May 31, 2005

Mr. Gino Alzetta
Belgian Executive Director to the World Bank
Office of the British Executive Director to the World Bank
MC 12-041
1818 H Street, NW
Washington, DC 20433, USA

Dear Mr. Alzetta,

Thank you for taking the time to meet with us during the week of spring meetings, April 10th to the 16th. We appreciate the opportunity to share our concerns regarding World Bank Group (WBG) support for Glamis Gold's Marlin Mine in Guatemala. We are writing to: (i) update you on our conversations with the staff of the International Finance Corporation (IFC) during our meeting with them on Thursday April 14th; (ii) identify areas of ongoing concern, and; (iii) request your support in resolving problems surrounding this project.

On Thursday April 14, Monsignor Ramazzini, the Bishop of San Marcos, along with representatives from two Guatemalan non-governmental organizations (Asociaci'n Estore'a para el Desarrollo Integral and CEIBA), accompanied by a range of international groups, met with staff from the IFC, including Rashad Kaldany, Michael Swetye and Kent Lupberger, recently returned from an emergency site visit to San Marcos, Guatemala.

The meeting helped clarify some of the issues we had raised in our discussions with your office, but also confirmed some of our most serious concerns. In essence, we remain convinced that the IFC failed to conduct an appropriate level of due diligence for this project with respect to a number of issues, including the following:

• the violation of indigenous rights;
• timely and informed consultations on the Environmental and Social Impact Assessment (ESIA) and Environmental Management Plan;
• the level of broad community support;
• shortfalls in the ESIA;
• the exacerbation of conflict and violence brought on by the project; and
• the inappropriateness of Glamis as a partner and this project as an investment.

We have elaborated on our conversations with the IFC and on these concerns in an appendix to this letter.

Since we feel that these concerns throw into question the level of due diligence the IFC conducted for this project, we are asking you to help us resolve many of these issues and take the following steps:

• determine exactly what steps the IFC took to ensure that it was not preparing to finance a project that violated the rights of indigenous peoples in Guatemala. Our research (See appendix) indicates it did very little, and we would also be interested to know whether you feel that this was an adequate level of due diligence (See point 1 in the 'appendix' for details);
• obtain a clear explanation from the IFC regarding how they have reached a level of 'comfort' with the consultation when Glamis' own records and website indicate that they were clearly incomplete and inadequate (See point 2 in the 'appendix' for details);
• establish the basis on which the IFC has the impression that this project enjoys broad community support, including a list of the people IFC staff met on their recent visit and a copy of the new survey that lead them to this conclusion. Ensuing statements from local groups and representatives of indigenous groups from the Western Highlands continue to contradict this conclusion (See point 3 in the 'appendix' for details);
• in light of the issues not addressed in the ESIA, demand that the IFC pressure Glamis to accept visits from independent experts to the project site (See point 4 in the 'appendix' for details);
• request from the IFC a report detailing the level of due diligence they conducted in relation to this project's potential to exacerbate existing conflict in the Western Highlands, and what measures it foresaw putting in place should this arise. The IFC seems to have completely failed to foresee any of the violence that has resulted from this project, ignored all indicators when they arose, and even potentially aggravated the situation by allowing the company to draw down on its loan just prior to and following the protests in January 2005. It is now demonstrating just how completely ill-equipped it is to deal with this situation. The IFC did propose the establishment of an independent monitoring mechanism in collaboration with the company and the community, and we wish to know how it plans to proceed with this proposed independent monitoring (See point 5 in the 'appendix' for details);
• explain why the IFC would consider funding a company whose track record in California and Honduras could not have boded well for Guatemala (See point 6 in the 'appendix' for details); and,
• provide a rationale for the investment impact that IFC envisaged from this project. At the time when the Board voted on supporting the Mine, several board members questioned the poverty alleviation dimensions of a $45 million dollar loan in a $253 million project that would create only 160 long-term local jobs. At the meeting, the IFC agreed to share their economic assessment of the project with us. This they say is the basis for their conclusion that Guatemala, with 1% in royalties, 31% tax after 2008, and a 1.3 million dollar Foundation, will see a 50/50 split of benefits.

These failures are in part a reflection of broader policy and procedural failures on the part of the IFC as a whole. As a result, the IFC now finds itself supporting a project that does not enjoy broad community support, is fueling tension and conflict between the Guatemalan government and indigenous Mayan communities, and is doing little to contribute to poverty alleviation either in the region or the country.

The IFC has indicated its willingness to support independent monitoring and dialogue between interested parties in Guatemala. But we fear that these measures will ultimately fail to defuse the growing tension unless the project proponents demonstrate their willingness to negotiate in good faith. We therefore continue to affirm that the IFC needs to take a quick and convincing step and call on the company to suspend the project to create the space and environment for a meaningful dialogue to resolve the issues we have highlighted above and other outstanding issues.

