Ecuador revokes hundreds of mining licences (January 25, 2008)

Ascendant Copper (ACX-T) shares took a beating today after mining concessions at its Junin property in Ecuador were revoked by the government, alongside hundreds of other concessions held by foreign companies.

The leftist Rafael Correa government plans to reform the constitution later this year, and will include a new mining law. That is what confuses Ascendant’s John Haigh about today’s news.

“Why would you do this before making the new mining law?” Haigh asks.

The government plans to increase state participation in deals and tighten environmental control. Under current law, it’s nearly impossible for the government or reject requests for mining licences.

Haigh said mid-day that he hadn’t heard a word from the government, even though mining and petroleum minister Galo Chiriboga told local news agencies in Ecuador’s capital, Quito, that 587 mining contracts would be revoked for not paying concession fees.

“We’ve gone back to our people in Quito and we have received nothing from the government,” Haigh said.

Haigh says Ascendant has paid all of the fees for all its concessions. The ones being revoked are Golden 1 and Golden 2 at Junin. Ascendant won a Supreme Court battle in 2004 after it was claimed the concessions were transferred illegally.

“That is absolute bologna,” Haigh says.

But last March, after meeting with the government and environmental groups, the company reluctantly agreed to limit work on the property until it could get full support.

Ascendant shares fell about 29% today, or 6, to 15 apiece on a trading volume of 1.3 million shares.

Later in the day a note from the Ministry of Mines and Petroleum said more than 5,300 sq. km of land was returned to the state, which included Ascendant’s properties.

But the ministry report says the Golden concessions were revoked because they were granted under a law for “Economic Transformation of Ecuador” that determined, “the mining concessions were a real right; much as if they were a property, a house or a piece of land.”

The company has spent $10 million on the property in the last two years, Haigh says. The property has an inferred resource 19.2 billion lbs. copper and 864 million lbs. molybdenum at a 0.4% copper cut-off with grades of 0.89% copper and 0.04% molybdenum.

“If you’ve got someone out there that has staked a concession that hasn’t done any work on it then the government should take it back, but that is not the case with Ascendant Copper,” Haigh says.

Other concessions the government reclaimed were double staked, some covered watersheds, parks and even graveyards.

Junior companies Aurelian Resources (ARU-T), Corriente Resources (CTQ-T) and Iamgold (IMG-T), the biggest foreign miners in the country, were not affected. Neither was Dynasty Metals and Mining (DMM-T).

Darryl Jones, chief financial officer for Corriente, says the government isn’t arbitrarily seizing mining concessions.

He says several months ago the government said there were about 4,000 concessions, totaling 29,000 sq. km that had been granted covering the entire country, including city squares, spurring it to take a look at all concessions.

“When you get people who sit there on land or who speculate it’s a problem,” Jones says. “When Aurelian hit their Fruta del Norte strike in the early days, people were flocking to Ecuador to go stake concessions.”

But many of those people buy property to sell it again for a profit without doing any work on it while others just hold on to concessions for ages without working on them.

“That doesn’t do anything for the state of the country,” Jones says.