How did Ecuador create the framework to become an attractive country for mining investment?

When Rafael Correa became president, he found a country without a mining strategy, without clear regulation, and without a State structure to control the mining activity. In this context, he decided to stop mining activities in 2008, until the State was ready to manage the industry. He also decided to focus on industrial mining development and not so much on artisanal mining. It took us eight years to create all the relevant institutions and, with that, the country has opened up again for mining exploration. The potential is very high because, so far, only 5.8% of our territory has been explored.

The past failure of the negotiation for Fruta del Norte did some serious damage to the country’s perception abroad. How is this being rectified?

Yes, Ecuador had to live with the ghost of the past failure in the negotiation between State and Kinross. There were two theories behind that: one is that Ecuador was not offering competitive conditions. The other is that Kinross did not have the financial capabilities to undertake Fruta del Norte due to the crisis. In any case, after that, Lundin Gold took over the project, and Ecuador passed its critical test with the signature of the contract for Fruta del Norte. This was a key milestone.

Could you provide some figures about how mining investment is increasing in Ecuador?

This year, we hope to receive US$1.08 billion in mining investment, more than double last year’s US$500 million. Up until 2021, we expect US$4.6 billion in investment. Mining currently contributes only 0.7% of the GDP, but by the end of our mandate, this should have increased to between 3 and 4%. By 2025, with the completion of the first wave of strategic projects, mining would represent 7%; and with the second generation projects, mining should be at the level of oil and gas, contributing 14% of the GDP.

What specific changes were introduced to the legal framework?

In PDAC 2016, former minister Córdova initiated the tender process for mining concessions in Ecuador. All of these were greenfield projects, so Ecuador did not have data to put a price tag on each of them. Therefore, the criteria to obtain the concessions was to define which company would commit to invest the most in the project. In one year, we had already secured US$300 million in investment commitments. Then, between PDAC 2017 and the end of last year, we received 1,000 requests for mining concessions, and we have granted 275 of them, for a total of US$1.3 billion investment commitment over four-year exploration periods.

This greatly exceeded our expectations for the second phase of the tender process. Up until this point, Ecuador only had five projects to showcase: Mirador, Fruta del Norte, Río Blanco, Loma Larga and San Carlos Panantza. In 2017, companies started to publish the results of their exploration efforts in the second generation strategic projects, including Cascabel, Llurimagua and Cangrejos.

How is the merger of ministries going to affect the mining industry?

Part of president Moreno’s plan of government is to make the State more efficient. Under president Correa, the State became very corpulent, with 33 ministries, generating high levels of public expenses. We do not plan to go back to the previous model, where we only had eight ministries, but certainly the idea is to create synergies for some of the ancillary services. We are not going to eliminate any added-value service lines: the Undersecretary of Industrial Mining and the Undersecretary of Artisanal and Small Mining will continue working to attract investment and manage the different mining concessions.

How is the government assisting investors to obtain the social license?

By law, 60% of mining royalties have to be invested in the areas of influence, and this was key for the success of Fruta del Norte and Mirador. Of course, it is difficult for an investor to understand why they need to pay royalties before starting production, but in exchange, the State takes responsibility to actually invest 100% of that money (instead of 60%) in the areas of influence before production starts. This allowed the State to invest US$130 million in the area, and was instrumental to obtain these two mines’ social licenses.

Investors are still put off by Ecuador’s windfall tax. Is this going to be eliminated?

The windfall tax for extraordinary earnings was our Achilles Heel since it was established by the Correa administration in 2009. We have seen that, when applied in other countries like Mongolia, it affected the mining GDP very seriously. Our windfall tax actually takes 70% of the extraordinary earnings when comparing the base price of the last 10 years and the commodity price during a high cycle. We introduced several modifications to this tax, yet we saw that the investment community could not understand why this was applied. So, president Moreno finally decided to eliminate it, and the process for this should be complete this year. This move has been very well received by the industry.