Correa's promotion of mining in Ecuador faces renewed opposition

Published by MAC on 2013-03-05
Source: Business News Americas, Wall Street Journal, CIN

Ecuador Looks to Sweeten Deal for Miners as Locals Promise Opposition

By Ragnhild Kjetland

Copper Investing News

1 March 2013

Last week's re-election of Ecuador's president, Rafael Correa, appears to have put the country on a path towards improving investment conditions for miners who want to extract the country's copper, gold and silver.

The world's largest copper producer, Chile's Codelco, is among the companies that has set its sights on the country. But indigenous and environmental groups that have protested mining projects in the past are likely to obstruct future projects.

On February 13, Codelco received approval to start exploration at the Junin copper deposit in the Toisan mountain range, BNamericas reported. The company plans to start drilling in the second half of this year.

Junin has a checkered past. BNamericas notes that in the 1990s, Japan's Mitsubishi  carried out initial exploration at the site; the project was then acquired by Canada's Ascendant Copper, which was later renamed Copper Mesa Mining.

A group opposed to the mining activities took 57 Copper Mesa employees hostage for a week in 2006 on the grounds that the mining concession was in a nature preserve. Protesters have since accused the company of employing armed men to attack protesters, according to a Toronto Star report. The Ontario Court of Appeals rejected that claim in 2011. Meanwhile, Copper Mesa's licenses were cancelled in 2008 after a government moratorium on mining activities.

Since then, in an effort to attract miners and diversify the country's economy, Correa has said he plans to reform the mining law so that companies are not taxed before they regain their investments.

"I don't like mining, and open-pit is even worse, but it's impossible to think of modern life without mining and it would be irresponsible not to use those resources," Correa said last week, the Gulf Times reported. "We cannot be beggars sitting in front of a bag of gold," Correa was then cited by The Australian as saying.

The two most prominent mining deals Correa has reached are an agreement with China's Ecuacorriente, which will invest $1.6 billion over five years to develop the El Mirador copper mine, and a tentative agreement that would see Kinross Gold invest $1.2 billion in the Fruta del Norte gold project. That deal is being renegotiated and Kinross has until August 1 to reach a final agreement.

But the government continues to face considerable resistance from indigenous and environmental groups, and has earned the attention of Amnesty International, which said in a 2012 report that it has "received numerous reports that the Ecuadorian criminal justice system is being used to try to stifle protests against the government's proposed policies and laws around natural resources."

Meanwhile, this week an Ecuadorian court is expected to rule on Ecuacorriente's Mirador project, which local communities have claimed would affect local water supplies, The Wall Street Journal reported. The company plans to begin construction of the project this year, with mining to start at the end of 2015. An Ecuacorriente spokeswoman, Laura Zurita, said all legal and environmental regulations are being met and that "advanced technologies" will help protect the environment.

Ecuador's political uncertainty and local opposition have prompted some companies to leave the country behind. In November, IAMGOLD sold its Quimsacocha gold-copper-silver project to INV Metals for $30 million.

Further, International Minerals decided to leave Ecuador, citing "punitive components" of the country's mining and tax laws, lack of clarity in the implementation of new mining regulations and "increasing political and social/community risks."

It said the company "can better utilize its management and financial resources in other more mining-friendly jurisdictions." It wants to sell its Rio Blanco gold and silver project and Gaby gold project in the first half of this year, and is taking a $16.8 million hit as a result.

Most recently, Nortec Minerals terminated an agreement with Fenwick Minerals, formerly Doubloon Exploration, under which Nortec had the option to acquire a 51-percent interest in the gold-silver Ganarin project in Southern Ecuador. The company didn't name a reason for the termination of the deal.

Codelco is likely to face the very risks identified by International Minerals, with local environmental organization Decoin warning that another round of protests against Junin is inevitable.

"The tragedy is that it is going to cause a lot of social conflict in the meanwhile and eventually it [the project] will fail for cultural, social and ... environmental reasons," a spokesperson for Decoin said, according to BNamericas.

Decoin also said the Junin project approval violates legally binding land use and development plans for the area, as well as the communities' right to be consulted on any decision that could impact their environment. Moreover, local ordinance designates the region where Junin is located as a protected area.

Codelco has so far spent $4 million on exploration targets in Ecuador and plans to invest between $10 and $30 million over the next four years, Bloomberg reported in October. The Junin project would be a 49-percent/51-percent joint venture with Ecuador's state mining company, Enami.

That investment plan may seem insignificant to a company that wants to spend almost $20 billion over five years to expand existing mines. But if previous assessments of Junin's reserves hold true, it could contain "one of the most significant copper deposits in South America," rivaling Anglo American and Xstrata's Collahuasi and BHP Billiton's Escondida copper mine in Chile, Santiago Yepez, president of Ecuador's mining chamber, told Bloomberg last year. Junin's inferred mineral resource estimate includes 982 million metric tons grading 0.89-percent copper, 0.04-percent molybdenum and 1.9 grams per metric ton silver.

The Ecuador mining chamber estimates that the country's total metals deposits are worth $220 billion, containing more than 39 million ounces of gold reserves and 8 million metric tons of copper.

