MAC/20: Mines and Communities

Controversy mounts over Ecuador's mining laws

Published by MAC on 2008-01-28

Controversy mounts over Ecuador's mining laws

28th January 2008

As announced on this website last week, Rafael Correa, the president of Ecuador, has revoked nearly 600 mining licences, as the country's assembly debates a new constitution. See:

However, there's reportedly some confusion - at least on the part of the minerals industry - as to what the recent move will mean in practice; and whether even more leases will soon be cancelled.

Alberto Acosta, leftwing head of the assembly is known to be opposed to open-pit mining in principle, while the president is not.

Ecuador assembly wants mining "house in order"*

By Alonso Soto, Reuters

28th January 2008

MONTECRISTI, Ecuador - Ecuador's assembly to rewrite the country's constitution, is working to overhaul the mining sector and fueling investor worries about what tighter state control could mean for the nascent industry.

Ecuador last week revoked 587 mine concessions, including a key project held by Canada's Ascendant Copper, after charging they failed to pay annual fees on time. But the measure spared some of the big foreign players in Ecuador.

President Rafael Correa, a leftist former economy minister, has vowed to boost the government's grip over natural resources to better distribute wealth among the poor, echoing moves made by ally Venezuela's Hugo Chavez and worrying Wall Street.

Alberto Acosta, head of the government-controlled assembly, said the 130-member body currently debating a new constitution could decide to expand the state's hold over mining as it seeks to "put the house in order."

"We have to study the government's decision and will take additional steps if needed, but what is key here is to establish in the constitution the basic principles under which mining activity will be developed," Acosta told Reuters.

A top mining ministry official, who was not authorized to speak in public, told Reuters the government plans to revoke another batch of the more than 1,000 concessions for not paying annual fees on time. Most of those are smaller operations, some of which have been abandoned, the source said.

But some investors are concerned about mixed messages. Acosta's remarks have often been tougher than those of Correa, who says the government would allow large-scale, open-pit mining if it generates enough revenues for the country.

Acosta has opposed open-pit mining, which could hamper mining operations in the country as most of the large projects plan to use that technique to extract metals.

"The market has received mixed messages ... some investors are worried about tighter control," said Michael Gray, a mining analyst with Genuity Capital Markets in Vancouver.


Speaking from the assembly's headquarters in Montecristi, Acosta said assembly members should prohibit mining in nature reserves, allow communities to decide if nearby projects should move elsewhere and ban open-pit extraction.

"Large-scale mining needs to have clear rules, but the big question remains if we really want open-pit mining," Acosta said in the interview.

Ecuador has no significant output of precious metals, but dozens of junior firms are exploring for copper and gold, including Canada's Aurelian Resources, Corriente Resources, and IamGold Corp.

The government estimates the country holds $130 billion worth of metal deposits. The state has already started talks with Aurelian and Corriente to increase state participation in their contracts.

A government official close to mining policy decisions told Reuters that Correa is trying to convince Acosta to change his opposition to open-pit mining to allow large-scale projects to start work in the Andean country.

Acosta is part of Correa's inner circle and colleagues consider him the president's mentor, with great influence over the assembly.

The country has granted around 4,000 concessions, or 2.9 million hectares ( 7.1 acres), of which companies pay only an annual ownership fee, sparking sometimes violent demonstrations by environmentalists and communities who complain the state is granting too many deals without control.

(Editing by Patrick Markey and Christian Wiessner)

Ecuador 'sending wrong message' by cancelling mining concessions, consultant says


28th January 2008

TORONTO - Ecuador is "sending the wrong message" to international mining companies by cancelling more than 500 mining concessions without starting a dialogue between government leaders and company stakeholders, a Canadian mining consultant says.

If the South American country doesn't "recognize the fact that there's an extended group of stakeholders, then you can never come to any kind of reasonable consideration," said Luke Penseney, CEO of Markets Intelligence in Mississauga, Ont.

"You risk becoming a pariah, which is what Ecuador's in danger of becoming."

Last week, Ecuador's government announced it had cancelled the mining concessions because certain companies neglected to pay a US$1 per hectare environmental conservation fee due at the end of last March.

While the country declined to name which companies were specifically affected, several Canadian miners with properties in Ecuador issued press releases letting investors know they were safe.

Ascendant Copper Corporation, Dynasty Metals & Mining Inc., Plexmar Resources Inc. and Aurelian Resources Inc. all put out statements Friday saying they have paid all necessary fees.

Ascendant's shares regained some of the ground lost on Friday, when they fell 28 per cent. They closed Monday at 17 cents, up two cents from Friday's close but down from 21 cents at Thursday's close.

Reports suggest that two of Ascendant Copper's concessions have been revoked, a suggestion the company denies. "Ascendant has received no notification of annulment from the Government of Ecuador or the Ministry of Mines and Petroleum, nor is it aware that any such notification exists," the company said in a release.

Ascendant claims that it has met all payments, though the government had already told the company it must stop operations at the project because it had gone against certain regulations. "The market is already nervous about Ecuador's ongoing overhaul of mining policy," wrote Eric Zaunscherb, an analyst for Haywood Securities wrote in a note.

Some analysts are speculating that the problem could deepen.

"We're expecting... that they're increase concession taxes and maybe even require minimum expenditures to maintain that your property is in good standing," said David Stein, an analyst at Cormark Securities.

On Monday, Dynasty Metals rose three per cent, or 27 cents to $7.54 and Plexmar was up a penny to 14 cents at the Toronto Stock Exchange while Aurelian's shares closed at $8.10, down 19 cents from Friday's close.

Stein said despite the recent news, miners based in Ecuador still have it good. "When you compare Equador to Peru or Chile or even North America, it's one of the cheapest places to operate right now. There's really no reason for that to be the case going forward," Stein said.

Ecuadorian government officials have been feeling pressure from environmentalists to tighten controls over its concessions because some said they were handing out too many agreements with foreign-based companies.

Some environmentalists also expressed concerns that the miners were polluting drinking water, which has been denied by the corporations.

"The government is responding to societal pressure, which is quite reasonable, but what it's not recognizing is that there are a group of stakeholders who include resource developers," Penseney said.

It's "the worst possible scenario other than to kick people out."


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