Ecuador approves new mining law

Ecuador's Assembly approved a new mining law that bolsters government control over the nascent sector and slaps royalties on companies seeking to drill world-class metals' deposits in the Andean nation.

Author: Alonso Soto
Posted: Tuesday , 13 Jan 2009

QUITO (Reuters) -

Ecuador's Assembly late Monday approved a new mining law that bolsters government control over the nascent sector and slaps royalties on companies seeking to drill world-class metals' deposits in the Andean nation.

Even under tighter government oversight, the new law is expected to jump-start an industry that has found massive gold, copper and silver deposits coveted by global mining giants.

It also lifts a nine-month government ban on exploration that will allow companies to resume work and speed-up development of projects.

The government-controlled assembly made few deep changes to the legislation, keeping the royalty scheme of at least 5 percent on sales and tougher environmental controls.

The law could spark fresh anti-mining protests by Indian groups and environmentalists who say the legislation favors foreign companies over poor communities and threatens the Andean country's pristine environment. Sometimes violent protests have kept investors worried over the development of the sector.

Ecuador President Rafael Correa, a socialist who in December shocked investors by refusing to pay its foreign debt, says he backs large-scale mining to diversify his OPEC nation's economy which is reeling from a global economy slowdown.

His government is scrambling for funds to cover a widening fiscal deficit as falling oil prices cut into its revenues.

Correa could make further changes before it ratifies the law ratify the law, government officials said.

Unlike neighboring Peru and Colombia where miners have a clear set of rules, Ecuador's new legislation calls for negotiations to set royalties and the contract model.

The law sets royalties of "no less" than 5 percent based on sales, forcing companies to negotiate the percentage with the state. It also calls for the option of service deals that gives the government rights to directly sale extracted minerals.

Worldwide mining companies are slashing investment plans and selling assets to keep much-needed capital as international credit grows scarce and the price of industrial metals plummet on fears of global recession.

Miners including Corriente Resources (CTQ.TO) and Kinross (K.TO) sit on multibillion dollar metal deposits, but analysts say the development of those projects could be delayed due to the global crisis. (Reporting by Alonso Soto; editing by John Picinich)