And so, even amid the risk, the prospect of being early investors in Ecuador's nascent, and potentially rich, mining industry is still attracting companies such as Cornerstone Capital Resources and Ecuador Gold and Copper.

Cornerstone said last year that the Ecuacorriente agreement shows the government is "increasingly welcoming environmentally friendly, socially responsible, sustainable mining development," while Ecuador Gold and Copper said in a February presentation that the new mining law and the deals with major mining companies indicate continued "de-risking." To them, at least, the risk appears to be diminishing.

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Ecuador Court Seen Ruling on Mirador Copper Project Next Week

--Court to decide if work on Mirador can proceed
--Mirador is the largest copper project in Ecuador
--Ecuacorriente aims to start production at Mirador in late 2015

By Mercedes Alvaro

Wall Street Journal

22 February 2013

QUITO, Ecuador--Indigenous and environmental groups in Ecuador expect a ruling from a local court next week on the future of the Mirador copper project.

Mirador, the country's largest copper project, is being developed by Chinese-owned Ecuacorriente. The project is located in the Zamora Chinchipe province and has about 2.9 million tons of recoverable reserves of copper.

The project is in an advanced exploration stage. Ecuacorriente plans to begin construction this year and start mining at the end of 2015.

Juan Auz, a lawyer with the Fundacion Pachamama, says the Mirador project "violates the rights of nature, guaranteed in the current constitution." Fundacion Pachamama is one of the environmental organizations that submitted a so-called "protection action" to the court last month.

People living in communities near Mirador have also said that the project would affect local water supplies.

Laura Zurita, an Ecuacorriente spokeswoman, said the company is meeting all legal and environmental regulations. She said the environment will be protected, thanks to advanced technologies that will be used at the mine.

"There are no reasons to halt the project," Ms. Zurita said, pointing out that several government agencies will monitor its environmental impact.

Last March, the Ecuadorean government and Ecuacorriente, controlled by the China Railway Construction Corp. and the Tongling Nonferrous Metals Group Co., signed a 25-year contract to allow mining at the open-pit Mirador, the first large-scale mining contract for the Andean country.

Under the contract's terms, the company will pay $100 million in advanced royalties that will be directed toward social development projects in the area.

The company has already paid a first tranche of $40 million in advanced royalties, and the remainder could be paid this year.

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Codelco, Enami exploration project in Ecuador faces bumpy future, possible failure

By Alexandra Demo-Dananberg

Business News Americas

19 February 2013

Despite receiving municipal approval to begin exploration, Chilean state copper producer Codelco and Ecuador's state miner Enami EP should brace themselves for failure in developing the Junín deposit in the Toisan mountain range in Cotacachi municipality's Intag area in Ecuador, according to a spokesperson from local grassroots environmental organization Decoin.

The companies got the green light to go ahead with exploration on February 13, but that decision is being questioned by community members on several points. According to the spokesperson, the 5-4 approval violates legally binding land use and development plans for the area as well as a local ordinance designating the region as a protected area.

Furthermore, no prior consultation process was carried out, violating communities' constitutional right to be consulted on any decision that could impact their environment. "That has been violated from day one," the spokesperson said.

When contacted regarding the latest development, Codelco said that the company could not comment on the matter. Referring in general to Codelco's work in the country, a source from the company said in a statement emailed to BNamericas that the company "carries out exploration in Ecuador in accordance with its status as a world leader in mining that respects the communities where it operates, fully complies with local regulations and applies the same standards and values that it keeps in Chile."

Enami did not immediately respond to requests for a comment.

Complicated History

The Junín deposit was first discovered in the '90s by Japan's Mitsubishi, which met enough community resistance to lead it to abandon the area following the completion of an environmental impact study for a mining project that identified deforestation and the drying up of the ecosystem as likely impacts, the Decoin spokesperson said, noting that the area's cloud forest ecosystem is one of the most biodiverse on the planet.

Later, Canada's Copper Mesa (formerly Ascendant Copper) came in and took over the concessions, but again, met with intense opposition from the community. In 2008, the company had its concessions reverted back to the state due to Copper Mesa's failure to make required license payments.

As for Codelco, the Chilean copper giant has had an early-stage exploration agreement with Enami EP in place since 2008. However, in July 2012, the company signed an agreement with Ecuador for more advanced exploration at Junín, with 2H13 given as the tentative start date for drill work.

What to Expect

According to Decoin, the recent decision by the municipal government to allow exploration to go ahead despite the previously mentioned complications comes down to playing the politics of President Rafael Correa, who has expressed much more interest in the development of the mining sector than his predecessors.

"Correa is interested in the development of large-scale mines... I'm guessing, but I'd never be able to prove it, that the order came from up high that this needed to go ahead," the spokesperson said.

The national government will likely attempt to push ahead with the project, though certainly they will be met with the same civil resistance that community members have successfully implemented in the past, said the spokesperson: "There's no way that the government will be able to get away with imposing this project."

The most obvious next step involves Codelco remaining on the sidelines while the government attempts to obtain social license for the project, though a similar support-garnering mission was kicked out of the area just this summer, the spokesperson said.

"The tragedy is that it is going to cause a lot of social conflicts in the meanwhile and eventually it [the project] will fail for cultural, social and - one of the stronger reasons - environmental reasons," the spokesperson said.