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Ecuador Lifts the Mining Ban, Uncertainty Persists
Photo caption— President Correa signed the long-awaited mining regulations during his visit to the mining district of El Oro, Zamora, last month. Some firms can resume operations after the 19-month halt.
By Silvia Santacruz
Ecuador Mining News
New York, December 9, 2009 — After 19 months of the infamous mining mandate – which froze all large scale mining activities – few survivor firms were allowed to turn their drilling machines back on. Mining regulations, with a six-month delay, were finally published in the Official Gazette last November 16th. Although the industry has welcomed the good news, regulations are still ambiguous in two crucial terms for the business economics: the already high 5% minimum royalty still lacks of a maximum, and the 70% windfall tax has no base price parameters. Both numbers are to be determined in individual exploitation contracts prolonging investor’s uncertainty even further. Read Mining Regulations –Spanish only —
Kinross Gold Corporation (TSX:K) (NYSE:KGC) and Corriente Resources (TSX:CTQ) – both Canadian firms with the nation’s most advanced exploration projects – were the first two to get green light to resume operations, followed by an environmental management plan update. Kinross began drilling 20,000 meters at its gold mega-rich Fruta del Norte (FDN) project, in a six-month program towards the completion of its feasibility study. Meanwhile, copper-rich Corriente’s Mirador project will start early 2010 and is currently preparing its drilling platforms and bringing up to date its feasibility study. Ecometals and Dynasty Metals (TSX:DMM) were also granted the Non-Renewable Resources Ministry (NRRM, former MMP) permits to restart activities. IAMGOLD Resources (TSX:IMG, NYSE: IAG) and International Minerals (TSX:IMZ), for their part, have to wait until the protected areas regulations are imposed. Kinross Press Release Corriente Press Release
Whereas mining CEOs and general managers continue to show their optimism, their off-the-record chat is completely different. Mining executives have high concerns regarding the maximum royalty –which the 5 percent minimum is already the highest in the region—, the windfall tax, and the astonishing preference to the state-owned National Mining Enterprise for obtaining new concessions. “The former law was based on free market principles. The new one, on the other hand, is based on nationalism sentiments,” explains one frustrated miner who prefers anonymity. The source believes that mining firms operating in Ecuador will be okay, but new players will just fade away.
Prior the regulations, Ecuador’s president Rafael Correa advocated for a responsible mining industry several times during his weekly radio address. But environmentalist pressures caused a setback in Correa’s ambitious mining plans. Anti-mining and anti-oil indigenous groups violently protested against the proposed Water Code, last October. The Water Code issue is expected to be in the Congress’ second debate in February 2010. Dow Jones on Ecuador Indigenous Groups Threaten More Radical Protests
Wearing a hard hat, plastic boots and a big smile, Correa showed his support for the industry visiting a small-scale mine, and highlighting the presence of hundreds of miners clapping and cheering the large-scale mining operations restart in El Oro mining district, in the southern province of Zamora. There, he signed the regulations early November, just a month after the violent protests. See Correa’s visit on this video
Another bright side on the Ecuadorian mining scene are the new authorities within the NRRM (former MMP), and within the yet-to-be-created agencies such as the Mining Regulation and Control Agency, and the state-owned National Mining Enterprise, among others. AndeanGold Ltd. (TSX:AAU) General Manager, John Bolaños, asserted that “new authorities are highly qualified on both fronts, the educational and the experience level.” One remarkable example is the new Undersecretary of Mines, Carolina Bernal [replacing Jose Serrano, a former anti-mining NGO lawyer], who assured she will enforce the new regulations among small miners to discontinue mercury usage, the biggest mining pollutant in Ecuador. Watch a video with the new Undersecretary
This may calm waters among large-scale miners who believe they were treated unfairly with the 19-month halt. Ecuadorian Geologists Association President Gustavo Pinto complained that the mandate caused the layoffs of hundreds of miners and geologists. Paradoxically, authorities never stop artisan o small-scale miners, “and they are the ones who pollute.” As a consequence, mining firms with operations in Ecuador were on life support since 2Q 2008 until 4Q 2009.
“I fear that the few survivors of the mining mandate, which are currently recommencing operations, will become solitaire pioneers with new comers faded away. Sometimes I think the government will just allow the Canadians to operate, so they can transfer their technologies and ‘know how’ to the National Mining Enterprise,” concludes the anonymous miner.
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