PDAC 2016: Ecuador turning a corner as Lundin plots big gold mine

Posted by: privatefinancetips in BLOG, Marketing Mar 27, 2016

Mining entrepreneur Lukas Lundin includes a well-earned track record of succeeding in places where others won’t tread. Even, it appears, Ecuador.

When his company Lundin Gold Inc. bought the Ecuador-based Fruta del Norte (FDN) project in 2014, it raised lots of eyebrows. Ecuador, in the end, was one of the most inhospitable places in the world for mining investment in the prior six years. The nation had no mining ministry, didn’t hand out concessions and insisted on a punitive 70-per-cent windfall tax that destroyed the possibility upside from higher metal prices. Foreign investment by western miners was near to nil.

But as usual, it appears Lundin timed his move perfectly. Since his entry, Ecuador has adopted some workable mining policy and it has grabbed the attention of the investment community.

“Mining is not a four-letter word in Ecuador,” Lundin Gold chief executive Ron Hochstein said in an interview in the Prospectors and Developers Association of Canada (PDAC) conference in Toronto.

Ecuadorian officials, including mining minister Javier Cordova Unda, spoke to a packed conference room at the PDAC conference on Monday, stressing that the country is committed to mining and desires foreign investment. They’d have struggled to draw twelve people not too long ago.

The low point for Ecuador arrived 2013, when Kinross Gold Corp, gave up around the Fruta del Norte project and took a US$720-million writedown rather than spend another penny onto it. (The project was sold to Lundin Gold the year after.) It is understood that Ecuadorean officials were stunned by Kinross’s move and realized they have to make changes if they ever hoped to draw investment.

Handout/Lundin Gold

Ecuador finally created a mining ministry this past year and set Unda in charge. Before that, mining was just included in the gas and oil ministry and was neglected. Unda quickly go about developing a viable industry. There’s still more to do, insiders say, but there appears to be legitimate political will to get it done.

Lundin Gold held intensive negotiations with the government over FDN. And in January, the company announced an offer that sets the stage for growth and development of the mine. The windfall tax is still in there, however it has been diluted to the point that it’s not a big problem.

“Ideally, I’d still like to see (the tax) gone,” Hochstein said, adding that he thinks it is going to be mothballed.

FDN is among the richest undeveloped gold deposits in the world, with almost Ten million ounces of high-grade resources. The one big overhang remains the political risk. Hochstein acknowledged it will take time for you to convince investors that Ecuador has finally turned a corner, but he is confident it is going to happen. He noted a vital milestone happened last week, when President Rafael Correa visited the FDN task for the very first time.

With the FDN deal done, other mining companies may finally start to take Ecuador seriously. It remains one of the most under-explored countries within the Americas.

The other Canadian juniors with significant assets in Ecuador are INV Metals Inc. and Dynasty Metals & Mining Inc. INV CEO Candace MacGibbon praised the Lundin team for helping Ecuador move its mining industry forward.

“You couldn’t possess a better group at the forefront,” she said.

Financial Post

pkoven@nationalpost.com

Twitter.com/peterkoven