation for loss of profits potentially running into hundreds of millions of dollars.

In a statement to the NZX, OceanaGold said it was disappointed in the tribunal’s decision and would review it before deciding what to do next.

“The company believes that a modern resource industry that operates in a safe and sustainable manner and within internationally recognised best practices has the potential to unlock a sustainable and multi-decade development opportunity for the Republic of El Salvador,” it said. “However, the company recognises that the government will need to take positive and definitive steps toward establishing a stable business environment if it wishes to attract foreign investment to establish this opportunity.”

The ICSID is based in Washington DC and handles disputes involving countries that have signed up to use its services through international treaties.    

Melbourne-based OceanaGold said in its half-year results that a negative ICSID decision could result in impairment of its assets there.

Its shares closed on Friday at $4, valuing the company at $2.4 billion.