Ecuador Has ‘World Class’ Deposits, But Mining Sector Faces Challenges to Growth

The country’s mining sector is one of its strongest, but faces obstacles to harnessing its potential, the president of the industry’s chamber says

President of Ecuador's Mining Chamber.
January 11, 2022 | 02:02 PM

QUITO — Ecuador’s government forecasts mining exports to grow by 40% this year compared to 2021, with mineral sales of $2.23 billion, above the $1.6 billion total registered last year.

Investments in the sector are predicted to surpass $1 billion, boosted by the construction of four projects in the country’s central, northern and southern regions, while the government also plans to carry out a nationwide survey of deposits to evaluate the country’s mining production potential.

However, the country’s Mining Chamber has expressed concern regarding the recent ruling by the Constitutional Court that has halted activity in protected forests, which puts the brakes on development in some 500 areas.

PUBLICIDAD

In an interview with Bloomberg Línea, the executive president of the Mining Chamber, María Eulalia Silva, said the ruling sets a worrying preceden for the country’s legal security, while highlighting that responsible mining could help Ecuador solve some of its main problems, such as unemployment and poverty.

How is Ecuador’s mining sector performing as a relatively new sector that has taken giant steps?

Ecuador has opened up to industrial-scale mining, but that doesn’t mean we are are a developed mining nation, compared with Peru or Chile for example, where mining contributes more than 10 or 12% of GDP. Mining is not even 1% of GDP in Ecuador, we are on that path but still have a long way to go. But I think the potential is enormous, and as mining has no borders we are seeing that from Panama to Chile there is a very interesting mineralogical potential.

On the other hand, less than 8% of Ecuador’s territory has been given over in concessions, and without concessions there is no mining exploration. The large majority of projects are in initial phases, but despite that we have found world-class deposits. We are barely scratching the surface and we are discovering that. There is a lot of potential.

PUBLICIDAD

What advantages does the country have for the mining industry?

As a small country the logistics are an advantage, the distance for transportation from mines to ports is not huge. Mining is carried out in remote areas, the country’s two industrial mines are in Zamora Chinchipe in the southern Amazon region, which has highways, which is another advantage, and we have a good electricity supply and competitive power prices. Politically, Ecuador is starting to have an advantage as President Guillermo Lasso has recently come into office so we have a low country risk factor.

That is all good news for the industry, but there are some immediate limitations, such as the Constitutional Court’s recent ruling that mining in the Los Cedros biological reserve, in Imbabura, in the country’s north, threatens the environment, which puts the brakes on any mining development there, or in any other protected forest, which would exclude some 500 zones of the country…

That is a third instance resolution, and it will not be reversed. We expect that in the next few weeks the Constitutional Court will make an extension and clarification of this ruling. It would not change the content, so the court could have the opportunity to serve us a blow, but not to send us an atomic bomb. (The court denied the request for clarification the day after this interview was conducted). And it is a pity because Ecuador was just positioning itself within the region. Some investors were already saying they had capital ready to inject three weeks before the resolution.

What does that mean in practice for mining companies?

It means there is an affront to legal certainty. Every contractual agreement is based on rules, and based on those rules one decides whether to invest or not, and if suddenly those rules are changed by an omnipotent power that can even make them retroactive, the only thing that is being done is to scare away that investment, and it is extremely dangerous. The Constitutional Court is a third instance, in theory the judges are technicians and should directly apply the rule, and that is why we are concerned. Article 407 of the Constitution establishes where mining cannot be established, and in the sentence of the Constitutional Court these zones are being expanded to include protected forests. The alarm is not minor, but it is not just a threat to the mining industry, but to all industries. With this precedent there is a general threat to industry in this country.

PUBLICIDAD

Read More: Vale Weighs Bid for a Stake in Anglo’s Brazil Iron Mine

What are the alternatives in light of this ruling? Is the impact being evaluated?

There are some impacts, one of which is that everyone is now anxious. Perhaps the most immediate impact is in the communities, which are communities that had no other work alternative than mining. And I am not only speaking on behalf of the miners, I am speaking on behalf of those communities, and of the country as well, since seven out of 10 Ecuadorians do not have formal employment. We are already the fourth largest exporter in Latin America, and we need more employment, we need to work to reactivate the country, we need taxes, royalties. The legitimate mining companies are being persecuted, and on the other hand there is a lack of control over illegal miners.

What would have been a favorable ruling by the court?

PUBLICIDAD

For example, that the ruling were not retroactive. One of the first legal principles is that the law is not retroactive, but anyway, the damage is done. In November the launching of the mining survey for 2022 was announced, precisely because only 8% of the country is under concession. President Lasso has spoken several times about the development of a responsible industry. Even from a constitutional point of view, it is a sentence that is modifying the Constitution, and the court has the duty to interpret the Constitution, but not to modify it.

PUBLICIDAD

The Constitutional Court explains in its ruling that the Los Cedros forest is subject to rights, including the right to environmental consultation, but which has not taken place...

