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New Ecuadorian government offers greater certainty for foreign miners

Javier Cordova Unda is set to continue as Ecuador's minister of mines after being ratified by outgoing President Rafael Correa, which provides some certainty for foreign miners active in the country that new legislation benefiting the industry will continue.

"The new president was handpicked by Correa, he has named mining one of the three pillars, and he has ratified Cordova," Spurrier Group/Think Tank economist Walter Spurrier told S&P Global Market Intelligence on May 18 on the sidelines of the Latin America Downunder conference in Perth, Australia.

"So that guarantees continuity and no learning period in between because the same guy will continue policy."

Lenin Moreno has been named president-elect and is due to be sworn in May 19.

Correa, who came to power in 2007, imposed a mining ban and discouraging tax regimes, resulting in new in-country discoveries made by Canadian miners languishing and a flight of exploration companies.

However, in mid-2014, the declining price of oil, which is Ecuador's main export and revenue source, as well as the withdrawal of mining heavyweight Kinross Gold Corp. prompted the government to reassess its anti-mining stance.

"The government realized it was not a bluff and the company could not operate under those conditions," Spurrier said. "So they started to introduce changes to a more flexible legislation."

In February 2015, a separate Ministry of Mines was formed, and Cordova was appointed minister.

Cordova pushed for changes to Ecuador's windfall tax that would not apply to a mining company until their operations became cash flow positive and they had fully recovered the cost of their initial investment. The new legislation was introduced Jan. 1.

Other changes were made to key areas including the transfer of mining rights, income tax withholding and mining royalties advance payments.

"So not coincidentally, the company that bought Kinross' rights, which was Lundin Gold Inc., announced they were ready to start developing, and the Chinese with copper mines further north also started their operations," Spurrier said.

Lundin operates the Fruta del Norte gold project, for which the company is now seeking a 60/40 debt-equity structure to finance the development.

The discovery of the Cascabel copper-gold porphyry by SolGold Plc has also attracted more miners, including Australia's Fortescue Metals Group Ltd., to the region.

According to Spurrier, in May 2016, when the bid process was opened for new mining concessions, there were 300 applications.

Ecuador is targeting about US$4 billion in new mining investment to 2020.

"The political party most opposed to mining is one that has changed its mind," Spurrier said. "So that makes for a very good environment for mining."