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 El Ciudadano, a government publication, 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 the 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 the go-ahead to explore and develop again on a case-by-case basis. Among those given green lights were companies holding the most advanced projects in Ecuador, for example, Kinross Gold (K-T) which owns the massive Fruta del Norte gold deposit, and Dynasty Metals and Mining (DMM-T) 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 ultimately the government does not yet have the expertise or infrastructure to run mining operations themselves.

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 impact 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 taxation 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 the 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 holds close to half of Dynasty Metals’ measured and indicated gold resources in Ecuador. At last count Zaruma’s measured and indicated resource stood at 2.5 million tonnes grading 13.9 grams gold per tonne for 1,110,200 contained oz. 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 completion of them is imminent, but as McCartney notes, the government has been singing that tune for several months now.