Goldcorp & Me

Goldcorp and Me OR how Guatemalan Subsistence Farmers fund my son’s university education and my retirement

As strange and twisted as it sounds, Mayan subsistence farmers in Guatemala are getting poorer so that my son can have a high-quality Canadian university education and so I can have a comfortable retirement. To understand this link, just “follow the money,” as Sherlock Holmes would say.

Since 2005 Goldcorp, a Canadian-based mining company, through its Guatemalan subsidiary, Montana Exploradora has operated a open-pit gold and silver mine in the municipalities of San Miguel Ixtahuacan and Sipacapa in western Guatemala.

The mine produces about 225,000 ounces of gold and more than 4 million ounces of silver per year. Prices on the international market have risen dramatically from 2005 to 2011: from $444 to US$1,500 an ounce for gold. This means that the mine now generates roughly $330 million in revenue per year in gold alone.

Local and international concerns about mining, and MCC Canada’s Mining Justice Campaign, have focused on the rights of people to decide what happens in their communities, particularly for lands belonging to indigenous communities, and on the negative environmental impacts of mining.

However, with the enormous amount of money involved, environmental and community considerations can easily be overwhelmed. Where does the $330 million generated each year by this gold mine go?  Who benefits and who loses?

A “Good Thing” for the Local Community?

The Marlin Mine is located in a marginalized mountainous region of largely Mayan families who supplement their crops of corn and beans, with small-scale trading, artisan production, seasonal migration to coffee plantations on the coast, and, increasingly, migration as undocumented labourers to the United States. In indigenous Guatemalan communities like these, 70% of residents live on less that $2 per day. The illiteracy rate is about 50%, and people aged 15-31 years old have an average 3.5 years of formal education. About two-thirds of children under 5 years of age suffer from chronic malnourishment.

Along on the highways of Guatemala, large billboards announce: “Development= Health,”  “Development=Education” and “For Goldcorp, development is what is valuable.” Goldcorp’s advertizing campaign claims that the mine is a good thing for the development of the country. However, after 5 years of operation, this does not appear to be the case.

A recent cost-benefit analysis of the Marlin Mine concluded that the mine costs Guatemalans 1.8 times more than the benefits they receive. 

A recent cost-benefit analysis of the Marlin Mine concluded that the mine costs Guatemalans 1.8 times more than the benefits they receive.

The benefit side of the equation includes such things as: income generated for national and local governments, jobs created, improved wages and buying power for workers, sales taxes generated, and increased local purchasing power. The costs side of the equation includes such thing as the environmental, social and cultural costs that are more difficult to quantify, as well as lost revenues due to reduced royalties and tax concessions.

In terms of job creation, the mine had 1,600 employees in 2009, of which 61% were from the local communities (about 4 % of the economically active population in the municipalities).  Six and a half percent of income generated by mine is used to pay salaries.  Only 37% of the salaries was paid to workers from San Miguel and Sipacapa, the remainder was paid to Guatemalans from elsewhere (43-46%) and  foreigners (4%).  Local employees are the lower paid, less qualified workers.

The mine has a corporate social responsibility program, which funds such initiatives as reforestation, support for teachers salaries, and health services in the local communities. The company donates an average of $1.8 million per year to these initiatives.

The environmental costs can be viewed as “externalities” (ironically a term I learned from my son who is studying economics at university).  These are the costs that are not reflected in the market price of the goods, in other words, the company is not paying for all the costs involved in production, such as water contamination and loss of agricultural land.  In this way, the communities around the mine are subsidizing the costs of production, and increasing profits from the mine.

Water, for example, is a critical “externality” in this case. Goldcorp’s Marlin Mine uses 2.17 billion litres of water per year, or about 200,000 litres an hour, while the average Guatemalan highland farming family uses 30-60 litres per day. Contamination of the water through cyanide seepage, and future water shortages are concerns of the local population. They are, and will continue in the future, to absorb the environmental costs of this operation.

Growing the Guatemalan Economy?

Minerals are a nonrenewable resource, which means they can only be taken out of the ground one time. In 1997, Guatemalan mining laws were revised to reduce royalties from 6% to 1% of gross production value, in an effort to encourage foreign investment.  This is a very low royalty rate compared with 6 – 12% in other Latin American countries. Of this 1% royalty charge, 50% goes to the State and 50% goes to the municipality.

From Oct 2005 to June 2009, Goldcorp paid US$7.25 million in royalties, about $1.45 million per year. San Miguel has received half of this. Sipacapa has received nothing because even though 13% of the mine is in their territory, a popular consultation/plebiscite in the community in 2005 rejected the mine and therefore they have no agreement with the company.

As part of a Guatemalan government investment incentive, Goldcorp was freed from paying taxes on profits.  However since July 2006, Goldcorp has paid voluntarily paid 5% of gross income generated by mine to the State or an average of $6 million per year.