We strongly urge you to bring the issues outlined in this letter to the full attention of the Board, and to start thinking through how the IFC can help resolve this situation and tackle some of the issues that continue to plague this project. Calling on the company to suspend project activities would be a first step.

Yours sincerely,

Fraser Reilly-King, Halifax Initiative Coalition, Canada

Graham Saul, Friends of the Earth, Canada

On behalf of all the individuals who met with the Offices of the Executive Director to discuss the Marlin mine:

Knud V'cking, Urgewald e.V., Germany

Daniel J. Vogt, Asociaci'n Estore'a para el Desarrollo Integral, Guatemala

Janneke Bruil, Friends of the Earth International, Netherlands

Antonio Tricarico, Campagna per la riforma della Banca mondiale, Italy

Eric Holt-Gimenez, Bank Information Center, United States

Elizabeth Bast, Friends of the Earth USA, United States

Jorge Rogachevsky, Executive Director, Network in Solidarity with the People of Guatemala- NISGUA, United States

Encl. (1)

CC:

Meg Taylor, Compliance Advisor and Ombudsman

Rashad Kaldany, Director, Oil, Gas, Mining and Chemical Department, International Finance Corporation

Drawing on the information gathered in our meeting with the IFC, we would like to reiterate the following concerns:

1) The project violates the rights of indigenous peoples:

Our meeting with the IFC did not resolve our concerns that this project violates the rights of indigenous peoples in Guatemala. In general, the IFC now appears to be deflecting responsibility for this issue towards the Government of Guatemala:

In May 2004, Guatemalan organizations called on the IFC to suspend consideration of the Marlin project for three months in order to allow time to discuss outstanding grievances. This included their claim that the Government of Guatemala had failed to comply with its commitments under International Labour Organization Convention 169 (ILO 169) Concerning the Rights of Indigenous and Tribal Peoples in Independent Countries when it issued the exploration concession for the Marlin Mine. Kent Lupberger, Acting Director of the Oil, Gas, Mining and Chemicals Department, responded with a letter dismissing these allegations and strongly suggesting that the project was in compliance with ILO 169. A range of organizations and indigenous peoples representatives have since emphasized their conviction that this project is in fact in violation of ILO 169 (along with most of the other mining concessions that have been issued across the country) and they have attempted to explain to the IFC why both the IFC's position and the information provided by the company on this matter fails to respond to their concern.

The IFC now appears to be more open to the possibility that the project violates indigenous rights. Rather than defending the project's compliance as they had previously done, the IFC now claims it is the responsibility of the Government of Guatemala to ensure compliance with ILO 169.

We agree with the assertion that it is ultimately the Government of Guatemala's responsibility to fulfill the international obligations that it has assumed pertaining to indigenous rights. We do not, however, believe that the IFC should be funding projects that are in violation of a country's international obligations.

The IFC also claims to have consulted with the government as part of its "due diligence" on this issue. From our meeting it seems that this involved calling the Guatemalan Ministry of Energy and Mines to determine whether the project violated ILO 169. According to the IFC, the Ministry indicated that the project did not violate 169. Conversely, the Presidential Commission on Human Rights - a body that is presumably more appropriate for determining whether the terms of ILO 169 had been met, but which IFC management elected not to consult - has indicated that many of the mining concessions issued in Guatemala, including those for the Glamis mine, were not in compliance with ILO 169. At our recent meeting, the IFC did not deny the findings of the Presidential Commission, but rather dismissed its opinion by saying that the Commission has "an alternative perspective."

It is difficult to understand how the IFC - and ultimately the Board - can remain comfortable with this level of due diligence, especially after Bank Management underscored its "strong support for human rights" in its response to the Extractive Industries Review. We would very much appreciate support from your office in determining exactly what steps the IFC took to ensure that it was not preparing to finance a project that violated the rights of indigenous peoples in Guatemala. We would also be interested to know whether you feel that this was an adequate level of due diligence.

2) The consultations associated with the project were fundamentally flawed.

In terms of consultations, IFC said that the consultations were "in the past" and it was difficult to assess their adequacy after the fact. Nevertheless, they indicated that they were "comfortable" with the consultations that the company had done. While it is admittedly difficult to resolve this debate after the fact, there are still a number of outstanding issues that we have not been able to resolve. We do not dispute the number of consultations that Glamis has held (According to its records, there were 200 meetings attended by 11,000 local residents, 200 visits to the project site by more than 3,000 people, and 14 tours of the San Martin mine in Honduras attended by 126 Guatemalan officials and local leaders). However, we do dispute the quality, particularly in terms of timelines and information.

