Update on Ecuador tax situation - we have now contacted all three companies that we cover in Ecuador (DMM, ARU, CTQ) and have the following observations

1. The article is biased and sensationalized. The writer is the same one that has reported misleading articles about the mining industry in the past

2. The draft bill may not even refer to the mining industry, and the Reuters article may be confusing a new tax regime for oil and gas that would actually be an improvement vs. a new mining tax

3. DMM has talked to the mining ministry and apparently they were not consulted regarding this tax. They expect to push ahead with tax reforms for the mining industry in 1-2 months that will involve a royalty as we have said many times in the past

4. We understand that when a new mining bill is revealed, there will be an opportunity for the mining companies to comment and discuss with the government, this is likely to happen in early 2008

Secondly, we have obtained a copy of the draft bill itself, and although I am not fluent in Spanish, I note the following

1. The draft bill does indeed contain a section for a "winfall tax" or literally: tax on extraordinary income. The bill does specify the tax to be 70%

2. The first paragraph says the objective of the tax is obtain additional tax on non-renewable resources from companies that have signed contracts with the State - currently mining companies are not under state contract - this suggests that the bill may specifically refer to the oil and gas industry, although it never says "oil and gas" anywhere in the bill

Now if we assume that the mining companies are forced into contracts with the government to get permits (even though that would probably require a constitutional change), we see a number of things in the bill that are quite positive for mining companies

3. When there has been no price set in a contract, it will be done by executive decree, and the base reference price cannot be lower than the effective international price at the date of the contract - a winfall tax above $800/oz would have no impact to our numbers, almost nobody would be using a long-term gold price above current spot prices

4. The base price will be indexed to US CPI - although Ecuador inflation could be higher, this at least demonstrates that Ecuador is mindful of the economic consequences of such a tax

5. Any other extraordinary taxes would be deductible against this tax. And the payment of the winfall tax may be deductible for the calculation of corporate tax

Conclusion - if this tax bill was passed as is and the miners were forced to conform to it, it would have no impact on DMM or ARU from the standpoint of our NAV-based valuation, and should not prevent companies or foreign investors from investing in world-class mining projects. It ironically may scuttle less robust mining projects.

DMM - BUY (S) - C$19.50

ARU - BUY (S) - C$14.50"

safeharbour