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Oil Report

Ecuador assembly wants mining "house in order"

MONTECRISTI, Ecuador, Jan 28 (Reuters) - Ecuador’s assembly to rewrite the country’s constitution is working to overhaul the mining sector and fueling investor worries about what tighter state control could mean for the nascent industry.

Ecuador last week revoked 587 mine concessions, including a key project held by Canada's Ascendant Copper ACX.TO, after charging they failed to pay annual fees on time. But the measure spared some of the big foreign players in Ecuador.

President Rafael Correa, a leftist former economy minister, has vowed to boost the government’s grip over natural resources to better distribute wealth among the poor, echoing moves made by ally Venezuela’s Hugo Chavez and worrying Wall Street.

Alberto Acosta, head of the government-controlled assembly, said the 130-member body currently debating a new constitution could decide to expand the state’s hold over mining as it seeks to “put the house in order.”

“We have to study the government’s decision and will take additional steps if needed, but what is key here is to establish in the constitution the basic principles under which mining activity will be developed,” Acosta told Reuters.

A top mining ministry official, who was not authorized to speak in public, told Reuters the government plans to revoke another batch of the more than 1,000 concessions for not paying annual fees on time.

Most of those are smaller operations, some of which have been abandoned, the source said.

But some investors are concerned about mixed messages. Acosta’s remarks have often been tougher than those of Correa, who says the government would allow large-scale, open-pit mining if it generates enough revenues for the country.

Acosta has opposed open-pit mining, which could hamper mining operations in the country as most of the large projects plan to use that technique to extract metals.

“The market has received mixed messages ... some investors are worried about tighter control,” said Michael Gray, a mining analyst with Genuity Capital Markets in Vancouver.

LARGE SCALE MINING

Speaking from the assembly’s headquarters in Montecristi, Acosta said assembly members should prohibit mining in nature reserves, allow communities to decide if nearby projects should move elsewhere and ban open-pit extraction.

“Large-scale mining needs to have clear rules, but the big question remains if we really want open-pit mining,” Acosta said in the interview.

Ecuador has no significant output of precious metals, but dozens of junior firms are exploring for copper and gold, including Canada's Aurelian Resources ARU.TO, Corriente Resources CTQ.TO and IamGold Corp. IMG.TO.

The government estimates the country holds $130 billion worth of metal deposits.

The state has already started talks with Aurelian and Corriente to increase state participation in their contracts.

A government official close to mining policy decisions told Reuters that Correa is trying to convince Acosta to change his opposition to open-pit mining to allow large-scale projects to start work in the Andean country.

Acosta is part of Correa’s inner circle and colleagues consider him the president’s mentor, with great influence over the assembly.

The country has granted around 4,000 concessions, or 2.9 million hectares (7.1 acres), of which companies pay only an annual ownership fee, sparking sometimes violent demonstrations by environmentalists and communities who complain the state is granting too many deals without control. (Editing by Patrick Markey and Christian Wiessner)

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