Ecuador miners fight new inspection fee

Miners in Ecuador are seeking to block a new inspection fee that they say could bring early-stage exploration in the South American country to a standstill.

President Daniel Noboa’s government last month introduced a fee of up to $470 per hectare on all mining operations to generate funds to support enforcement efforts against illegal mining. Some $229 million (C$313.6 million) would be raised annually through the measure for the Ecuadorian Control and Regulation Agency (Arcom), the regulatory body that’s in charge of curbing illegal mining, according to the government. The amount almost matches the $232 million in foreign direct investment that the country attracted last year.

Ecuador’s mining chamber has asked the country’s Constitutional Court to declare the levy unconstitutional, according to a statement issued last week. The measure would have a “disproportionate impact” on mining exploration while harming Ecuador’s global reputation among foreign miners, the group says.

The outcry has echoes of the criticism directed at Mexico when the administration of former president Andres Manuel López Obrador adopted a more restrictive approach to mining starting in 2018 – in part by introducing legislation that changed how projects can be registered, approved and developed.  

“We are open to dialogue, but we cannot stand idly by in the face of a measure that puts legal mining at risk,” mining chamber head María Eulalia Silva said July 9. “This tax should have been designed with technical criteria and with the participation of the actors involved.”

A Chamber spokesperson couldn’t immediately be reached for further comment.

Costly fees

Some junior exploration firms would end up paying more in fees than their entire market values, the Ecuadorian mining industry group says. That’s the case for Aurania Resources (TSX-V: ARU; US-OTC: AUIF), a Toronto-based explorer of gold, copper, silver and other commodities, whose flagship project, Lost Cities-Cutucu, is in southeastern Ecuador.

Since few, if any, major international miners carry out grassroots exploration in the South American country, “without the junior sector Ecuador will have no further discoveries,” Aurania CEO Keith Barron said Tuesday in an emailed statement.

“Ecuador has no geological survey and poor infrastructure so most exploration is pioneering which is expensive and takes time. Senior companies are not interested in this,” he said.

Vancouver-based Salazar Resources (TSX-V: SRL), which has been active in Ecuador for almost two decades, shares Aurania’s concerns. Salazar is working with Silvercorp Metals (TSX, NYSE: SVM) to build the El Domo copper and gold mine while advancing a clutch of other projects in the country.

The new levy “places an unsustainable cost burden on companies operating within the sector and undermines confidence in Ecuador’s regulatory consistency and commitment to mining development,” Salazar said in a statement last month. Payments envisaged by the Arcom decree “are not supportable and represent approximately 10 times the amount the company pays for its annual concession fees in Ecuador.”

The country “has had a recent history of promoting persons into positions of control over the mining sector who have no experience in the sector and little to no prior contact with the industry,” Barron added. “Consequently, critical policy usually is introduced which has unrealistic timelines or commitments. In this case, to my knowledge there was no prior discussion in advance” of the mining fee.

Small-scale mining would also be affected.

“This hidden tax puts at risk all the operations of thousands of miners, especially small-scale miners who have mining titles and contracts in compliance with the law and have been paying taxes for many years,” said Oscar Loor, head of another industry group, the National Chamber of Mining. “This tax will encourage informality when what we are all looking for is for more miners to formalize and generate work, taxes and resources for the well-being and good living of all Ecuadorians.”