Thursday, March 1, 2012

Ecuador sees Ecuacorriente copper contract next week

Ecuador is set to sign a contract next week that would allow Ecuacorriente to develop El Mirador copper mine, where the Chinese-owned mining company plans to invest $1.4 billion in the next five years, energy minister Wilson Pastor said on Thursday.

Ecuador has no mining industry to speak of and leftist President Rafael Correa is eager to attract investment to tap the country's big copper, gold and silver deposits and diversify the economy from its dependency on oil exports.

However, he is trying to reap high benefits from miners and negotiations with Ecuacorriente and Canada's Kinross, which plans to develop the Fruta del Norte gold project, are taking much longer than initially expected.

"With this project Ecuador will be the world leader in terms of how much revenue it will be obtaining," Pastor told reporters referring to the contract that Ecuacorriente is scheduled to sign on Monday.

"They have agreed to pay royalties in advance. Before the project starts they will give $100-million to fund social development projects in areas around the mine," he said, adding that once production starts Ecuacorriente will pay between 5% and 8% in royalties depending on copper prices.

Including royalties, value-added taxes, income tax and other duties, Ecuacorriente will paying the state about 52%- of its revenue, Pastor said, adding that the investment includes the construction of a port from which the copper would be shipped to China.

Meanwhile, Toronto-listed Kinross signed a tentative agreement in December in which the company would invest $1.2-billion, according to the government. However, last month Kinross said it wanted to re-negotiate the deal in a bid to obtain more favorable economic terms.

Pastor warned that negotiations could fall through because Kinross was making demands that were "over the top."

The government says the agreements will be a template for future mining deals that should let Ecuador develop a large mining industry in which the state will have a greater degree of control and pocket most of the profits.

Analysts say the tough terms of the deals and the risks of doing business in a socialist country could deter miners from investing in Ecuador.

Ecuador is set to negotiate contracts this year with International Minerals over its Rio Blanco gold-silver project, with Ecuacorriente over its Panantza-San Carlos copper deposit, and with IAMGold which plans to develop the Quimsacocha gold-copper-silver mine.

Edited by: Reuters