The World’s New Mining Frontier: ECUADOR

Author: Elena Sukikova

Very significantly, foreign mining companies can now own 100% of an Ecuadorian concession, without local partners. The exploration-to-exploitation process is now unified under one license—a first in the developing world. The tenure of mining concessions has been extended to 30 years, and mining companies are provided with credible legal guarantees to mine a property following a positive feasibility. Why then all this talk of Rafael Correa’s socialist credentials?

Foreign investors in Ecuador were certainly not celebrating on the night of December 04, 2006. Rafael Correa, who had been officially declared Ecuador’s president earlier in the day, had warned that “Ecuador’s substantial resources must be used for the benefit of Ecuador’s poor, and Ecuador’s foreign debt must be rationalized if Ecuador has to survive as a nation.” Shades of Venezuela’s Hugo Chavez?

No. As legislative developments during the course of 2007 were to prove, President Correa’s policies were predicated on two fundamental realities: Ecuador’s need to upgrade the lives of its impoverished majority and Ecuador’s almost total dependence on foreign capital to achieve meaningful social change. “The laws governing oil and mining were archaic, heavily skewed in favour of foreign, mainly American, investors for decades,” a Quito editor wrote in an opinion piece earlier this month. “What Correa did was to find a balance between the interests of his electorate on one hand and the requirements of foreign corporations on the other. What we are seeing, in effect, is the creation of a highly conducive and realistic investment environment.”

Very significantly, foreign mining companies can now own 100% of an Ecuadorian concession, without local partners. The exploration-to-exploitation process is now unified under one license—a first in the developing world. The tenure of mining concessions has been extended to 30 years, and mining companies are provided with credible legal guarantees to mine a property following a positive feasibility. Why then all this talk of Rafael Correa’s socialist credentials?

Much of the sabre rattling concerning Ecuador’s slide into socialism is influenced by President Correa’s call to revise and renegotiate petrochemical deals even prior to his victory in December 2006. “Of every five barrels of oil the multinationals produce, they take four and leave one for the State—that is unacceptable,” Mr. Correa said at a public meeting in October 2006. A trained economist, Rafael Correa called for a “fair and equitable” distribution of oil revenues.

In other words, while international investors seek above-average returns when they invest in a country like Ecuador, the level of those returns must be determined pursuant to a reasonable reward ratio for Ecuador itself. Given the widespread notion inside South America that the free-wheeling era of multinational deal-making is over, Ecuador’s recent amendments to Hyrdrocarbon and Mining laws do, in fact, serve to create a sustainable long-term regulatory matrix for foreign investment.

Make no mistake about Ecuador’s mining resources. The Incas were extracting gold in the south-western hills of Ecuador when the Spanish arrived in the region, around 1550. No actual records of gold production were available until 1887, when South American Development Company [SADCO] acquired control over key gold deposits; in the fifty years that followed, SADCO recovered 3.5 million ounces of gold and 17 million ounces of silver from 8 million tonnes of ore, according to official figures; unofficial estimates are much higher. SADCO’s departure from Ecuador, triggered by rising costs and an extremely erratic supply-demand market a that time (1950s), did not bode well for gold mining; government bureaucrats, who ended up running SADCO’s properties, did nothing of value to either improve efficiency or identify new reserves.

Today, the historical mismanagement of Ecuador’s mineral reserves presents a unique opportunity for mining companies; the bulk of the mining wealth in Ecuador’s south-western terrain remain unexploited while the ongoing work of thousands of small-scale miners clearly suggests an abundance of gold and silver resources spread over a vast area bordering mineral-rich Peru and Chile.

Without doubt, Rafael Correa’s vision is dominated by his desire to improve the day-to-day existence of his countrymen. But he knows that an investor-friendly legal and regulatory framework is critical, if that vision is to become a reality.

About Author  
Authored by: Elena Sukikova, a political and economic analyst specializing in the Andes region. Opinions expressed herein are solely those of the author, and no related or unrelated entity bears any responsibility for the author’s conclusions.
Email: info@momentumgain.com
URL: www.spirit-exploration.com

Article Source: http://www.1888articles.com