Despite ongoing challenges surrounding small-scale illegal mining operations, Ecuador has potential to see more authorised large-scale mining activity as the government works to attract companies to the mostly unexplored country
Ecuador sits on the equator on the western coast of South America, bordered by the Pacific Ocean, Colombia and Peru. It is desirably situated within the Andes, with known high-value mineral resources including antimony, iron ore, silver and world-class deposits of copper and gold.
Despite these promising mineral reserves, Ecuador has little experience with large mining operations. Historically unkind to large-scale investment, the country’s mining industry is spread mostly across small, low-production operations that may go unregulated. Recent reforms to tax and mining laws have seen a renewed interest in exploration in the region and the current government is eager to support foreign investment.
Only five to ten per cent of Ecuador’s land area has been explored, meaning there are opportunities for further discovery of high-grade mineral deposits.
Despite its potential, mining and quarrying activities in Ecuador accounted for less than one per cent of the country’s GDP between 2004-2014. Ecuador’s economy is significantly dependent on petroleum, which in recent years has accounted for over half its export earnings and a quarter of public sector revenues.
Ecuador’s mineral sector policies changed during the 2000s as foreign interests entered the region, resulting in one of the highest tax rates in Latin America. Subsequently, interest in exploration diminished and companies with investments in Ecuador cut back progression.
In 2013 the government of Ecuador admitted its mining policies were ineffective and made efforts to make the country a more attractive prospect for foreign mining investment. These included reforms to the mining code and tax regimes, including a delay in windfall tax until four years after investment payback, equal base price applied for all projects and a ceiling of eight per cent on royalties.
Transport links across the country have also seen a significant improvement, with the government investing over US$40 billion in infrastructure since 2007, including continued upgrades of the country’s ports and airports.
Small operations, big problems
Additionally, the government has been legislating to tackle the issue of small-scale ‘artisanal mining’ operations, which have created numerous environmental and social problems across Latin America but particularly in the Amazon Basin. These mines operate outside legal frameworks and often do not comply with environmental, tax and labour laws. Workers in these mines may be exposed to unsafe conditions, without protective equipment or safety training. The lack of environmental regulation on these operations means that emissions from mining activities in the area are not controlled. Dangerous substances such as mercury and cyanide, used in the extraction process, can contaminate the surrounding water and land – causing immeasurable harm to humans and the environment.
In 2009, the Ecuadorean government, seeking to legitimise these operations as an economic sector and employment source, introduced new mining legislation allowing the state to ‘define the mechanisms for promotion, technical assistance, training and financing for the sustainable development of artisanal mining and small-scale mining.’
This legislation appears to have been ineffective at curbing illegal mining practices in Ecuador, which continue to be a problem for the country. Illegal mining has been one of the main contributors to the rapid deforestation of Ecuador. At 2.3 per cent per year, Ecuador has the highest rate of deforestation in South America.
Foreign investment looks promising
Despite the concerns surrounding illegal mining, the Ecuadorian government estimates that foreign investment in mining will amount to about US$1 billion in 2018, with US$4.6 billion expected by 2021. In 2016, Canadian company Lundin Gold Inc conducted a feasibility study for the Fruta Del Norte deposit, which suggested probably mineral reserves totalling 4.82 million ounces of gold and 6.34 million ounces of silver. As of January 2018, the project’s development had reached hard rock. The project is expected to produce around 340 000 ounces of gold per annum over its initial 13-year life. In February 2018, Australian Newcrest Mining Ltd cemented itself in the region, taking a 27.1 per cent stake in Lundin Gold and investing US$250 million into the Fruta Del Norte project. Newcrest and Lundin Gold have also entered into a joint venture to continue exploration in the area.
Another Canadian company, INV Metals, is developing the Loma Larga gold mining project in the south of Ecuador, with a preliminary feasibility study completed in 2016. The study suggests a production rate of around 3000 t/d and an average gold production of 150 000 ounces per annum.