Ecuador Mining: More Positive by the Day

A very interesting press conference was given by Ecuador's Mining and Energy Minister, Galo Chiriboga, yesterday. The conference (patchily covered in this Reuters Español note) was called to announce the reversal of a large amount of concessions, but then in the Q+A afterwards he gave some idea of the new mining law and how it's coming together. Here's what happened in the presser:

First, the ostensible reason for the press conference. Ecuador's government has 'reversed' (i.e. taken back) a total of 1,138 mining concessions since April 18th, which represent over two million hectares of surface area. The reversed concessions have so far been limited to those that were behind in necessary payments, though Chiriboga said that there would be more reversals to come.

The provincial breakdown of the concession reversals so far is as follows: Guayas (110), Azuay (210), Chimborazo (145), Pichincha (350), Zamora (119), Loja (160) and El Oro (44). A total of 313 concessions that covered nearly one million hectares of land have been reversed which previously belonged to the following companies: All Metals Mineria, Atlas Moly S.A., Arias Eguiguren Carlos Arturo, Dai Zhou Xiaohui, Ecuadorgold, Cia. Minera Mariana, Sierramin, Chanel Mining Resources, Elipe S.A. and Santa Barbara Copper and Gold.

Then came the supplementaries, and a lot of information was forthcoming. I'm glad to say that the overall impression given was very reassuring for the foreign mining companies with Ecuador exposure. Here are the main points to take away and chew over:

1. The new mining law will be published on June 27th 2008 (less than 3 weeks away). The publication has been delayed somewhat, but the new date is now pretty much fixed. The main reason for the delay until now was to give time for a more in-depth look at how the royalties payments will work (in the first draft of the new law the royalties are fixed at 5% of gross for large mines), and also how the clean water regulations will work. The Ministry has been working with technicians from Chile on both these issues, as well as local gov't representatives from the projected mine areas.
2. Chiriboga said that the government would continue conversations with the mining companies until the 17th of June, since on that date the law must be ready and will be presented to President Rafael Correa for review that same day.
3. His Vice-Minister, José Serrano, said that on Wednesday there is a meeting between the national government and the local government representatives to decide on the percentages of mining royalties that will go to local authorities, as well as how the money will be paid. Also the issue of water rights, clean water rules and regulations will also be discussed. In the words of Serrano, "The environmental issue is a fundamental one." Interestingly, he said the gov't will not be discussing these issues with local communities, but only with town/city and provincial political representatives.
4. Chiriboga made a very clear statement about environmental and social matters: "If we want to start mining activity in the country, we believe that this mining activity must answer to environmental, social and economic criteria. This wealth must favour the development of the regions in which the mines operate, so that what happened to us with the petroleum (industry) does not happen, where unfortunately that wealth only benefited other places that were not the places from which (the oil) was extracted."
5. On the subject of the "three concession limit," there is obviously some flexibility being shown by the government. Despite Article 4 of the now infamous Assembly mandate (here's an English translation) saying that no company could own more than three concessions, Chiriboga today said, after consulting with experts who told the ministry that three concessions would not be sufficient for profitable exploration work, that more concessions may be allowed, with a higher number as limit. He said "There will be a limit, but it will be technically reasonable."

So there you have it: The ministry has another week or so to put the finishing touches to the draft law, which will then be handed over for review by the President. On the 27th , we mere mortals get to look at it. The law promises to be tight on environmental controls, especially those involving water. A lot of the royalties generated from mining will stay with the local communities around the mines. Once again, not a word of any windfall tax. The three concession limit is likely to be lifted higher. The regional politicians will be the body directly consulted by national governments, not the more thorny local communities under the influence of radical treehuggers.

All this is a long, long way from the death, doom and gloom stories fed to hapless investors by the sharks pretending to be responsible analysts just a few weeks ago. We look on course to be given a draft mining law that we be tough on the environmental regulations, but fair to the companies that wish to mine in the country and make a fair profit. Add this to the initial-stage draft of the law already published and available right here with notes in English on the important parts, we now have the makings of a stable environment for the miners in Ecuador. It is by no means a giftwrapped giveaway for them, but a perfectly workable situation.

Aurelian (AUREF.PK) remains my favorite stock in Ecuador, with its massive gold prospect at Fruta Del Norte. With political and regulatory stability looking ever more likely, the time has come to load the boat with Aurelian. Others to consider include Dynasty Mining (DMMIF.PK), Corriente Resources (ETQ), IAMGold (IAG) with plenty of other smaller plays also possible for the higher risk bracket, including Ecometals, Coastport, and Plexmar to name just three.

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