Some Central American countries put breaks on mining

* Mining rules tightening from Guatemala to Costa Rica

* Governments keen to avoid conflict with mining opponents

* Panama, Nicaragua buck regional trend

SAN JOSE, Costa Rica, June 2 (Reuters) - Four Central American countries, fearing environmental and political fallout from mining, have called for a halt to new projects, even as gold prices soar and copper prices rebound.

Mining has frequently been a source of controversy in Central America, sparking sometimes violent protests by residents who fear losing their land or access to resources such as clean water.

Less than two hours after taking office in May, Costa Rican President Laura Chinchilla issued a decree banning all new open-pit gold mining in the country, reversing the policy of her predecessor, who had lifted the ban two years earlier.

“We are reiterating our environmental agenda, our commitment of rejecting extractive industries in Costa Rica, especially open-pit mining,” Chinchilla said shortly after being elected in February.

Costa Rica's only open-pit gold project, owned by Canada's Infinito Gold Ltd IG.V, has been tied up in the courts for nearly two years by environmental groups who allege it will destroy virgin forest that is home to endangered species, and cause widespread pollution.

El Salvador’s left-leaning President Mauricio Funes wants a total ban on mining and refuses to recognize permits granted by a previous business-friendly administration for a contentious gold project in one of the country’s poorest regions.

A subsidiary of Vancouver-based Pacific Rim Mining Corp PMU.TO, the owner of the mine, filed for international arbitration last year, seeking that the government return at least $77 million in investment due to the delays imposed on the project.

Both Guatemala and Honduras are holding off on new mining projects until new mining legislation is passed by their lawmakers that tighten up environmental rules.

“Mining bans are certainly due in part to governments wanting to avoid inciting tensions with local communities, anti-mining organizations, and environmental groups,” said Heather Berkman, a regional analyst at Eurasia Group.


The region’s history of conflict and political instability already makes it a more challenging place to invest due to concerns that projects will be delayed or canceled.

“Central American countries are generally viewed as a lot more unstable,” said Simon Gardner-Bond, a mining analyst with London-based investment bank Ocean Equities. “Your project has to have economics that are that much more attractive.”

But other Central American countries are aggressively courting mining investment.

Panama's pro-business President Ricardo Martinelli believes untapped copper reserves could generate billions of dollars for the country. Inmet Mining Corp IMN.TO is currently looking for a third partner to develop a massive $5 billion copper-gold deposit in Panama.

The government is pushing ahead with plans to find a developer for the Cerro Colorado project, which is believed to hold 11.2 billion tonnes of copper, but sits in a semi-autonomous indigenous region. Environmental and rights activists have promised strong resistance to the project.

Contentious projects are moving ahead in Panama. Petaquilla Minerals Ltd PTQ.TO began production at its Molejon gold mine earlier this year despite opposition from activists.

Nicaragua, once a regional hot spot of the Cold War, has emerged as another strong mining supporter.

Leftist President Daniel Ortega, a former Soviet ally who is now open to capitalist investment to help Nicaragua become a major gold exporter, last month inaugurated a gold mine owned by B2Gold Corp BTO.TO. (Additional reporting by Sean Mattson in Panama City, Sarah Grainger in Guatemala City, Gustavo Palencia in Tegucigalpa and Nelson Renteria in San Salvador; Editing by John Picinich)