Ecuador's President Correa will send mining bill to Congresillo Wednesday

Ecuador’s Congresillo will receive new mining law legislation aimed at finally lifting a ban on mining and exploration in the country from President Rafael Correa on Wednesday.

RENO, NV - 

In his weekly radio address, Ecuadorian President Rafael Correa said he will send changes to a mining bill to the new 76-member legislative commission, the Congresillo, on Wednesday.

During a press conference Monday Mining and Oil Minister Derlis Palacios the proposal will include a plan to charge a minimum 5% royalty on mineral sales and not on production.

The current draft mining bill would change the three to eight percent royalty to a five percent royalty, without specifying a maximum level. It also requires contract between companies and the Ecuadorian government.

During a speech to the Chamber of Industries of Azuay last week, President Correa said the new mining law is crucial for foreign mining and exploration companies who have massive gold and copper deposits in southern Ecuador. The law will also end a six-month government ban on mining activity in Ecuador.

In April Ecuador's Constituent Assembly enacted a law that revoked 80% of the nation's mining concessions and suspended the other 20% for 180 days. Palacios told the news media Monday that a public auction will take place for the revoked concessions and for new mining concessions.

The proposed changes would also levy a windfall tax to what is considered "extraordinary revenue" from high metals prices. The tax would only apply to the difference between the sales price for the metals produced in the country and the fixed mixed price established in a contract with the state. The fixed or base price would not be lower than the international metals market price at the time the contract is signed.

Mining chamber president Cesar Espinosa suggested late last year that the proposed windfall tax rate might be negotiated downward when mining and exploration companies finalized their contracts directly with President Correa. The law would establish two types of contracts for exploitation and for services.

The president has also said that the new law will create a new state mining corporation which will control and monitor mining activity.

In an interview with Business News Americas, Javier Cruz, executive director of Ecuador's Mining Chamber, said the chamber is concerned about the language in the bill defining mining concessions rights. The chamber is also worried that mining employees could receive less money from higher metals prices than social programs, such as health, education and housing.

Cruz told Business News Americas that the bill is not constitutional "and until it is, it will depend upon and draw all of its authority from a countless number of other laws that are hierarchically more important than this one.  Among those laws are citizen participation, tax equity, hydrocarbon resources, and several others.

Nevertheless, he suggested that the bill has "a lot of good points," calling it a document "that allows us to start working and that's what we're focused on."

In an interview with Reuters, however, analyst Michael Gray of Genuity Capital Market in Vancouver suggested the "at least" 5% royalty and service contracts "is a bit ambiguous and adds an element of uncertainty and risk."

"This means that the biggest companies around the world will probably sit on the sidelines and wait for clarity in Ecuador before investing," he added. Kinross Gold has already indicated its interest in the possible development of the Fruta del Norte project, while both Xstrata and Codelco are considering massive copper projects in Southern Ecuador.

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