Pacific International Securities on Aurelian / site visit last week
Aurelian Resources Inc. (V-ARU)
Ecuador is NOT another Venezuela
Michael Gray, M.Sc., P.Geo.
PHONE : 604-664-3682
RATING: UNDER REVIEW
PRICE (intraday): $29.99/share
MARKET CAP: $1.095B (fd)
TARGET: UNDER REVIEW
EVENT & BACKGROUND – Review of Ecuador Political Landscape
Country Visit
As part of our tour of Aurelian’s Condor Project in SE Ecuador during Feb 19-22nd, we spent time in the city of Quito
assessing the country’s political scene. We were very fortunate to have interviews with key individuals including: i) a senior
banking consultant; ii) the Canadian Ambassador to Ecuador; iii) the President and Vice-President of the Ecuador
Chamber of Mines, and; iv) key business people (see references). These interviews covered a broad spectrum of political
views. Two of the individuals interviewed had recently met with newly elected President Correa. A more in depth report on
Ecuadorian Politics will follow later this week.
New Government – Background on Election
As many investors are aware, Ecuador has had eight presidents in the past 10 years. This has led to some economic
instability and to a Dollarization policy in 2000 to control inflation during a currency crisis. In November 2006, the people of
Ecuador elected left-leaning President Rafael Correa, a young US educated Economist, and former Minister of the
Economy in the 2005 Cabinet. Correa was elected in 2006 with the support of the indigenous population of Ecuador and
has promised an anti-corruption agenda which includes a re-write of the existing Constitution. A referendum on March 15th
will allow people to vote on whether they want the Constitution re-written by a National Assembly. Correa has had an open
and supportive relationship with Chavez and Morales which has led to investment concerns on the direction he will take
Ecuador economically. Recent debt payments have been made after a period of speculation on whether Ecuador would
default. To date, Correa has not been quoted on his views of the mining industry. He has not made any statements that
suggest he is leaning toward nationalization of any of the resource sectors.
Our Key Findings:
• Political Stability – Sense of political uncertainty in the short-term, however, no state of anxiety
• Political Stripe of New Government – We confirmed our view that President Correa is a Liberal not a Communist
• Nationalization – We did not detect a resource “nationalization agenda” from our interviews in Ecuador
• Relationship with Venezuelan President Chavez – Not as ironclad as perceived?
• Media Portrayal of President Correa – In Ecuador optimistic; internationally tied to Chavez
RESEARCH QUICK NOTES Feb 26, 2007
PACIFIC INTERNATIONAL SECURITIES INC.
Aurelian Resources Inc. (V-ARU) Page 2
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• Constitutional Referendum (March 15/07) – People likely to vote “Yes” for a constitutional re-write
• Low risk of Financial Crisis – A diversified economy, high oil prices and Dollarization protect Ecuador’s economy
• Mining Sector Policy – A new Ministry of Mines may be created out of the existing Ministry of Energy and Mines
IMPACT – Positive
Our assessment of the Ecuador political scene is more optimistic than we expected. We did not detect a socialist economic
agenda involving nationalization of the resource sector with the new Correa government. If we are correct in our
assessment, we believe that as the true colors of the new government become clear (Correa not evolving into another
Chavez) and political risk for Ecuador will decrease.
RECOMMENDATION – Under Review
We attach political risk to ARU in Ecuador given the instability of previous governments over the past decade and given the
lack of party representation in Congress aligned with new President Rafael Correa. However, on the basis of our
interviews, we believe that the market has overreacted negatively to Ecuador’s new President and left leaning government
with the perception that Correa is another Chavez. We have placed Aurelian Resources UNDER REVIEW while we
complete our political and technical assessment of Aurelian given our recent site visit. Aurelian is speculative and
appropriate for risk tolerant investors only.
INTERVIEWS
1. Senior Banking Consultant and Academic
(February 20, 2007)
2. Cezario Espinosa – Vice President, Ecuador Chamber of Mines
(February 22, 2007)
3. Alfredo Sebastia – President, Ecuador Chamber of Mines
(February 22, 2007)
4. Canadian Ambassador to Ecuador Christian Lapointe
(February 20, 2007)
5. Politically Right Leaning Businessman
(February 20, 2007) |
