LA LIBERTAD, Nicaragua — Explosions ring out near La Libertad, an area that was the scene of fierce combat during Nicaragua’s civil war in the 1980s.
But these days, the blasts come not from guerrilla fighters but from prospectors searching for gold.
Record prices for gold have led to an influx of foreign investors and the reactivation of Nicaragua’s long-dormant mining industry. Annual gold production has more than doubled in just the past three years. Gold is now the country’s No. 3 export and has helped Nicaragua post the highest economic growth rate in Central America.
In Colombia, Peru and elsewhere in South America, gold-mining projects have often sparked protests because they can damage the environment and disrupt rural communities. But Nicaragua, the second-poorest country in the hemisphere, has few economic options.
What’s more, the impact has been less severe, because rather than blasting and bulldozing new sites in untouched areas, foreign and local companies have, at least for now, focused on ramping up production in traditional mining zones.
As a result, the Nicaraguan government and villages located near mine sites have embraced the industry.
“Gold mining today means a lot of investment and a lot of employment,” said Jose Adan Aguerri, president of the Nicaraguan Private Business Council.
Mining companies, he added, “have a good relationship with the communities. And that’s very important for a sector that has not always been very friendly with communities.”
It helps that Nicaragua, in some form or fashion, has long been connected to gold mining.
With the advent of the California gold rush in 1849, Nicaragua served as a trans-oceanic shortcut for prospectors from the eastern US who were desperate to reach the west coast. Later, American and British companies signed contracts to extract gold from several areas of Nicaragua, including La Libertad.
More recently, gold production at La Libertad had been flagging. But in 2009, Vancouver-based B2Gold Corp. acquired the open-pit mine here and spent another $100 million to modernize operations and increase the recovery rate of gold extracted from the ore.
Besides creating hundreds of jobs, B2Gold is processing ore purchased from individual miners. The idea is to reduce the use of mercury, a highly toxic chemical now shunned by the industry but still used by many small-scale miners to separate gold from ore.
In addition, the company is spending large sums on reforestation, water purification, and other projects in La Libertad, which is the hometown of President Daniel Ortega.
During a recent tour of the town, contractors were paving streets and constructing a housing complex for miners, while in the central park, workers were building a roof for the basketball court. All three projects are being finance by B2Gold.
“This has brought a lot of development to the region,” said Omar Vega, manager of B2Gold’s mine at La Libertad. “You see the nearby towns and villages growing with a lot of economic activity.”
Gold production at La Libertad and other sites has been steadily rising and was expected to top 200,000 ounces in 2011. That will bring in about $350 million in export income and keep the economy on track to grow by about 4 percent annually, according to Sergio Rios, president of the Nicaraguan Chamber of Mining.
Ironically, Nicaragua’s mining boom is taking place under Ortega and the Sandinistas, who were once viewed by the private sector as anti-capitalist archenemies.
That’s because after the Sandinista guerrillas seized power in 1979, Ortega led a Marxist government that nationalized the mines and expelled foreign mining firms.
But a US embargo made it nearly impossible for the new mine managers to secure spare parts for American-made mining equipment. In addition, the mines were targeted by US-backed Contra rebels, who sought to overthrow the Sandinistas. Gold production plummeted.
“The Contras took over mining towns. They sabotaged the electric plants and burned” mining installations, Rios said. “During the Sandinista revolution there was no investment in the mines.”
The Sandinistas were voted out of office in 1990 and subsequent governments privatized the gold mines. But the industry remained in a slump until gold prices began to take off.
Over the past decade, the price per ounce has jumped from $300 to about $1,600. Suddenly, foreign mining companies — which could produce gold for about $500 an ounce — began to take a second look at Nicaragua.
They were welcomed back by their old foe, Daniel Ortega, who was reelected in 2006 and won a third five-year term in November.
This time around, the Sandinistas have shed their Marxist rhetoric, adopted business-friendly economic policies, and kept Sandinista-controlled labor unions in check.
“This is by far the best place (for mining companies) to operate in Central America,” said Randy Martin, a US mining engineer and chairman of Hemco Nicaragua, a private company that operates Nicaragua’s second-largest gold mine, near the town of Bonanza.
Of the Sandinista government, Martin said, “We work together. If there’s a problem, we sit down and solve it.”
Still, some analysts warn of lurking dangers. They point out that the country’s three main exports — coffee, beef and gold — are the same as they were in the 1800s. Nicaragua, they say, continues to export raw materials and import expensive manufactured goods. What’s more, there’s no guarantee gold prices will not someday collapse.
“Right now we have a good window of opportunity, and we have to take advantage because we are going to have two or three years of good prices,” Aguerri said. “But we need to diversify and increase productivity. Because gold prices today are very high, but tomorrow they could be very low.”