Over at Ecuador Mining News Silvia Santacruz has written an interesting story on the ongoing "will-they-or-won't-they" story on the government and its plans (or non-plans) to charge a windfall tax (WFT) to the country's nascent mining industry.
Go see the whole story for yourself over at EMN, but in a nutshell gov't mining person Xavier Cordova made a speech at last week's Denver Mining bash and seemed to say that the gov't was going to scrap plans to charge the proposed WFT, citing the negative fallout that Mongolia had suffered in its mining sector since trying to introduce a WFT there. The speech was picked up in several places, but now EMN reports that it's received communication from José Serrano, (Cordova's boss) that says Ecuador still plans to charge the WFT. Silvia's piece does a good job in presenting the whole story, and adds links to relevant articles about the whole issue. Recommended reading.
So what's going on here? For a start, we're one week before a key election in Ecuador. This means that the gov't may be acting politically to shore up support amongst those who oppose mining in the country and might change their referendum vote to "no" on the 28th because of the whole issue. Or in other words, anything said by the Studmuffin gov't right now needs to be taken with a pinch of salt. Words words words.....this is LatAm! Gimme a signed piece of paper, then you have my real attention.
More importantly, as José Serrano seems to have pointed out in his mail to Silvia, the windfall tax is not a law that is controlled by the mining (and petroleum) ministry. It is strictly a fiscal law that comes from the taxation sector of Correa's government. Therefore Cordova can say what he likes about a WFT being bad or good in Mongolia. Serrano can, too. It's not up to them.
My feeling is that the truth lies somewhere in between the two positions. The WFT is not part of the new mining law (due out in October) but I'm pretty sure that the WFT will make it to the legislative books in Ecuador as part of the new fiscal package. However the practical application of the WFT is the most important part of all this. The WFT is slated as to be applied on a case-by-case basis, which means miner X may well end up paying more than miner Y, and for myriad reasons.
Also, the WFT is applied to a base case price for the metal, and that is open to adjustment from the mining ministry (presumably in conjunction with Studmuffin Correa himself). This means that if Ecuador so decides, it can say "Ok minerguys, if gold goes above $950/oz, or if copper goes above $3.50/lb you pay the WFT", but it could also say "Ok minerguys, no need to worry about the WFT until copper breaks $4.50/lb and gold's at $1,100/oz."
To sum all that up
1) Let's wait til after the 28th to find out the real story.
2) Let's see what the new mining law brings.
3) Even then, the mining law doesn't control the WFT.
4) And even when the gov't says "yes, we'll apply the 70% WFT as planned", the whole thing is still open to wide-ranging interpretation.
The bottom line is that anyone who expects the next few weeks will bring total closure on the market doubts about the future Ecuador's mining industry is going to be disappointed. I am confident that the whole package will be resolved in way that's fair to both sides at some point in the future. Just don't ask me 'when', ok?
Go see the whole story for yourself over at EMN, but in a nutshell gov't mining person Xavier Cordova made a speech at last week's Denver Mining bash and seemed to say that the gov't was going to scrap plans to charge the proposed WFT, citing the negative fallout that Mongolia had suffered in its mining sector since trying to introduce a WFT there. The speech was picked up in several places, but now EMN reports that it's received communication from José Serrano, (Cordova's boss) that says Ecuador still plans to charge the WFT. Silvia's piece does a good job in presenting the whole story, and adds links to relevant articles about the whole issue. Recommended reading.
So what's going on here? For a start, we're one week before a key election in Ecuador. This means that the gov't may be acting politically to shore up support amongst those who oppose mining in the country and might change their referendum vote to "no" on the 28th because of the whole issue. Or in other words, anything said by the Studmuffin gov't right now needs to be taken with a pinch of salt. Words words words.....this is LatAm! Gimme a signed piece of paper, then you have my real attention.
More importantly, as José Serrano seems to have pointed out in his mail to Silvia, the windfall tax is not a law that is controlled by the mining (and petroleum) ministry. It is strictly a fiscal law that comes from the taxation sector of Correa's government. Therefore Cordova can say what he likes about a WFT being bad or good in Mongolia. Serrano can, too. It's not up to them.
My feeling is that the truth lies somewhere in between the two positions. The WFT is not part of the new mining law (due out in October) but I'm pretty sure that the WFT will make it to the legislative books in Ecuador as part of the new fiscal package. However the practical application of the WFT is the most important part of all this. The WFT is slated as to be applied on a case-by-case basis, which means miner X may well end up paying more than miner Y, and for myriad reasons.
Also, the WFT is applied to a base case price for the metal, and that is open to adjustment from the mining ministry (presumably in conjunction with Studmuffin Correa himself). This means that if Ecuador so decides, it can say "Ok minerguys, if gold goes above $950/oz, or if copper goes above $3.50/lb you pay the WFT", but it could also say "Ok minerguys, no need to worry about the WFT until copper breaks $4.50/lb and gold's at $1,100/oz."
To sum all that up
1) Let's wait til after the 28th to find out the real story.
2) Let's see what the new mining law brings.
3) Even then, the mining law doesn't control the WFT.
4) And even when the gov't says "yes, we'll apply the 70% WFT as planned", the whole thing is still open to wide-ranging interpretation.
The bottom line is that anyone who expects the next few weeks will bring total closure on the market doubts about the future Ecuador's mining industry is going to be disappointed. I am confident that the whole package will be resolved in way that's fair to both sides at some point in the future. Just don't ask me 'when', ok?