Ecuador’s State Mining Company Now Official

VANCOUVER — The Ecuadorian government has signed an official decree creating a state mining company.

In a statement in government publication El Ciudadano, the country’s minister of energy and mines Germanico Pinto said the new government arm will become the equivalent of Ecuador’s state oil and gas company, Petroecuador. Pinto said the mandate of the state mining company will be to manage mining projects and strategic alliances in the interest of the state and Ecuadorian citizens.

Details of how the state mining company will operate are still unclear, however.

The government of Ecuador netted a large swath of mineral rights in 2008 during a nine-month mining moratorium as it reviewed its mining laws. The moratorium ground all exploration and development work to a halt and sowed fears that miners’ existing rights to high-profile projects would be snatched or at least that the government would enforce onerous royalties.

Those fears have since largely dissipated as the government has returned the rights to many projects and given companies, on a case-by-case basis, the go-ahead to explore and develop again.

Among those given green lights were companies holding the most advanced projects in Ecuador — for example, Kinross Gold (K-T, KGC-N), which owns the rich Fruta del Norte gold deposit, and Dynasty Metals & Mining (DMM-T, DMMIF-O), which is advancing its Jerusalem and Zaruma gold projects towards production.

Still, the government has retained less active titles. Ecuador’s Chamber of Mines, an independent organization that promotes the country’s mining industry, has said it believes the state mining company will likely encourage development of those properties through a public bidding process as part of an effort to form joint ventures.

Bill McCartney, Dynasty Metals’ director of business development, agrees that the government will seek partnerships as it does not yet have the expertise or infrastructure to run mining operations itself.

McCartney says it is difficult to tell what kind of impact the state mining company will have on the exploration sector in particular, but that for a company like Dynasty, which is nearing production, the impact is negligible.

“The more material impacts for Dynasty are the (pending) mining regulations,” McCartney says. The regulations accommodate a mining law passed in January, the product of the mining moratorium, and will outline the terms of Ecuador’s taxa- tion and royalty regime.

The regime will clearly have important ramifications for Dynasty Metals’ revenue stream as it ramps up at Zaruma and Jerusalem. Dynasty Metals is close to its first gold pour at Zaruma, in El Oro province, having commissioned everything but its carbon stripping circuit.

Dynasty Metals initially anticipates throughput of 300,000 tonnes per year at Zaruma, which accounts for close to half of the company’s measured and indicated gold resources in Ecuador. At last count, measured and indicated resources at the project stood at 2.5 million tonnes grading 13.9 grams gold per tonne for 1.1 million contained ounces gold.

McCartney says the regulations will also outline the basis for what a mining company has to do in terms of environmental, labour and community issues. His understanding is that in coming up with the regulations, the government of Ecuador has looked south to its Peruvian and Chilean neighbours.

When the regulations will be finalized, however, is hard to say. Pinto said in El Ciudadano that their completion is imminent, but as Mc- Cartney notes, the government has been singing that tune for several months now.