The cash cost of producing one ounce of gold at the Marlin Mine is $197 an ounce, even lower than Goldcorp’s already low-cost mines throughout the Americas which average $300 an ounce, according to the Goldcorp website.  An ounce of gold on the stock market currently sells for $1500.

According to Goldcorp’s financial statements for 2010, the Marlin mine was the company’s second largest source of earnings in 2010. Indeed, the company’s total assets in 2010 now exceed the GDP of Guatemala.

After all the costs of production, royalties, taxes and other costs are deducted, Goldcorp makes a estimated 20%-25% profit on a mine like Marlin, according to Pablo Heidrich, an economist at the North-South Institute. This is about $82 million profit per year of the Marlin mine. “With gold at $1,500 per ounce today, gold mining is an amazingly profitable business. In comparison, the average rate of profit of a manufacturing company like Ford, Apple or a bank like Scotiabank is around 7-9% per year,” according to Heidrich.

Who Benefits in the North?

The obvious beneficiaries of the wealth generated by the Marlin Mine are the shareholders whose investments have increased in value exponentially. According to the Annual report, the Goldcorp as a whole had $3.8 Billion in revenues, in 2010, and net earnings of $1.6 Billion, providing a return of 15% on shares in 2010.

The corporate executives have not done badly either. Throughout the period that the mine has been operating in San Marcos, the executives of Goldcorp have had compensation packages, including such things as salaries, bonuses, and stock options worth between $4-11 million per year, and within the top 50 salaries in Canada.

But it’s not just wealthy investors and corporate executives who are profiting from the Marlin Mine. I am also benefiting from the flow of money from the Guatemalan highlands to Canada.

Goldcorp’s corporate donations illustrate the relationship between high-quality Canadian post-secondary education and the profits from mining in subsistence communities around the world.  In 2007, Ian Telfer, Goldcorp’s chairman at the time, gave $25 million dollars to the University of Ottawa School of Management, which was promptly named the Telfer School of Management. Maybe it should have been renamed the “San Miguel Ixtahuacan School of Management” as they contributed their natural resources and future agricultural livelihoods to enable the donation.

Goldcorp donated $5 million dollars to the School of Earth and Ocean Sciences at the University of British Columbia for the new “Goldcorp Teaching and Learning Wing,” or again, maybe a more appropriate name would be the “Sipacapa Teaching and Learning Wing” in recognition of their contribution.

In September, 2010, Goldcorp announced a $10 million donation to Simon Fraser University to support the university’s facilities and programs in Lower Eastside Vancouver. Ironically, profits from mining in indigenous communities in Guatemala support programs to assist a neighbourhood in Vancouver with many marginalized Aboriginal Canadian residents.

Guatemalan peasants are also supporting a comfortable retirement for us Canadians.

When my husband and I were getting ready to take a three-year assignment with the Mennonite Central Committee last year, we had several thousand dollars that we needed to put SOMEWHERE, as “under the mattress” did not seem to be an option. So, as thrifty, responsible Mennonites, we researched where we could put the money so that it would be there for our “golden years.” At our local credit union in Edmonton, the financial advisor showed us a list of investments included in an ethical mutual fund we were considering. We were stunned to see Goldcorp on the list of corporations included in the fund.

“Ethical investment” funds frequently invest heavily in companies like Goldcorp, suggesting that large-scale mining can be environmentally and socially responsible. Yet, they select mining companies based on the company-provided information and without considering the negative impacts on communities that are not included in financial equations.

Similarly, public pension funds like the Canada Pension Plan, as well as various union pension plans across Canada have combined investment of close to a billion dollars in Goldcorp.  Canada Pension Plan, that we all contribute to, has $256 million dollars in Goldcorp shares.

What if…?

Part of the paradox of for me is that for five years in the 1990s, my family lived in Comitancillo, a municipality bordering on the ones where the Marlin Mine is located. We worked with a Canadian NGO on community development projects, and had the honour of building long-lasting relationships with many people in the community. Now, it seems, that we are inadvertently benefitting from “development” that is threatening the livelihood and sustainability of our friends’ communities.

Mining activities generate wealth, but the distribution of this wealth is unequal and exclusionary. The majority of the benefits accrue in the North, and the local communities in the South benefit very little.

Goldcorp’s Marlin Mine in Guatemala is an example of the complex web of links that connects us as citizens in the global economy. It is difficult to imagine how we can extract ourselves from the economic relationships that create ever increasing inequalities between people.

Are there alternatives to large-scale destructive economic “development” projects that disproportionately benefit an already affluent minority in the North?

What would happen if the $45 million invested to establish this mine had rather been used to establish high schools and healthcare services in every community in the highlands, or potable water and roads? Or if the $5 million donation to UBC were instead invested in supporting a small-scale producers’ cooperative for organic coffee? Or if our retirement savings could be invested in community initiatives like MCC’s project with nearby communities to produce and market fish, mushrooms, and flowers?

What if economic development funded the sustainable growth and well-being of Guatemalan peasant communities rather than privileged post-secondary education and comfortable retirements in Canada?