Aurelian Resources Was Stolen By Kinross and Management But Will Not Be Forgotten
The company whose shareholders were better than its management
Message: EMN - Q&A Victor Flores Senior Mining Analyst HSBC
http://www.ecuadorminingnews.com/new...
Senior Mining Analyst Victor Flores was the inaugural speaker at the New York Stock Securities Analysts (NYSSA) Eighth Mining and Metals Conference on June 5th. He delivered an overview of base and precious metals, saying that the U.S. dollar is the main driver of gold prices, and therefore demand for gold is speculative. Platinum, for its part, is powered by supply deficits. Among his predictions: copper may not remain at the USD 4 level, but that it would stay at $3 or $3.50, and gold and silver will continue to have a strong correlation. EMN interviewed Flores regarding the consequences of Ecuador’s mining mandate on investor confidence.
By Silvia Santacruz
Ecuador Mining News
Ecuador’s international confidence plummeted last April 18th when the Constituent Assembly issued a mandate to halt large-scale mining operations for six months. Do you think the country will regain investors’ trust?
Ecuador’s mining future is in the MMP’s hands. They have promised us a favorable new mining law, very soon, which would follow the Chilean model. If true, some disruptions caused by the mandate will ease; nonetheless, regaining confidence is a very difficult thing.
As a consequence of the mining mandate, mining companies’ market capitalization plunged as much as 50 percent. Will firms recover their stock prices prior April 18th?
Investors expect the changes to happen as they have been announced: a favorable mining law, a new constitution, and a new government to be elected at the beginning of 2009. Once these three events occur, it is possible that the firms will recover what they have lost in the course of next year, although there are still outstanding issues that need to be clarified such as the windfall tax for the industry.
After the mining mandate was issued, many investors dumped their Ecuadorian shares and invested in other more stable countries. Has Ecuador lost its mining opportunity?
Mining industry capital always flows into countries with stable environments toward work, and with clear rules, good infrastructure, and favorable geology. For investors, it is easy to sell their Ecuadorian shares and move onto more stable countries such as Chile or Peru. Nonetheless, that doesn’t stop investors from returning to Ecuador once the situation stabilizes. We [mining analysts] have seen this behavior before.
Has the mining mandate caused other negative impacts in the industry?
What may happen is that mining companies with developments outside Ecuador would focus on their projects in other countries. IamGold, for instance, which has no current operations at Quimsacocha, is currently concentrating on its Canadian Westwood project. Therefore, the firm may invest in North America for the next one or two years, delaying Quimsacocha, and Ecuador may have lost that opportunity. Mining executives work to show good results to their investors, and must decide where to develop their projects to take best advantage of their very limited resources: capital, personnel, and time.
There is a correlation between the mineral deposits and countries’ political risk. How is Ecuador ranked, considering that Aurelian Resources is one of the greatest gold discoveries in the world?
Aurelian’s Fruta del Norte is unique. There are few gold projects in the world with such wealth, and that’s why Aurelian must keep that project and not let it go. On the other hand, if the situation does not end favorably, it will be very difficult for the company to continue investing, and it may take several years before the project restarts. In Congo, for example, the civil war delayed mining operations for a whole decade. I'm not saying that uncertainty in Ecuador will last 10 years, but there is a possibility that the wait will be longer when operations have stopped.
During my visit to Ecuador [before the mandate], one of the Assembly members told me that mining investors are accustomed to high risks. Is this true?
I totally disagree with that viewpoint. It’s true that the mining industry brings a little more risk than others, because they have to invest wherever the deposits are located – in places that do not necessarily offer the best policies for investment. But that does not mean they are immune to risks, or like to invest in risky places. Shareholders expect results, and if they see a country that does not provide that, they go to another that does.
What country can compare with Ecuador in terms of its mineral wealth?
Peru, which is right next to Ecuador and shares the Andes and the geology. Mining constitutes Peru’s economic growth engine. The country established a stable tax regime in the mid-90s when it stopped the guerrilla, Shining Path.
From investors’ standpoint, is Ecuador’s uncertainty comparable to that of Venezuela?
Similar. It is not exactly the same model, but from the investor’s standpoint Ecuador is as risky as Venezuela is.
You mentioned that investors seek results. How long do they wait to obtain results?
It depends on the type of shareholder. There are those who invest for a very short term – two to three months – and the other type wait between two to three years. Ecuadorian projects, such as Quimsacocha, or FDN, require three to four years to be developed.