The environmental consultation was not an obligation, it was not done because it was not requested. Environmental consultation is a mechanism that must be guaranteed by the state, not by mining companies, and it is only granted for high-risk activities, but in the mining industry when the processes begin the impact is minimal, in fact, an initial exploration is just beginning, and for that an environmental consultation is not needed.

So there is no set of instructions for these issues?

PUBLICIDAD

There are no instructions, not only do they change the rules of the game, but there are loopholes, and we have already seen the enormous problem of legal loopholes in the mining industry, such as prior consultation, which is a mechanism for citizen participation. The 2008 Constitution establishes that prior consultation is a mechanism that must be carried out by the Ecuadorian state in extractive projects within areas of indigenous peoples, Montubios and Afro-descendants. In 2018, a group of environmentalists demanded the practice of prior consultation in Rio Blanco in southern Ecuador, and the provincial court ruled that the state did not carry out a prior consultation and suspended the project. But the state cannot carry out prior consultations because there is no law framework for them. Now, Rio Blanco is the land of illegal miners; it is even said that there are other types of illegal activities in the area. It is a disaster.

Is mining an essential industry for Ecuador?

On the one hand, you have a country with a lot of problems and to confront all of those problems you need a development tool, and everything depends on the alternatives you give people to develop. Having an opportunity of this caliber, because mining is an industry that generates productive chains, you must have a strong industry. Mining has to be an issue for the country.

PUBLICIDAD

Read More: Vale Indicted for Environmental Crimes in Deadly Dam Disaster

Opponents of mining claim that although it is an industry that initially generates employment, when it ceases to be productive it leaves many environmental consequences, so the positive impact on employment is only temporary. What’s your view on this?

Modern, 21st century mining incorporates a series of technologies and best practices to avoid this. The aim is not just to operate, generate employment, close the mine and that’s it. Part of the practice is to create more industries; this is part of the social responsibility we talk about. In Fruta del Norte (a mining project located in southern Ecuador in the Amazonian province of Zamora Chinchipe), to hire personnel they use the concentric ring methodology, and to contract any goods or services they start with ring one, which is the parish. This generates new industries. The two main contributors in Zamora Chinchipe are the two mines, the third major contributor is a small catering industry. They were a start-up but now they are a small industry and generate development. In the pandemic, the hotel sector in Zamora Chinchipe was one of the first to recover.

PUBLICIDAD

Do you think therefore there are unfounded fears regarding the mining industry?

It is one thing to have built a mining industry 100 years ago and another to do it now, that is another advantage we have. We are saving ourselves those growing pains because we are using all these new practices. In countries with strong mining industries now you also have these practices, but those first steps several decades ago had a negative effect that we are not going to have now.

Another argument of opponents of mining is that the life of the mining industry would be shorter than even that of the oil industry, and that the benefits would be small compared to the environmental damage that could be caused...

PUBLICIDAD

A distinction must be made between environmental damage and environmental impact; environmental damage is something severe that takes a long time to remedy. Environmental impact, on the other hand, all activities have some kind of impact. Sustainability means obtaining resources in a responsible way, to carry out activities in a responsible way, in such a way that nature and communities are not affected, but that the activity does not stop either.

That said, modern industry not only wants to minimize any impact, but also to ensure that its practices guarantee the minimization of impact. There are environmental plans for each phase, so that we know how the territory is, and how it is going to be affected. In a mine, just as there are many geologists, there are many environmental engineers. For example, Fuera del Norte works with Conservation International to monitor this issue. Poverty also puts conservation activities at risk because in remote areas the agricultural frontier expands, when you cannot conserve, the primary forest is cut down, that is why we say that we are allies of conservation. When we begin to intervene in the territory, we carry out biological monitoring so that we know what we have in terms of animal and plant species. There is a rigor and methodology in everything that is done.

Opponents of mining projects also point to environmental pollution. How much of a reality is that?

This horrifying and false assessment comes from a lack of knowledge; both legal and illegal miners are lumped together. Mining companies have more control, more regulations, more standards, but also more resources to avoid environmental contamination. I believe that there are legitimate concerns about mining among the anti-mining movements, but there are also political interests. The anti-mining discourse brings political benefits. Sometimes there are also personal interests. There are many illegal miners disguised as anti-mining activists.

What are your macro projections for mining in Ecuador?

Currently, the direct GDP contribution from mining is 1%. The benefits are super interesting, an industrial mine costs you hundreds or sometimes billions of dollars, so imagine what it is to put billions of dollars in a remote area, it has a huge economic impact. The more projects that enter operation, the greater the impact.

In 2020 we had around $1 billion in exports. Direct employment now is in the tens of thousands. In 2020, mining activity contributed more than $470 million and practically half of the foreign investment in the country has been in mining. The increase in GDP will be felt when other mines start operating. We expect that in the next four years at least three mining projects will begin construction, and when these projects start operating, the impact will be greater. These projects are Loma Larga in Azuay, Curipamba Bolivar and La Plata in Cotopaxi, while the Cascabel project in Imbabura is planned for a later date.

Also Read: