Lundin Gold (LUG-T) giving Ecuador another chance.... Ecuador is the place to be," Odin geologist says
Diego Benalcazar has worked all over Latin America, from Chile and Peru to Venezuela, Colombia and Mexico, but since mid-2013 the geologist has concentrated on finding projects in Ecuador as Odin Mining (ODN-V) VP Exploration and Corporate Development.
“Ecuador is the place to be,” he says over a lunch break at the Marriott Hotel in Quito, where he is attending a government-sponsored investment forum. “Four or five years ago, Colombia was, but it got saturated so fast once Anglo Gold let go a good part of it’s concessions, Colombia started changing legislation and all the juniors came in.”
By the time Benalcazar got to Colombia to look for projects in 2011 and 2012, he says, he was a year or two too late: “There was nothing, all the good stuff was taken.”
Benalcazar believes Ecuador enjoys many of the same rich geological attributes that are present in Colombia, without the headaches of having to deal with some of the security issues related to the country’s history of guerrillas and drug wars.
“When the juniors went to Colombia, they had to be friends with the military in order to have assistance,” he says. “In Ecuador we only need to tweak a couple of things in the mining law and the fiscal treatment of the mining sector for this country to be full of mining companies, and I think that time is coming, I can sense it.”
The mining executive and former president of the Board of Directors of the Ecuadorian Chamber of Mines, is also convinced that the small Andean nation is on the verge of “incredible change” that will take place over the next two years, because the country’s leaders are hungry for foreign investment.
“The government realizes that it needs a change in attitude,” he explains. “They’re going to have to pay a lot of attention to public expenditure; the cost of oil production here is almost the same as the current price of crude, and this is likely to continue over the next couple of years, so they have to pay attention to other sources of income.”
Officials in Quito are fully aware of that, and of the promising geology the country has to offer, he adds.
“The continuity of these Andean mineralized belts is so rich,” Benalcazar says.
What the country needs, is more exploration, he says, pointing out that the seven major discoveries that were treated as “strategic projects” after the 2008 moratorium on exploration and mining was lifted, were generated by exploration efforts in the 1990s and early 2000s. “Imagine if Ecuador had continued exploration for another decade,” he muses, “we’d have seven or ten more projects.”
Looking ahead, Benalcazar forecasts that over the next five to eight years, Ecuador could end up with as many as fifteen large-scale projects of over 1,000 tonnes per day, in what he describes as the country’s “first generation” mines.
The next stage, or “second generation” projects, he speculates, would include medium-scale ones of between 200,000 oz. gold and 500,000 oz. gold. “You’ll find multiple deposits within a small area that could be easily combined for a 2-3 million oz. project, or a standalone 500,000-oz.-deposit. We haven’t seen that yet.”
Among Ecuador’s many attributes, he says, are abundant water, cheap electricity from the country’s six hydro-electric projects that are expected to come on stream in 2016, and inexpensive labor. In addition, because Ecuador is about one-quarter the size of Peru, most mining projects are relatively easy to get to.
“You can be in and out within a day,” he says. “In Peru and Chile it can take forever to get to some of these projects—a couple of days in some cases.
For companies that have cash on hand in the current downturn, Ecuador is more attractive than some Latin American countries like Chile, he continues, where you can buy the same quality of project as you'd find in Ecuador but “you’ll pay many times more.”
To be sure, Benalcazar isn’t naive about the challenges of developing Ecuador's mining industry and is the first to admit that foreign investors have had to be extremely patient over the last decade, as the government’s policy on mining has evolved.
“It’s only been in the past two or two and a half years that they realized mining could become a source of income without really knowing that it takes eight to ten years to develop a mine,” he says. “They thought by signing contracts and bringing in companies they’d have mining production in two years. With that initial level of understanding, you can imagine they were totally lost about how the industry works.”
The government is also aware that Kinross Gold’s’ (K-T) decision in 2013 to abandon Ecuador and its Fruta del Norte project over concerns about high tax rates at the time, meant that the country “missed the upside of the commodity prices and strong markets” and “harmed Ecuador’s reputation, turning it into a “no go destination.”
Lundin Gold’s (LUG-T) acquisition of Fruta del Norte in December 2014 is giving Ecuador another chance and the mining company and the government are close to finalizing the terms of a fiscal stability agreement. “Today there is an opportunity for Lundin Gold, as the government of Ecuador can’t fail a second time,” Benalcazar says.
Other things have changed, too, making the country an easier place to do business, he argues, such as simplified and faster permitting processes. In the past, companies could spend one to two years waiting to get an environmental license. Today, by contrast, there is an understanding that if an institution doesn’t respond within a certain number of days, the answer is positive. In addition, there are “clear rules of the game” and institutions at the provincial level staffed with good people have been created to help support companies with problem solving and even engaging with local communities.
“Some people will regret that they’re not here now, because if they come later, they’ll either have to go early-stage exploration or pay two or three times more,” he says. “For companies that are waiting to see if there are going to be any more, or drastic, changes in the law—that’s not going to happen fast. It is what it is, and they’re not going to do anything to the mining law this year. Soon enough the adverse conditions of declining economic growth will demand more flexibility in the fiscal regime—forcing Ecuador to become a competitive destination for risk investment and the development of mines.” |
