Ecuador’s rising opposition to mining may thwart exploration boom

According to the latest report by Fitch Solutions Macro Research, the ongoing expansion of mining exploration in the South American country is raising the risk of tensions between companies and the local population.

In two landmark cases last year, Ecuadorian courts sided with rural and indigenous communities who argued the national government had failed to inform them it was setting aside parts of their territories for mineral exploitation. That, Fitch Solutions notes, is a right protected by the 2008 Constitution.

A judge in the Sucumbios province, near Colombia, banned mining activity in 52 concessions, and banned another in the southern province Azuay; a gold- silver project called Rio Blanco, owned by China’s Junefield Resources.

The Rio Blanco case sparked encouragement for a new lawsuit from the Cotacachi government against the Ecuadorian government for granting concessions in Los Cedros, part of the Intag Valley, without prior consultation. In November 2018, the local government requested an injunction on mining activities.

“Projects throughout the country could be at risk of delays and potential suspensions should it come to light that mining concessions were granted in a similar fashion (without prior consultation),” the report warns.

In recent decades, the Intag Valley has seen some of the sternest opposition against mining in Ecuador, a country rich in gold and other minerals in addition to copper.

Since 2008, an estimated 1.8 million acres of the nation's protected forests have been made available for mining exploration, according to the Rainforest Information Centre, an environmental non-profit based in Australia.

The state has the right to extract minerals regardless of whose land they are located under, according to the constitution and Ecuador's national mining plan. However, projects in protected forests are subject to strict environmental standards supervised by the Ministry of Environment.

Riskier than neighbours

The higher risk of operating in Ecuador will sustain the trend of junior miners leading exploration in the country, Fitch Solutions predicts.

“Industry heavyweights will take less risky positions by entering into joint ventures or investing in juniors to gain exposure to projects as they progress down the pipeline,” the report says.

An example of such a trend is the Cascabel copper-gold project, owned by junior SolGold (LON, TSX:SOLG). Both BHP and Newcrest Mining have increased their share positions in the miner to gain exposure to the potentially world class project.

As mining projects face headwinds from rising tensions, the courage of investors will be tested, the analysts conclude, which could thwart Ecuador’s plan to attract $4 billion in mining investments by 2021.