Photo of PDAC '09 (and a snippet of Ecuador news)

...sent in by a regular reader.

Thank you, regular reader.

Meanwhile, Ecuador's Vice Minister of Mining José Serrano (I think that's his title) put on the full trumpet display at PDAC yesterday afternoon and announced to a packed audience of 80 people that Ecuador was now officially a country free of legal bullshit for miners and that everybody could mine. Word is that Serrano has kept his job all this time because he's the only one in the mining ministry that can speak English

So here's Corriente's PR last night on the issue (CTQ was so excited it couldn't wait for this morning). Expect similar literature from the other Ecuador-exposed miners. By the way, they chose an 80-seat capacity room to make the announcement so as not to embarrass him.

UPDATE: Another regular reader sends in his PDAC '09 photo. Thank you, other regular reader.

Ecuador and Codelco? Not this one again.........

It was around mid-2008 that your ear-to-the-ground Otto first heard about Codelco sniffing around Ecuador. The real reason was that Chile's State-run copper company (that also happens to be the world's biggest single producer of the stuff) was advising the Studmuffin gov't about what it could do to move its large copper projects forward. Those projects are headed up by Corriente Resources (CTQ.to) (ETQ) at Mirador and then a bunch of potential greenfields dotted around the area.

Coldelco's advisory role made (and still makes) a lot of sense and for sure the guys from Chile would have knocked some of the basics about copper mining into the heads of the Ecuador mining ministry dudes, but as day follows night the unfounded rumours soon started about how Codelco was moving into Ecuador, how Codelco was in line to buy out CTQ, how Codelco would be fast-tracking Ecuador into a a bright and shiny copper-coloured future.

It was all bullshit, of course. But today we had a new chapter as Reuters filed this report about how Ecuador wants to go JV with Codelco on its copper projects. We get quotes from the Vice-Minister of Mines José Serrano and all the shebang. All of which, again, being as likely to transpire as Hugo Chávez declaring his homosexuality on CNN tonight.

Let's see the wood for the trees here. Firstly, Codelco has never repeat never operated outside of Chile. Not once. Not a since ounce of copper, not a feasibility study, not a nothing. Second, the swandive drop in industrial metals means there is a large oversupply now in Chile, not just in working mines that were looking to expand but also with greenfields/brownfields that were being investigated by Codelco and its satellite companies with the view to grooming them for ramping to production. There isn't a single reason why Codelco should or would get involved with another project in another country right now.

Next, José Serrano is a dick. He's been the main cheerleader and has spun all the lines to media in the last 12 months and has been....let's say....overoptimistic on many occasions (especially about timelines while the mining moratorium was in place). The dude Serrano can wish and want all he likes. A link-up with Codelco might make good copy inside Ecuador for a while but it just ain't gonna happen, period. Chile no wanty Ecuador copper. Chile got mucho mucho already.

More likely is the sudden realization over at the mining ministry that copper is now selling at less than half the price of last year and their prized copper projects aren't so interesting any more. It sounds to me as if Serrano is using some uber-naive notion to try and winkle a definitive deal out of the Chinese (because be in little doubt, tis the Chinese that will buy CTQ and develop Mirador).

Finally, it's doubtful that Reuter's best reporter in Ecuador, Alonso Soto, would have filed such a toe-the-party-line, mediocre, one-sided report without finding out the other side(s) of the story. This is one of the problems with the standard of journalism down here; the difference between good and bad coverage isn't at an editorial level but at a reporter level. This story by Alexandra Valencia looks like it was filed with the minimum of fact-checking and fuss. Maybe one day I'll write a post giving my veeeeery subjective, biased and unfair list of "which reporter to read" for each country down here, but for the time being I'll stick with Ecuador and say that Soto (at Reuters) and Stefan Kueffner (at Bloomie) are good names to look for at the byline.

Ecuador and the mining windfall tax issue

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?