Talk Of Bi-National State Miner Just Bluster, Says Ecuador’s Chamber Of Mines

VANCOUVER — The idea of creating a bi-or even tri-national state mining company, raised at a meeting of Ecuador, Venezuela and Bolivia’s presidents recently, was merely a political statement without any real weight to it, says Santiago Cordevez, executive director of the Quito-based Ecuadorian Chamber of Mines, an organization that promotes the mining industry in Ecuador. But whereas Cordevez sees talk of a transnational state mining company as bluster, he says an Ecuadorian state mining company is on its way.

Rafael Correa, Hugo Chavez and Evo Morales, respectively the presidents of Ecuador, Venezuela and Bolivia, met over the May 23-24 weekend to discuss a range of bilateral agreements, including possible synergies in the mining industry. Following the meeting, a spokesperson for the Ecuadorian Ministry of Energy and Mines, Fernando Proano, informed Business News Americas that the creation of a bi-national mining company between Ecuador and Venezuela is being considered and that Bolivia could be involved as well.

But Cordevez dismisses the likelihood that the transnational state company will ever be formed, reducing the talk of one to the empty bravado of “three guys” looking to score political points with their electorates as they rattle the sabre of socialism and Latin American solidarity. He believes the proposed transnational state company will suffer the same fate as other grand schemes floated by the Ecuadorian and Venezuelan governments.

For example, last November, Cordevez says officials from Ecuador and Iran visited each other’s countries and “there was a lot of talk about Iranian collaboration for mining projects. But it hasn’t gone forward in any way.” Likewise, he says, about a year ago the Venezuelan and Ecuadorian governments agreed to build a US$6.5-billion oil refinery in Ecuador. Work on the project has yet to start, however, and ground, Cordevez says, will never be broken.

As Nicaragua and Venezuela officially killed a plan for a similar such refinery in Nicaragua, Cordevez expects the Venezuelan and Ecuadorian governments will soon announce that their oil megaproject is also “a no-go.”

One reason why Cordevez doubts Venezuela’s intentions to back up grandiose plans in either the oil or mining industry is the fall of oil prices and concomitant decline in government revenues. As the New York Times recently reported, lower revenues have forced Venezuela’s government to slash spending on projects abroad.

Citing a study conducted by the Center for Economic Investigations, a Venezuelan financial think tank, the newspaper reported that in 2008, Venezuela announced an astonishing US$79-billion worth of international projects. So far in 2009, however, only US$6 billion has been promised.

But while Cordevez pours cold water on the South American threesome’s plans for a transnational state mining company, he confirms recent reports by Reuters and Bloomberg that the Ecuadorian government is forming a state mining company.

“There’s no surprise,” he says. “It is in the mining law of the end of January.”

Last April, Ecuador slapped a moratorium on all mining and exploration activity in the country while it reviewed its mining laws. The moratorium effectively ended nine months later, in January, when the government laid out new mining laws which, among other things, set a framework for new government royalties and fees.

In addition to the royalties and fees, the laws stipulate a state mining company be created, an intention president Correa has since repeated through media outlets. “The policy of the actual government is to give a lot of punch, a lot of power, for the development of this national mining company and the state in control of the mineral resources,” he says.

While the government has returned control of mineral rights it seized to some, Kinross Gold (K-T, KGC-N) and Corriente Resources (CTQ-T, ETQ-X) for example, the government has also held onto the mineral rights of many other properties. Cordevez says these will be managed by the state mining company.

To create the new company, Cordevez says Ecuador’s government must approve both a set of regulations associated with the January mining law and also enshrine the state mining company through separate legislation. He expected approval of the former to come by the end of the first week of June. The latter, however, must still travel through a legislative process, and is at least six months away, he says.

“That will be the mother law — (together) with the mining law — that makes the legal birth of the national mining company,” he says.

Cordevez says the state mining company will look for partners on properties it holds the rights to, many of which it gained after enforcing the 2008 mining moratorium, through a public bidding process. Springing loose the untapped mineral wealth of its newly controlled properties, however, won’t be easy.

“All of them need a lot of investment to assess what would be the future development,” Cordevez says.