Latin Finance - July/August 2009 - 31

ecuador mining against the law after it was approved by congress. The confederation of indigenous nationalities of Ecuador, which has helped topple other governments, was unsuccessful in rallying huge numbers of Ecuadorians to protest. Attracting investment requires clear rules that are enforced, but this is only part of the battle. While juniors like Iamgold and other aggressive companies are willing to gamble on Ecuador, they will need to show results sooner than later if investment opportunities are to multiply. Christopher Ecclestone, mining analyst with Hallgarten, expects investment by companies that already have had experience in Ecuador, such as Iamgold. But he does not foresee a surge of new firms moving in until the dust around the new law settles and there is something to show from the sector. “One of the projects in the development stage needs to go ahead and there needs to be production. If this happens, I think that we might literally see a gold rush in Ecuador,” says Ecclestone. Iamgold’s Phillips agrees, pointing to his firm’s experience in Mali in western Africa. He says that 70 new concessions were added in the months after the company Competitive Disadvantage discovered gold there in 1992. “The A foreign diplomat in Quito who asks not development of one project normally acts to be identified says the government’s Gold Lining? as a catalyst for others,” says Phillips. ability to say one thing and then do Mining exports from Ecuador do not even In what could become a major boost for another has investors thinking twice about figure in the “other” column of raw material Ecuador, Chile’s state-owned copper giant the country, particularly given conditions exports. They totaled around $100,000 Codelco signed a deal in early June to study in Colombia to the north and Peru to the in 2008, while overall exports were $18 the feasibility of developing joint projects south. “All things being the same, investors billion. The situation is much different with the government. A mining and energy are more likely to opt for Colombia or Peru in neighboring Andean countries, were ministry spokesman says Codelco, the because they are not changing the rules all mining exports in Peru in 2008 were $18.3 biggest copper producer in the world, the time,” he says. billion, nearly 60% of overall exports, while pledged to invest $1 million in exploring Mining executives say it is important to in Colombia mineral exports were $5.7 sites with mining potential over the next 12 steer clear of comparisons in their sector, billion, 20% of the total. to 18 months. taking particular care not to see it in the Gold is the primary focus of the junior The move was welcomed by other same light as hydrocarbons. Larry Phillips, mining companies exploring in Ecuador. miners. “[Codelco] is an indicator of the senior VP of corporate affairs for Canada’s Second on the list is copper, including success that the government of Ecuador Iamgold, says the policy and fiscal deposits that cross over into Peru. Palacios is having in advancing the theme of framework for mining and hydrocarbons is says that while the largest reserves appear responsible mining and an indication that distinct, and what happens in one does not to be in these two commodities, “there are this message is being well received by reflect what is going on in another. other metals, such as silver, that will play a the mining industry,” says Ken Shannon Phillips says that his company, which major role in the development of Ecuador.” president and CEO of junior miner is set to resume work on its Quimsacocha While the mining law has been in Corriente, which is active in Ecuador. gold project shortly, believes the new place for only a short time, the Correa “We cannot live as beggars sitting on a mining law “is a big step forward. government has shown signs that it sack of gold,” president Correa told local President Correa’s government is does view mining differently than other communities after a signing ceremony with committed to moving forward with sectors. The government refused to bend Codelco. The Ecuadorian government is responsible mining in Ecuador.” to pressure from indigenous allies in late also considering similar agreements with Quimsacocha is the most advanced January, when they began demonstrating Bolivia and Venezuela. LF which accounts for the bulk of Ecuador’s export earnings, was off by slightly more than 50% in the first quarter, dropping to $121.6 million. Palacios says the international price of oil needs to be close to $80 a barrel for Ecuador to stay profitable, versus under $70 in early June. He says production this year would be around 460,000 barrels daily, versus a daily average of around 500,000 in 2008. In addition to the bond default, the Correa government has been locked in battles with Brazilian, French, Spanish and US oil firms over contractual agreements. It is also in a tangle with a China’s Hutchinson over development of port facilities in Manta and a Brazilian engineering company, Odebrecht, about a hydroelectric project. Most recently president Correa accused US telecoms providers of ripping the country off. The government announced late May that banks would have until August 31 to repatriate a portion of investments and deposits held abroad. Quito calculates that around $1.2 billion would be returning to the country. Under the scheme, banks will now have to maintain 45% of their assets in Ecuador. LatinFinance 31 of several concessions Iamgold holds in the same general vicinity. The company is investing $14 million on final feasibility before deciding how to proceed. Initial projections put reserves at 3 million ounces of gold and 18.2 million ounces of silver. Phillips says that while conditions in Ecuador are unlike Peru, where Iamgold also has claims, the general treatment by both governments has been very positive. “We have been directly involved in negotiations with the government and we believe the framework in place is good for attracting investment.” Environmental activists in Peru, particularly in the north where mining concessions could become cross-border projects, see the Ecuador model not only providing more safeguards for the environment but creating a healthier climate for investment. One thing that sets mining apart from petroleum is government experience. The Ecuadorian state has been involved in hydrocarbons for decades and has the experience to manage projects if need be. This is not the case with mining, where production is negligible, with non-metallic products like cement small but dominant. The situation would likely stay this way if private companies do not invest. July/August 2009

Latin Finance - July/August 2009

Table of Contents for the Digital Edition of Latin Finance - July/August 2009