The purpose of Environmental and Social Impact Assessments is to both inform and be informed by project stakeholders through community consultations. The company's Public Consultation and Disclosure Plan (Appendix A) indicates that when Glamis submitted the initial ESIA in April 2003, they had only conducted 8% of their meetings with the community (12 of 158 meetings), and by the time the comment period for the ESIA was completed (July 2, 2003), they had only held 21% (or 33 of 158) of all meetings. It is difficult to argue that such a small percentage of meetings prior to the end of the consultation period constitute a meaningful consultation.

Furthermore, testimony from community members indicates that the groups consulted were not adequately informed of the project's risks, and never had an opportunity to meaningfully discuss the project's potentially negative impacts or the "no project" scenario. It has been repeatedly stated by community members that the consultations were simply presentations of a fait accompli.

Similarly, groups were only given one month to comment essentially on just the Executive Summary of the ESIA. An entire hard copy of the entire ESIA was apparently made available in the Mayor's offices, but only in Spanish. It was only the Executive Summary that was translated orally into Mam, recorded on CD and made available to the "affected communities". These two types of document releases appear to be the actual extent of disclosure of project documents. To be able to properly respond to an ESIA, communities need longer periods of time, full documentation in an appropriate language, and independent expertise to highlight the impacts of projects and identify their concerns. This was clearly not the case with this project.

It is also interesting to note in this regard that the environmental management plan came out at the same time as the ESIA, allowing little opportunity for it to reflect and address issues raised in the few meetings held prior to its release, nor for it to reflect issues raised during the one month consultation period.

While both the IFC and the company continue to assert that all domestic legislation was met with regards to the Environmental Impact Assessment for this project, responsible companies have come to recognize that simply following the regulations of the countries in which they are operating is not sufficient to protect the environment and communities.

Finally, and of particular concern, Glamis Gold recently indicated on its public website that the Marlin Mine is now to be the ore processing center for the nearby La Hamaca deposits, and, potentially, the Cerro Blanco mine. This expansion of processing capacity is clearly beyond the scope of the original ESIA and was never mentioned in any public consultations. In fact, the La Hamaca deposits were not discovered until spring of 2004, long after ESIA approval. Nonetheless, villagers will now be subjected to the increased social and environmental impacts of this processing.

3) The project does not enjoy broad community support.

The IFC did not demonstrate that this project currently enjoys, or has ever enjoyed, broad community support. They could only say that their recent mission gave them the "impression" that the project still enjoyed such support, although they admitted that they did not meet with many local residents. Their statement was based on meetings with the Mayor of San Miguel, Sipacapa, and Father Eric, and a few others, although they did not stipulate whom. They also indicated that a new survey showed the local populations were now more in favor of the project (according to the IFC, the new survey said 60% of locals were opposed to the project, down from a November Prensa Libre survey conducted by Voxx Latina indicating 95.5% opposed), and that President Wolfensohn had received a letter from a group in favor of the project. They were unable to provide copies of the survey nor the correspondence, nor would they explain why their impression was so contrary to that of many other groups. At the same time, a meeting of indigenous groups from across the Western Highlands, the region where the project is taking place, put out a statement at the end of April 2005, stating their strong opposition to the project.

4) Critical questions about the environmental assessment have gone unanswered.

IFC informed us that days prior to our meeting, Glamis Gold had written a response to the critique that Dr. Robert Moran prepared on their ESIA. Mr. Kaldany agreed to share this response with us. This will be useful, as it should provide answers to some of the questions that Dr. Moran raised in his report, especially since Bishop Ramazzini, Dr. Moran and a Guatemalan NGO Madre Selva, were barred by Glamis from visiting the mine site on April 19th, a few days after our meeting with the IFC. The request for the site visit was made to the company through the Ministry of Mines, and the company's response has been interpreted as a direct lack of willingness to dialogue with groups. Glamis indicated that it would only allow Dr. Moran to visit the site in the context of a request from the High Level Commission (a body composed of representatives of the Catholic Church and the Government).

We would be happy to update your office on Glamis' response to the issues Dr. Moran raised in his critique of their ESIA.

5) The project is exacerbating conflict.

This is not surprising. According to the Extractive Industries Review (EIR):

"In a number of countries, extractive industries have been linked to human rights abuses and civil conflict. Such abuses have been documented, for example, in cases where the army has been called in to guard extractive industry projects. [...] those protesting the development may be locked up or physically harmed. [...] Indigenous peoples are particularly vulnerable." Extractive Industries Review (2004), p. 6.

