On June 5, 2014 Ecuador announced plans to modernize its mining
laws and offer tax incentives designed to attract foreign
investors. This may be the biggest resource policy shift in modern
history not triggered by an election.
"Our mining laws have been a total disaster," admitted
Ecuadorian President Rafael Correa on national radio, "It has been
a failure on the part of the government. We have made mistakes due
to our lack of experience. We can't be infantile. I'm not
disposed to wait any longer."
The government is planning to abolish the windfall tax (which
torpedoed Kinross Gold's investment in the massive Fruta del Norte
gold) mine and make other improvements to attract mining
investments.
"These new incentives will help us attract investment in all
different steps of the process," stated strategic Sectors Minister
Rafael Poveda.
One of the country's most active explorers - Ecuador Gold and
Copper (TSX-V:EGX) controls five deposits within the Condor Complex
in southeast Ecuador: 1) Santa Barbara 2) Los Cuyes 3) Soledad 4)
El Hito and 5) Chinapintza (Joint Venture with China) and has spent
the last two years conducting an extensive 22,500 meter drill
program.
On March 24, 2014, after the completion of Phase ll drilling,
EGX announced a significantly expanded resource estimate for the
Santa Barbara South and North Zones. The company's indicated
and inferred gold resources in Ecuador increased 26% to 8 million
gold ounces indicated; 2.6 million gold ounces inferred with a cost
of discovery of US$2 per ounce.
The economics of the EGX deposit could look very different in
this new taxation world. With a current valuation of $2 per
indicated ounce-in-the ground vs. a global average of about $30 –
the stock has a lot of room to run.
"President Rafael Correa has realised that if you don't have an
attractive investment regime, the mining industry cannot survive,"
states EGX CEO Glenn Laing in an exclusive interview with Financial
Press, "Up to this point, the only large major investor in Ecuador
has been the Chinese."
Ecuador is one of the last largely unexplored mining frontiers.
With Colombia to the north, Peru to the south, the minerals-rich
Andes Mountains straddles all three countries.
"When you attract only a handful of juniors, it's an indication
that investors are reluctant to put money in at a highly
speculative stage," states Laing, "The junior mining business model
is to find a good asset, drill it, and sell it. But you hit a
stumbling block in the selling phase if the taxation regime is
punitive. The good news for EGX is that the penny has
dropped. Correa knew he had to make some changes."
Laing gives Correa credit for commissioning a study from the
internationally-recognized consulting company Wood Mackenzie, who
looked at the numbers and realised there was a problem.
"Under existing tax regimes if you added up all the taxes on a
mining investment in Ecuador, about 52% of the profits went to the
government – and 48% to the mining company," states Laing, "And
then the 'windfall' tax could ramp the taxation level to 70%."
Money goes where it grows and the old Ecuadorian profit-sharing
scheme did not incentivise international investors.
"When Kinross was negotiating their fiscal deal with the
government, gold was on a rampage and heading towards $1,900,"
states Laing, "President Correa looks out for his people, which is
great, but if you take too much of the cherry, the investors go
away. At the EGX Condor Complex we already have the large
resource base, and now we have a fiscal regime that will
incentivise investors."
President Correa has a reputation for decisiveness. Because he
controls the vast majority of the seats in the assembly, it is
anticipated that Correa will push the new mining laws through
quickly. This will radically change the economics of EGX's 8
million indicated ounce Santa Barbara deposit.
"Ecuador Copper and Gold has a bulk, low-grade deposit so it is
important to achieve maximum metals extraction," stated Laing, "The
first phase of the metallurgical test work for the Preliminary
Economic Assessment for Santa Barbara gave us 86% gold recovery and
64% copper recovery. We believe we can improve on that, so now
we are doing additional metallurgical test work to get better metal
recovery rates, particularly with the saleable copper
concentrates."
Increased recovery rates mean more revenue per ton, which
improves the economics of the mine, as the operating costs remain
the same. Laing believes the best thing that EGX can do with
its time and money is to improve the metallurgy and optimize its
mining plans.
"Every deposit presents unique metallurgical challenges. This
deposit necessitates grinding the ore very fine."
"With the new more favourable mining laws and the large size of
our deposit, EGX is close to a tipping point," states Laing,
"Following the completion of the metallurgical work and the release
of a Preliminary Economic Assessment (PEA), we anticipate
intensified interest from international miners and financiers to
take EGX to the next stage."
"People say mining is ugly," stated President Correa, who has a
PhD in Economics from the University of Illinois, "It's not ugly,
it's the opposite of ugly. Misery is ugly."
Ecuador Copper and Gold is trading at .07 with a market cap of
$16.5 million.
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CONTACT: Ecuador Gold and Copper Corp.
5000 Yonge St. Suite 1901
Toronto, Ontario
M2N 7E9
Phone: 1-416-227-3402
Fax: 1-416-628-3801
info@ecuadorgoldandcopper.com
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