By Enrique Andres Pretel

Quito (Reuters) - Ecuador will boost mining activity with a new law to lift the existing restrictions on exploration, although increased state control in the sector with demands for investment and environmental protection, said the undersecretary of Mines, Jose Serrano.

The leftist president Rafael Correa in April suspended activity on the nascent mining industry to adopt new legislation in September with a mandate that aroused fears among businesses because limited to three exploration concessions, threatening their chances of profitability.

However, despite the fact that the agent seeks to increase public control over natural resources of the Andean country in key areas such as oil and mining, also needs to attract private investment to develop these activities that provide vital resources to the State.

"What is being established is a mechanism in which not limit the number of concessions for the exploration phase, but also a procedure to reduce the concession areas as and when it is done (that work)," said Serrano in an interview with Reuters.

The Executive with this measure seeks to end speculation that the delays were assured place in the exploration phase under previous governments, when companies seeking large areas of prospecting and then resell them without making investments or production projects.

"The idea is that when finished the stage of exploration not have more than 50 percent of the area originally requested, and when you go to start the operational phase do not have more than 5,000 hectares," the official specified.

These terms are sufficient, according to industry experts, who noted that a mine tends to occupy 500 hectares and that reducing the areas of exploration is a common practice in other mining countries.

In addition, the Government will harden the conditions for the award and maintenance of the areas granted, forcing companies to invest minimum per hectare per year in its concessions, whose duration will be between 25 and 30 years renewable as compliance with the plan presented.

Serrano said that the point remains to be defined in the law is to royalties, which could be based on operating profit but that companies expect to be applied on net sales.

Industry sources noted that the general terms of the law seem reasonable and that could boost alicaída investment by mining firms in the Andean country, including Canadian companies as Iamgold, Aurelian Resources and Corrientes.

Strategic alliance

On the hundreds of concessions that were revoked by the mining mandate, either through lack of investment or for not having canceled patents conservation, Serrano said to be re-awarded by public tender, which awarded the former may participate without priority .

"We will have to make an inventory of all these concessions and obviously will begin a process of further concessions, but based on national development plan," he said.

The new law, said that Serrano will be adopted between August and September to carry out the official schedule, will also include the creation of a national mining company that will act as operator and only to be set up in about 30 days.

Despite Correa pushes a new constitution that seeks to cut socialist strengthen the public role in the economy, the mining law does not oblige the private to operate alongside the state, as it did in President Hugo Chávez with oil companies in Venezuela, movement that some investors feared was emulated

"Do not force the formation of joint ventures. That obviously the Government will be very respectful with companies that conduct their private projects and national mining theirs," said Serrano, who talked about "strategic partnerships" between private and public.

Ecuador, which could accommodate the equivalent of some 130,000 million dollars in mineral deposits, nearly three times the amount of oil reserves, wants to become a major player in this market thanks to its promising deposits of gold, silver and copper.

Both the state and private schools will have to abide by a "strict parameters" conservation of environment, which will limit gas emissions, are prohibited from water pollution and protect nature reserves, and must pay the relevant patent conservation.

In addition, companies will need to cooperate with the communities where they operate their concessions through the local government, which could have equity participation in projects and receive some royalties.

(Por Enrique Andrés Pretel, editado por Magdalena Morales) (By Enrique Andres Pretel, edited by Magdalena Morales)