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Message: Ecuadorean official pledges fair rules for foreign miners
RESOURCES: DENVER GOLD FORUM
Ecuadorean official pledges fair rules for foreign miners
ANDY HOFFMAN
MINING REPORTER
September 10, 2008
DENVER -- Ecuador is prepared to eliminate an onerous windfall tax on mining projects in order to attract foreign firms, a government official told the mining industry yesterday.
Xavier Cordova, Ecuador's acting vice-minister of mines, said the country plans to introduce stable, transparent and fair rules for miners who want to tap the country's promising mineral resources.
The South American country is expected to amend tax laws to exempt mining firms from a 70-per-cent windfall revenue tax applied to oil and gas companies operating there.
A similar windfall tax introduced by Mongolia has created "not good results," Mr. Cordova told delegates in a speech at a major gold mining conference in Denver. While Ecuador does plan to create a national mining company, the state-owned entity will be subjected to the same rules as other mining firms, he said.
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Fears that Ecuadorean President Rafael Correa would use such a vehicle to nationalize mining assets are unwarranted, he added. "The intent of creating a national mining company has nothing to do with taking any concessions or projects," Mr. Cordova said.
The comments stand in sharp contrast to the pessimistic stance many investors have taken since Ecuador unexpectedly halted all exploration activities in April and set to work drafting a new mining law.
Shares of Ecuador-focused mining firms, including Aurelian Resources Inc., lost more than half their value after the surprise introduction of the so-called mining mandate.
Aurelian discovered the Fruta del Norte project, which is believed to contain more than 13 million ounces of gold. In July, the company agreed to a friendly takeover offer from Kinross Gold Corp. valuing Aurelian at about $1.2-billion. Aurelian said the mining mandate created such political risk that the project was better off in the hands of a senior company such as Kinross.
Mr. Cordova's speech was more positive than many analysts and investors at the conference expected. But Kinross chief executive officer Tye Burt said he wasn't surprised.
"It's right on track with what we've seen and heard on the ground in Ecuador," he said.
Mr. Cordova said the fact that a major gold producer such as Kinross is willing to invest in Ecuador is both encouraging and significant. "It makes us believe we are on the right path," he said.
The government official said Ecuador's new mining law is expected to be in place by the end of October, following a referendum later this month on a new constitution.
The new law will impose a royalty of as much as 8 per cent on revenue from mining projects. Mr. Cordera said it has not been determined if mining firms will have to pay more than the 35-per-cent corporate tax rate.
President Correa still needs to personally approve the new mining law and could request changes to the legislation.
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