Analyst: Windfall tax could quash miners' margins - Ecuador
Published: Monday, December 31, 2007 16:40 (GMT -0400)

A 70% windfall tax approved by Ecuador's constituent assembly will severely affect the margins of mining companies working in the country, Haywood Securities mining equity analyst Eric Zaunscherb told BNamericas.

 "As an economist the President (Raphael Correa] should know that costs move up and down, as well as the [price of] commodities, and so by setting a windfall tax based on a price you can totally destroy the margins of companies operating in the country," Zaunscherb said.

"A royalty based on profit makes a great deal more sense," Zaunscherb added.

The new law will require companies to make anticipated payments on income tax and assets, and addresses the issue of lack of investment in properties by foreign firms' subsidiaries. Certain taxes on unproductive lands will be applied.

Some foreign companies have spent millions exploring and developing their projects in Ecuador, such as Torontonian Aurelian Resources (TSX: ARU) with its FDN deposit and Vancouver's Corriente Resources (TSX: CTQ, Amex: ETQ) with its Mirador copper property.

Zaunscherb said: "The President and the minister of energy and mines have already stated that they would go for a contractual arrangement on a one-to-one basis, so there is still a hope if I were an investor in those companies."


By  Anthony Esposito
Business News Americas