Santiago, Chile — The discovery of large gold- and copper-bearing belts promises to launch mining in Ecuador, a South American country the size of Nevada, but community opposition threatens to block development of the fledgling industry before it has even started.
Ecuador hosts the same mineral-rich belts that originate in Chile and Peru and pass through the country en route to Colombia, and with historic production of more than 5 million oz. gold and 12 million oz. silver in the Zaruma-Portovelo district, “the potential is significant,” says Ricardo Morales, senior consultant at mining and metals consultancy CRU Strategies. “Ecuador, being in the Andean system, has good potential for base metals, especially copper.”
This potential has seen “over one hundred million dollars invested in exploration in the southeast of the country over the last five years,” says Cesar Espinosa, vice-president of Ecuador’s mining chamber, with the exploration companies active there — such as Corriente Resources (CTQ-T, ETQ-X) — convinced that success will come.
“There will be tremendous discoveries in Ecuador,” says Dan Carriere, senior vice-president of Corriente.
Corriente says it has found a resource of 26 million lbs. copper in four deposits in Morona Santiago province, and is planning a US$300-million development for its Mirador project. Production of 140 million lbs. copper per year, 36,000 oz. gold and 396,000 oz. silver could start at the end of 2008, with a second phase boosting output to 240 million lbs. copper and 60,000 oz. gold, says Carriere. “In ten to twenty years, the dream is that this project could lead to a smelter development on the coast to do concentrate processing in the country,” he says.
Ascendant Copper (ACX-T, ASCPF-O) has found several porphyry copper deposits including the “huge” Junin project, which is thought to contain 1 billion tonnes of ore grading 1% copper.
“We are at the cutting edge of porphyry copper knowledge in Ecuador,” says John King, Ascendant’s executive economic adviser for business development, adding that the company’s discoveries are so big that it has to develop them via joint ventures. Chile’s Antofagasta Minerals has agreed to an option for Ascendant’s Chaucha project.
Multimillion-ounce gold deposits, such as Iamgold’s (IMG-T, IAG-N) Quimsacocha epithermal project in Azuay province, have also been discovered. Quimsacocha contains an estimated 2.8 million oz. gold and 18.2 million oz. silver. However, despite several attractive projects, mining is noticeable by its absence, with current gold production estimated at 160,755 oz. (5 tonnes) per year compared with 803,775 oz. (25 tonnes) per year in Colombia and 6,751,710 oz. (210 tonnes) per year by regional leader Peru.
Rafael Correa
Politics will undoubtedly play a decisive factor in sector development and exploration companies are waiting to see how recently inaugurated President Rafael Correa will play his hand. Initial noises appear to be positive, although many observers expect him to follow a natural resource nationalism policy similar to those being implemented in Venezuela and Bolivia.
“We are hearing a lot of positive things from the incoming government, but at the moment we are all in the penalty box waiting to see what it will do,” Carriere says.
“Correa is more left wing, so there is a worry that he will become more like (Venezuela’s President Hugo) Chavez until he settles in,” King says.
With no producing projects for Correa to expropriate, Ecuador’s mining chamber thinks Correa will continue pro-mining policies to increase foreign currency earnings and reduce Ecuador’s dependence on oil exports.
“The whole country is conscious of the fact that mining is the only alternative to oil,” Espinosa says.
“Ecuador will stay competitive because it needs to attract mining companies to build the new economy,” says Carriere, adding the caveat, “if the government is interested in that.”
Other observers are less optimistic.
“Correa’s natural resources discourse is close to that of other leftist leaders of the region and has focused on oil,” says Recaredo Romero, an analyst at Control Risks Group. “He has announced that he intends to revise oil contracts. . . and it is foreseeable that similar criteria will apply to mining.”
But Ecuador is attracting large investment in other sectors, indicating that the country should be open to mining investment as well.
Mining code
Politics aside, Ecuador promises good things for miners. Revised in 2001 under sweeping economic reforms to attract foreign investment, Ecuador has one of the most attractive and progressive mining codes in the world. It gives 30-year concessions, allows foreigners to hold concessions without Ecuadoran partners and has legal guarantees securing the right to mine following a positive feasibility study, among other things.
Corriente and Ascendant both have positive things to say about the code.
“Ecuador’s mining code mirrors Chile’s, except that there are no royalties,” Carriere says.
King says the country’s mining code is “excellent,” and “as good as in any other country, if not better.”
However, having a good code is one thing, but working with it is something else.
“All mining codes say nice things, but can you function there or not? Is the mining code enforced?” asks HSBC analyst Victor Flores.
Communities
More than mineral potential, the development of Ecuador’s mining sector depends upon community acceptance, which may be a difficult nut to crack — as several companies are finding out. With no mining history there is a lack of understanding about mining and much misinformation.
“People do not have familiarity with mining so they are susceptible to environmentalists coming in and making bold statements,” King says. “One school teacher said that the mining companies would cut down all the trees and make the ground look like Chile or Peru, which is high plains desert.”
Consultation and disclosure are key issues. Ecuador’s constitution calls for communities to be consulted before any major development takes place, such as the granting of a mining concession.
“This is not happening,” says Jamie Kneen, director of NGO Mining Watch Canada. “Companies adopt the measures they think appropriate to build projects and get the support they feel they need. In many cases the mining companies do not put their cards on the table for the communities.”
With mining royalties stripped out of the tax code in the late 1990s at the insistence of the IMF and World Bank, local communities stand to benefit little from mine development, he says.
Corriente has flown indigenous leaders to Canada to meet Canadian indigenous leaders that live near, and have benefited from, mining projects.
“If the locals want you and you treat them as valued stakeholders, they support you,” says Carriere, adding “there is more backlash against mining in Chile than in Ecuador.”
That now seems questionable given that the government told the company to halt activity at its Mirador project until local protests are resolved; anti-mining demonstrations that included shootings have taken place, says Kneen.
“A senator that supports indigenous groups was kidnapped by the pro-mining people and the military,” he says.
Ascendant Copper also has a difficult task on its hands as local communities have rejected its Junin project in Imbabura province for ecological and economic reasons as it is near two biodiversity hotspots and would require the relocation of four communities.
“There is not one local government (of nine) that supports mining,” says Carlos Zorrilla, executive director of Intag mining opposition group Decoin.
“The area has protected forests and shade-grown coffee sustainable development projects and these are not compatible with an open-pit copper mine,” Kneen says. “The project is ill-considered and should be withdrawn.”
Kneen adds: “We support responsible mining, which include
s not mining where it is indicated that it is not OK to do so.”
Ascendant was ordered to suspend work on Junin in December by the ministry of energy and mines after an armed confrontation between locals and company contractors, some of which was recorded on video and can be seen on the YouTube website.
“Human rights impact has become one of the most worrying issues for local and communal government,” Zorrilla says.
The mining chamber downplays community resistance to mining, blaming NGO agent provocateurs.
“There is a small movement against mining, but this is not led by the people but by NGOs and activists in Quito, away from (potential mining) areas,” Espinosa says, adding, “the main challenge is for the people of Ecuador to support the development of the mining sector.”
— The author is a freelance journalist based in Santiago, Chile.
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