Cousuder,

Thanks for the updated post from Silvia Santacruz of the Ecuador Mining News. The statement that "The 70 percent tax also is not yet applicable to mining companies, since firms subject to the windfall tax must have contracts with the state" [and no mining company currently does] reaffirms that this law is targeted to the oil companies but will likely be applied to the mining companies in some form.

In reading the examples of how it could be applied it struck me that this is going to cause big administrative headaches. There has to be some attempt at equity within the law as to how they treat companies. With this proposal they could have a company like AAA negotiate a contract tomorrow at $800, and a year from now BBB negotiates a contract at $1000 (if that was the current price of gold). By timing alone AAA ends up paying a $140 windfall tax compared to BBB. One would assume that the windfall tax rate would be the same for everyone at any given point in time.

The more I think about it the more problems there are.

I suspect that this type of windfall tax would lead to high grade mining where low grade marginal material not planned into the mine as it has minimal upside potential due to price and possibly high downside risk associated with increased cost of mining it. It costs more or less the same to mine and process a tonne of ore regardless of the grade when using the same mining method. If you don't build the low grade resources into the mine plan you can go with a smaller less costly mine that is targeted on the higher grade material (less capital cost per ounce).

Who would explore or develop large tonnage low grade deposits where because of there long mine life the spread between the 'windfall base price' and mining costs are going to converge as mining costs are increasing at a rate faster than the 'windfall base" is going to be adjusted upwards under the proposed CPI adjustment.

How would they handle the discovery of new resources on an operating property with a 'contract' vs on a different concession? For example ARU find three FDN style deposits on three concessions at three year intervals. Each would supposedly have a different 'windfall base'. What happens if they found all three on the FDN concession --- would they fall under the FDN 'windfall base price' for the FDN contract? What happens if the find the western extension on a different concession? What happens if they discover a copper porphyry on FDN --- what would the windfall base price be for copper since it was never considered for the FDN contract. What happens if a deposit straddles two companies’ properties and one develops it before the other (different windfall prices?).

I don't see how they are going to do this in a way that stimulates development of their industry. Hopefully whoever is advising the Ecuadorians are asking them how they plan on handling the details vs the simple one of setting it at XX% of the 'windfall base price'