President Correa, who has a pro-mining vision, is very much involved in the mining law draft and influences the MMP. Is this good or bad for the mining industry?
Bad. Any industry should be handled by its ministries. In Peru, for instance, the Fujimori, Toledo, and Garcia governments have had different mining policies, but they have left the ministry to handle the politics and the relationship with industry. Even Toledo who is not a big fan of mining – but didn’t oppose it, either— let the ministry manage that. Then, it is all very well that Correa is pro-mining, but what if the new president is anti-mining? All these variables can change.
Ecuador’s mining future is in the MMP’s hands. They have promised us a favorable new mining law, very soon, which would follow the Chilean model. If true, some disruptions caused by the mandate will ease; nonetheless, regaining confidence is a very difficult thing.
As a consequence of the mining mandate, mining companies’ market capitalization plunged as much as 50 percent. Will firms recover their stock prices prior April 18th?
Investors expect the changes to happen as they have been announced: a favorable mining law, a new constitution, and a new government to be elected at the beginning of 2009. Once these three events occur, it is possible that the firms will recover what they have lost in the course of next year, although there are still outstanding issues that need to be clarified such as the windfall tax for the industry.
After the mining mandate was issued, many investors dumped their Ecuadorian shares and invested in other more stable countries. Has Ecuador lost its mining opportunity?
Mining industry capital always flows into countries with stable environments toward work, and with clear rules, good infrastructure, and favorable geology. For investors, it is easy to sell their Ecuadorian shares and move onto more stable countries such as Chile or Peru. Nonetheless, that doesn’t stop investors from returning to Ecuador once the situation stabilizes. We [mining analysts] have seen this behavior before.
Has the mining mandate caused other negative impacts in the industry?
What may happen is that mining companies with developments outside Ecuador would focus on their projects in other countries. IamGold, for instance, which has no current operations at Quimsacocha, is currently concentrating on its Canadian Westwood project. Therefore, the firm may invest in North America for the next one or two years, delaying Quimsacocha, and Ecuador may have lost that opportunity. Mining executives work to show good results to their investors, and must decide where to develop their projects to take best advantage of their very limited resources: capital, personnel, and time.
There is a correlation between the mineral deposits and countries’ political risk. How is Ecuador ranked, considering that Aurelian Resources is one of the greatest gold discoveries in the world?
Aurelian’s Fruta del Norte is unique. There are few gold projects in the world with such wealth, and that’s why Aurelian must keep that project and not let it go. On the other hand, if the situation does not end favorably, it will be very difficult for the company to continue investing, and it may take several years before the project restarts. In Congo, for example, the civil war delayed mining operations for a whole decade. I'm not saying that uncertainty in Ecuador will last 10 years, but there is a possibility that the wait will be longer when operations have stopped.
During my visit to Ecuador [before the mandate], one of the Assembly members told me that mining investors are accustomed to high risks. Is this true?
I totally disagree with that viewpoint. It’s true that the mining industry brings a little more risk than others, because they have to invest wherever the deposits are located – in places that do not necessarily offer the best policies for investment. But that does not mean they are immune to risks, or like to invest in risky places. Shareholders expect results, and if they see a country that does not provide that, they go to another that does.
What country can compare with Ecuador in terms of its mineral wealth?
Peru, which is right next to Ecuador and shares the Andes and the geology. Mining constitutes Peru’s economic growth engine. The country established a stable tax regime in the mid-90s when it stopped the guerrilla, Shining Path.
From investors’ standpoint, is Ecuador’s uncertainty comparable to that of Venezuela?
Similar. It is not exactly the same model, but from the investor’s standpoint Ecuador is as risky as Venezuela is.
You mentioned that investors seek results. How long do they wait to obtain results?
It depends on the type of shareholder. There are those who invest for a very short term – two to three months – and the other type wait between two to three years. Ecuadorian projects, such as Quimsacocha, or FDN, require three to four years to be developed.
President Correa, who has a pro-mining vision, is very much involved in the mining law draft and influences the MMP. Is this good or bad for the mining industry?
Bad. Any industry should be handled by its ministries. In Peru, for instance, the Fujimori, Toledo, and Garcia governments have had different mining policies, but they have left the ministry to handle the politics and the relationship with industry. Even Toledo who is not a big fan of mining – but didn’t oppose it, either— let the ministry manage that. Then, it is all very well that Correa is pro-mining, but what if the new president is anti-mining? All these variables can change.
4 Recommendations
Loading...
Loading...
New Message
Please
login
to post a reply