"The WBG agrees that mechanisms to help address local communities' concerns at an early stage are valuable for successful project development. IFC and MIGA support the provision of complaint and dispute resolution systems that provide fair and reasonable recourse for local communities and provides them for large complex projects." Management Response to the Extractive Industries Review (2004), p. 25.

Guatemala is less than ten years out of a bloody and vicious civil war, at the core of which was the brutal violation of indigenous rights. Among others, indigenous leaders, Monsignor Ramazzini of San Marcos and the mayor and mayor's aide of nearby Solol' have all received death threats because of their opposition to mining in the Western Highlands. The lawyer from Madre Selva who filed the complaint about the mine to the Compliance Advisory Ombudsman (CAO) left the organization shortly afterwards because of threats.

The IFC did not deny that this project was exacerbating conflict, and in fact rightly pointed out that the death threats that have been targeted at journalists writing articles against the mine, and indigenous leaders opposed to the project, have also been targeted at the Company and their staff. This is why Guatemalan groups emphasized the need for the IFC to take a quick and dramatic step, and call on the company to suspend the project to create the space and the conditions for a peaceful and meaningful dialogue that will resolve these issues in the absence of violence. This is particularly true given the IFC's consistent dismissal of local concerns, and the IFC's poor response to the violence.

On two occasions, when the IFC could have played an important role in resolving tensions, it failed to do so:

• In April and May 2004, prior to approval of the World Bank loan, various groups raised concerns about the project and wrote the Bank asking that it delay approval for three months until various issues were resolved. IFC dismissed these concerns, and board approval proceeded. Now, many of the issues that were raised a year ago have been playing themselves out at both the local and national level. We are deeply troubled that the Bank did not delay approval of the loan and discuss these issues with groups in Guatemala when they were first raised. The IFC initial confidence in this project and their willingness to initially dismiss the concerns that were being raised, along with its failure to properly assess the possibility that this project would exacerbate conflict in the area, is deeply troubling.
• Secondly, based on Glamis Gold's Annual Report 2004, page 25 (and comparing this with a previous financial statement from November 2004), it appears that the company withdrew $30 million from the IFC loan facility in December 2004 (during the 40 day blockade of the ball mill) and the remaining $15 million in February (following the violent stand-off in Solol' and Raul Castro's death). In both December and January, in light of the protests and ensuing violence, countless groups called on the IFC to suspend loan disbursements to Glamis until the numerous issues (many of which are laid out in this letter) had been resolved and tensions alleviated. It is disturbing, therefore, to learn that during one of the most dramatic periods in the life of this project, rather than playing a constructive role, the IFC again elected to exacerbate the situation by allowing the company to withdraw the loan.

Our concern remains that without an act of good faith ' calling on the company to suspend activities ' this project has the potential to escalate into further violence, thus fracturing any reconciliation achieved to date and jeopardizing meaningful dialogue in the future.

IFC did indicate that they would be supportive of the establishment of an independent interdisciplinary monitoring body of credible individuals selected by, and acceptable to, the government, the community, and the company. They agreed that not just independence but the perception of independence is important in this case. Bishop Ramazzini from San Marcos, Daniel Vogt of the Associaci'n Estore'a Para el Desarollo Integral, and Mario Godinez from CEIBA found this proposal acceptable, but highlighted the challenges of achieving such an outcome while the company is continuing with its activities at the mine. They felt that without suspending the project - a move that would help diffuse tensions in the area and create the space for discussing such a monitoring body - the initiative would not be perceived to be demonstrating sufficient good faith on the part of the IFC and the company.

6) Glamis Gold is an inappropriate partner.

Since 2001, Glamis has been embroiled in a controversy with the Quechuan Indian nation over its Imperial Valley mine that sits on ancestral and sacred sites, with the Californian government over environmental legislation requiring the company to backfill the holes at this mine site, and with the US government over a US$50 million Chapter 11 law suit that Glamis has filed over changes to the Californian legislation that the company argues no longer makes its mine site profitable. There has also been significant controversy regarding Glamis' San Martin mine in Honduras. In 2003, a two year study of the health problems in El Pedernal, the closest community to the mine, revealed increased incidence of skin, neurological, respiratory and eye diseases. Authors of the study suggested that these might be linked to contamination from the mine. This suggestion seems to have been further corroborated by a water study, conducted with Entre Mares' approval, in the exploitation area of the mine which found unacceptably high levels of arsenic and mercury in the water. The company did also commission a separate report by the College of Dermatology which has refuted the claims of the other two studies, suggesting that there are no links between the mine and the increased incidence of skin problems. The issue currently remains unresolved. Communities have also noted a severe decrease in the availability of water, and the Special Prosecutor's Office on the Environment has filed criminal charges against the company for altering the course of streams and for unauthorized deforestation.