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Ecuador’s Mining Future Still Uncertain
Photo caption - New MMP Minister Germanico Pinto is the fourth top mining official of Correa's two and a half year tenure. He is a former Secretary of Strategic Areas. In the minister's first few weeks, he has mainly focused on the oil industry.
By Silvia Santacruz*
Washington D.C. August 4th, 2009 — Fifteen months after Ecuador’s Constituent Assembly issued the mining mandate which a decree halting the country’s large-scale mining operations, the industry continues waiting to resume its activities. The new mining law was published on January 29, but the mandate continues until the law regulations are approved by the new 124-member National Assembly. This legislative body, which has 58 members of President Rafael Correa’s Alianza Pais party, will first convene on August 10, the same day on which Correa will begin his new four-year term.
But regulations are not the only obstacle preventing large-scale mining from resuming in Ecuador. The new mining code increases the industry’s red tape by requiring water and environmental permits—which were implied in the old mining concessions and now issued by the Water Secretariat and the Ministry of Environment, respectively. The permits requirement is listed on the Ministry of Mines and Petroleum’s (MMP) manual or Instructivo, issued on May 22. Only those firms that kept the original concessions—and were not affected by the country’s 90-percent concession revocations in 2008—may opt for those licenses. After the firms summit the licenses alongside with an updated Environmental Management Plan, the MMP may authorize the operations to resume. Corriente Resources recently announced it earned water and environmental permits. Read Corriente’s press release
Another important document for the industry is the National Development Plan, currently being drafted by the National Secretariat of Planning and Development. The Secretariat will determine which areas are to be open to mining exploration and extraction, and which are to be set aside as protected forests. “Bureaucrats believe that is possible to identify mining areas from their desks,” says Azuay province Mining Chamber President, Patricio Vargas. “I’m afraid that they will be very restrictive because they are friendlier with the environmentalists than with the industry.”
The mining moratorium hurts Ecuador’s poorest the most. Vargas argues that after the mandate, informal miners—who lack of good salaries, safety, and environmental protection—have proliferated in mineral rich areas. He cites that a single gold Canadian project in Azuay has been subjected to invasion by three teams of informal miners.
Furthermore, the yet-to-be-created state-owned National Mining Enterprise (ENM, in its Spanish acronym) will also shape Ecuador’s mining future. It has already signed its first agreement, with Chile’s state-owned firm CODELCO, the world’s largest copper producer. CODELCO will perform exploration, and if interested in exploiting an area, will form a joint venture with ENM.
The MMP has announced that ENM will start with 25 metallic and non-metallic projects, ranging from cement or marble to gold, copper, and zinc. MMP representatives are negotiating with South Korea and Iran, to participate in developing the mining industry. Iran has offered $30 million in seed capital, and South Korea is considering 14 mining projects. They are interested in developing copper, zinc, uranium, and gold. ENM’s creation will be finalized soon, upon approval of the Public Institutions Creation Law, passed by the Congresillo on July 24. This law allows public institutions to merge in joint ventures with peer private or public firms to exploit different minerals. Read about the CODELCO-ENM Agreement
This situation has left international mining executives cautiously optimistic, national mining associations less hopeful, and foreign investors frustrated.
We are “cautiously optimistic, and hopeful that the government negotiates a fair return for our shareholders who have been very patient with the halt. There is no reason that Ecuador is not as successful as Peru or Chile. Mineral riches do not stop at Ecuador’s border,” says International Minerals (IMZ) Investor Relations Vice President Wendy Yang. IMZ’s Rio Blanco gold and silver project, located in southwest Azuay province, conducted a positive feasibility study in January 2008, and is ready to spend $120 million in building a seven-year mine. It is also one of the first explorers in Ecuador, with operations since 1993, and owns 40 percent of the operating silver and gold Pallancata mine in Cuzco, Peru.
For its part, National Mining Association Executive Director Santiago Cordovez, says, “We are concerned that the industry hasn’t resume operations. We have dialogued with the MMP and it is contradictory that President Correa continues backing the industry, but MMP’s authorities do not echo him. I think August will be very important for the industry. If the new Assembly continues this inertia, I don’t think we’ll see much progress.” Investors, meanwhile, claim to be “frustrated” by the process, which some have even described as “a joke”—in comments on new articles or Ecuador Mining News.
Despite this scenario, mining analysts base their projections on Ecuador’s mining future on Kinross Gold Corporation, the only major company player in the Andean nation. “Ecuador’s mining fate will be determined by Kinross negotiation with the government,” says New York-based mining analyst Victor Flores “If Kinross successfully negotiates an attractive tax favorable to both sides, and can develop the Fruta del Norte project, Ecuador’s doors will be open to international mining operations. After Kinross, IAMGOLD, International Minerals, Corriente and others, will follow. On the other hand, if Kinross’ negotiations are delayed or the tax is unfair to the company and its investors, it will be much more difficult to pursue other projects. To me, it is very simple: If it goes well with Kinross, the whole mining industry in Ecuador will do well.” Here’s hoping he’s right. Read EMN’s Q&A with Victor Flores.
* Silvia Santacruz is writer-editor at Ecuador Mining News, and the Warren Brookes Journalism Fellow at the Competitive Enterprise Institute.
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Ron Gish: I am looking for news on the status of Dhanoa Mineral's Mining concessions in Ecuador.
Any information on the companis mining properties and return to minig production would be appreciated.
John McAllan: This is like a, Correa, 'good cop' MMP, 'bad cop' situation. I wish Kinross all the best, they are an astute bunch but as an ex-Aurelian I would never put another nickel into Ecuador.
James Dean: The passing of the new mining law has become a real problem with most investors it's as if they keep moving the line and keep jerking around the foreign mining companies.
Either pass it or just tell the world you have no intentions of allowing any real mining to take place and be done with it, Correa's government has taken almost two years I think we ahve been more than patient.
Edward Jarvis: Ecuador, what a country, the leftist president now has a scandel with Chevron. The judge(ecuadorian) in charge of that law suit was video taped asking for three million dollars, a million going to Correa's right hand legal man, and another person besides the judge involved. It is almost impossible to believe the president had no idea of what was going on, he is not stupid. This from a politician stating that "his hands are clean", his maybe but not his insiders. Correa also recently sued a bank (Pichincha) in the country over a tiny sum of three hundred and sixty seven dollars. Winning a settlement of 300k, the legal system is also corrupt and with him in office beyond repair. I guess he wants special meeting with his insiders to help thing progress in mining too !
Edward Jarvis: Can you please correct my name to read Maurice Jarvis. Thank you very much.
Barack onot-bama: BORE SNORE!!
Hans A Hendgen: Could you please forward any information of a reputable geologist in Ecuador please. Thanks.