Ecuador’s pro-mining stance tests country’s resolve

More than a decade since Ecuador opened its doors to mining, the Andean country is beginning to see the results.

In July, production began at the country’s first large-scale mining operation: the Chinese-owned Mirador mine.

Located in southern Zamora–Chinchipe province, the open-pit operation is expected to produce almost 100,000 tons (90,700 tonnes) a year of copper in concentrate over the next three decades.

Launching production, Ecuador’s Minister for Non-Renewable Natural Resources Carlos Perez praised the impact the US$1.7-billion project will have on a remote part of the country in terms of jobs, economic activity and government revenues.

Still recovering from the slump in oil prices four years ago, Ecuador hopes it can imitate other Andean countries like Chile and Peru, which have harnessed their mineral wealth to power their economies.

And as mineral deposits have become harder to find and develop elsewhere, companies have been lining up to stake claims.

Earlier this year, the government estimated that mining companies will invest US$3.8 billion in the country by 2021, by which time, the sector could represent 4% of gross domestic product.

A work crew inside Lumina Gold’s core-storage facility in Ecuador. Credit: Lumina Gold.

Next in line is Lundin Gold’s (TSX: LUG) US$693-million Fruta del Norte project, which is due to pour its first gold by year-end. In June, the company began mining the first production stope of the underground operation, which is expected to produce 310,000 oz. gold a year over the next 15 years.

In southern Azuay province, INV Metals (TSX: INV) is advancing its US$279-million Loma Larga deposit. A feasibility study completed late last year suggested it could produce 200,000 oz. gold a year over 12 years.

Perhaps the country’s most bullish promoter has been geologist Nick Mather, who has compared Ecuador to northern Chile, in terms of its potential for hosting large copper porphyries.

Backed by BHP and Newcrest Mining, his SolGold (TSX: SOLG) company has staked large areas of the country, but is focusing on the Alpala deposit, which is estimated to contain at least 11 million tons (10 million tonnes) copper and 23 million oz. gold.

Nearby, through a joint venture with state mining company ENAMI EP, Chile’s Codelco, the world’s largest copper producer, has begun advanced exploration of the Llurimagua deposit, which is estimated to contain another 8 million tons (7 million tonnes) of the metal.

Finds like that have captured the attention of world’s major mining companies, several of whom are now scouring the country, including Fortescue Minerals and Anglo American.

As these projects advance towards production, a new government has become more supportive. Before this year, President Lenin Moreno had rarely mentioned mining, an industry pushed hard by his predecessor and former boss Rafael Correa.

That changed last May when, fresh from accepting a US$4.2-billion loan from the International Monetary Fund, the president highlighted mining as a key sector for turning around the sluggish economy during his annual address to lawmakers.

A new mining policy has followed with promises to consolidate the sector, attract more investment and clarify regulation.

“Before there was a lack of definition about whether they wanted mining or not. This year there has been a big change,” says mining lawyer Rodrigo Borja of Lexim Abogados in Quito.

The new approach has been reflected in faster responses from authorities in application for environmental and water permits.

But while the government is now in favour, many Ecuadorians remain deeply skeptical about the benefits of mining.

Given the absence of large-scale mining until now, that is partly due to a lack of knowledge. The government’s silence on the matter has left room for environment campaigners to fill the gap.

Workers at SolGold’s Cascabel copper-gold property in Ecuador. Credit: SolGold.

They argue mining could trigger the sort of environmental damage left by decades of oil production, and equate new projects with the illegal mining that has ravaged parts of the country.

The government has now begun to get serious with these criminal organizations. In July, police and soldiers raided Buenos Aires, an illegal mining camp in northern Ecuador, where thousands of informal miners had occupied land staked by Australia’s Hancock Prospecting.

The result has been positive, Borja says. “It has triggered a national debate in the media and the National Assembly about what kind of mining we want.”

However, in some areas, it could be too late.

In last March’s regional elections, local politicians and environmentalists allied to include questions on the ballot about whether people wanted mining in their own districts.

In many localities, the answer has been a resounding no. More than 80% of voters in the Giron district, home to half of INV’s Loma Larga project, voted against allowing mining in the area.

There is uncertainty about whether these referendums are binding. Environmentalists point to a clause in the latest constitution, which says local communities have the right to be consulted on new activities.

The mining industry and the government say such referendums breach the central government’s exclusive domain over mining as an activity of national interest.

The question has now been put to Ecuador’s Constitutional Court.

So far, the court has largely ruled in the mining industry’s favor, most recently rejecting an application for a vote that would cover the northern Carchi and Imbabura provinces, home to SolGold’s Alpala project.

However, rather than ruling on the merits of holding a referendum on mining, the court has instead rejected the applications on administrative or procedural grounds.

Miners now hope that the court will send a stronger message when it next considers the matter in a ruling on the referendum on Loma Larga.

But regardless of how the judges rule, it seems clear that local opposition to the industry will remain a challenge in the coming years.