* Law delays windfall tax, sets royalty minimums
* Approval follows Kinross' decision to leave Ecuador
By Eduardo Garcia
QUITO, June 13 Ecuador's lawmakers on Thursday
approved a mining law that should speed the development of small
and medium-size ventures, only days after Canada's Kinross
canceled a massive $1.2 billion gold project in the country over
a tax dispute.
Ecuador's mining industry is at its infancy, but the Andean
nation is largely unexplored and could potentially have big
copper, gold and silver deposits.
Socialist President Rafael Correa, who won a sweeping
re-election victory in February, is eager to attract investment
to reduce the economy's dependence on oil exports and help
finance social spending - the key to his high popularity.
But the U.S.-trained economist wants the Ecuadorean state to
take the lion's share of mining revenues. That prompted Kinross
Gold to halt the development of its Fruta del Norte gold
project on Monday because it considered the tax burden would
have made the project inviable.
Yet the new mining law, approved with 105 votes in favor, 14
votes against and 14 abstentions, has generally been applauded
by other investors.
"The law makes it very attractive to invest in small and
medium-size projects in Ecuador. Regarding large-scale mining,
the tax burden is still a big problem, especially the windfall
tax," said the head of the Ecuadorean mining chamber Pablo
The law seeks to ease investment terms by delaying the
coming into force of the windfall tax until miners recover their
investments. It also sets a ceiling on mining royalties of 8
percent for exports of gold, copper and silver.
It states that small-size mines will have to pay 3 percent
in royalties, compared with 4 percent for medium-size and a
minimum of 5 percent for large-scale mines.
Meanwhile, small and medium-size miners can push ahead with
their projects signing more flexible "concession" deals, instead
of having to negotiate exploitation contracts with the
The law also seeks to eliminate red tape so that investors
can push ahead faster with their projects.
It calls for tougher penalties on illegal miners and it
tightens environmental protection rules.
Last year, Correa signed the nation's first large-scale
mining contract, under which Chinese-owned Ecuacorriente is due
to invest $1.4 billion in the El Mirador copper project.
Kinross' decision to put an end to Fruta del Norte is a blow
to the government's plan to attract large mining investors, but
the mining chamber said there will be no shortage of companies
interested in taking over the project.
"The state will have to put it up for tender, or it will
look for a partner to exploit it ... But you can be sure that
this deposit will be exploited," said Acosta as he hailed Fruta
del Norte's potential to become a top-class gold mine.
David West, an analyst with Salman Partners in London said
Ecuador's failure to sign a contract with Kinross is unlikely to
have a negative impact on negotiations with other mining
"My assumption is each negotiation is a one-off. There's no
direct link between how one is going compared to another," West
told Reuters, adding that even though Ecuador is trying to ease
investment terms for miners, the country remains "a difficult
place to do business."
"I can't see mining companies spending a large amount of
money in Ecuador over the next little while. And you could even
point directly to this as a reason why they wouldn't," he said.
Ecuador also plans to negotiate contracts with International
Minerals Corp over its Rio Blanco gold-silver project,
with Ecuacorriente over its Panantza-San Carlos copper deposit,
and with INV Metals Inc, which plans to develop the
Loma Larga gold-copper-silver mine.
Those three are in relatively advanced stages of
exploration, but junior miners have about 15 other exploration
projects under way.