Can Ecuador strike gold by paving the way to mining development?
Thanks to the 2020 start of commercial operations at Ecuador's only two industrial-scale mines, the Fruta del Norte gold mine and the Mirador copper operation, mining exports have grown rapidly, rising from US$1bn in 2020 to US$3.32bn last year, making them the nation's fourth biggest export product after oil, bananas and shrimp. Although the growth in revenues from mining demonstrates the importance of the sector to the economy, the country's enormous potential for producing valuable minerals, positioned as it is in the Andean copper belt, cannot be realized without significant efforts to improve local conditions so the necessary investments can be attracted.
The country's political instability and rising levels of crime, exacerbated by the spread of drug trafficking and organized crime's infiltration of various state bodies, including the judiciary, have raised concerns about Ecuador's ability to capitalize on its mining wealth.
Cristian Carpio, a senior analyst at the political risk consultancy Prófitas, said during a panel discussion at the Expominas 2024 fair, which is taking place in capital Quito, that a chronic issue for all industries, including mining, is Ecuador's institutional weakness, which makes various state institutions vulnerable to changing political circumstances.
While the current government is making efforts to develop the mining sector, these institutional frailties must be addressed, with Carpio underscoring the urgent need for a state mining policy that can withstand changes in political authorities and governments and provide clear direction for the sector.
Experts also believe that as new mines start operating around the country, not only will the nation’s current road infrastructure fall short of requirements, but adaptations to ports will also be needed, especially at Esmeraldas, Posorja and Bolívar, while a railroad for mining products and mineral refining facilities should also be developed.
One or more ports may have to be adapted to specialize in shipping mineral products in the medium and long term, the head of the mining department, Diego Ocampo, said during a panel debate at Expominas.
“In terms of infrastructure, 10 years is tomorrow,” says Ocampo. "We have to add emerging and future infrastructure needs to the debate."
However, by 2034, the country should have four or five more mines in production, according to Ocampo.
“Mining is not only the future of the country, it is the present because it is a source of foreign currency, development and inclusion by redistributing wealth for the benefit of communities,” he said.
TIMELINES
Exploration began at Fruta del Norte and Mirador in the early 1990s, but commercial operations only started in 2020, a period marked by numerous changes in government, sectoral authorities and the regulations governing the industry.
The current mining law allows four years for initial exploration, four years for advanced exploration, and up to four years for economic evaluation. However, if production does not commence within this timeframe, the concession may expire.
Santiago Yépez, a private consultant to the mining sector and former president of Ecuador's chamber of mines, believes these timelines need to be reviewed.
"We have legislation with certain constraints that, in some way, prevent the mining industry from developing adequately," he said.
Yépez added that simply possessing mining resources will not make Ecuador a mining power because without long-term public policy support, investment will not flow into the sector.
The panel participants emphasized the need for all sectors to reach basic agreements on mining policy with the aim of making the sector a driver of national growth and development.
OPTIMISM
During Expominas, there was a consensus on the importance of the sector and the optimistic economic projections for the industry due to rising prices for copper and gold.
“If all advanced projects go into production, mining output will at least quintuple, and state revenues could reach US$45bn over the life of the mines, in addition to around US$12bn in royalties, 60% of which should go to the communities,” said Walter Spurrier, president of Guayaquil consulting firm Grupo Spurrier. These projects could also provide employment for around 5% of the country's economically active population.
Spurrier highlighted that mining will significantly diversify Ecuador's economy, boost tax revenues, and lead to substantial development in rural areas where mining projects are located.
At the opening of Expominas, energy and mines minister Antonio Goncalves said that President Gustavo Noboa's government recognizes that mining is a key driver of the national economy due to the high investment it attracts and the employment it creates.
He added that mining could be a solution to the crime and insecurity problems in the country and stated that the government is committed to implementing clear policies to mitigate the sector's uncertainties and challenges.
Source: https://www.bnamericas.com/