SPECIAL REPORT - Mining in Ecuador: Balancing Risks and Rewards

Tuesday, February 5, 2019

Ecuador has become a magnet to explorers and mining companies alike over the past few years as the government focuses on increasing mining GDP from 1.55% to 4% by 2021. The implementation of a positive legal framework, the innate geological potential and positive exploration results have turned the country into one of the most attractive in the region for mining investors, as is evidenced by investments by major international players such as BHP, Newcrest Mining, Anglo American, Southern Copper and Australia's Fortescue. The country is now forecasting US$4.6bn in mining investment over the next four years.

On his election in May 2017, President Lenin Moreno promised a continuation of mining friendly policies with additional reforms to labor laws and investment in infrastructure to support mining. In addition, Moreno has proved much more open to foreign investment than his predecessor Rafael Correa. Ecuador has made "remarkable progress in raising its attractiveness as an investment destination," says Wood Mackenzie executive vice president of metals & mining consulting, Alex Bevacqua.

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President Lenin Moreno. Credit: NurPhoto / AFP

The tax regime has improved, including the abolition of an infamous windfall tax that was a significant deterrent to investors. "Many in the government view mining investment and the resulting generation of exports as absolutely critical to the economic future of the country," says Bevacqua, adding that this is driving authorities to focus on facilitating permitting processes and improving dialogue and communication with local communities.

Ecuador hosts the northern portion of the Andes mountain chain which is well known for its mineral endowment. To the south, South America's most prolific mining countries, Chile and Peru, are home to some of the richest deposits in the world. A lack of mining exploration in Ecuador has led many to believe it may be one of the last frontiers for world-class deposit discoveries. "The geology potential is massive," says Bevacqua. "Most geologists would say that Ecuador is one of the most prospective mining jurisdictions in the world... perhaps even Top 5, particularly for precious and base metals."

Andes mountains in Ecuador

However, the national drive to boost mining has faced tension in recent months due to a series of local court cases filed by indigenous communities seeking to block activities. "We believe this dynamic will continue over the next year as high-profile mining companies show increasing engagement," says Antonia Eklund, senior analyst at Control Risks. Sustained social and environmental action could result in "delays in issuing contracts and possible reputational risks to ongoing operations," the analyst says.

There is no doubt that Ecuador has worked hard to gain the trust of the international mining community. The Mines & Money Americas Outstanding Achievement Awards 2017 gave the award for the Best Country of the Year to Ecuador; Best Explorer in Latin America to SolGold; and CEO of the Year to Nick Mather, CEO of SolGold. In addition, Ecuador won the award as Most Innovative Country at Mines & Money, London, in 2017. On top of that, the Mining Journal included then mining minister Javier Córdova as one of the most influential people in mining in the world. These recognitions are not a coincidence. They are the combination of adequate government decisions and the positive exploration results of mining companies, which has placed Ecuador in the sights of investors. The question is whether the country can maintain this momentum for the long haul.