Political turmoil waiting game for Ecuador's developers

President Guillermo Lasso increased the short-term political uncertainty in the country in May when he dissolved Congress and called an election as an exit to impeachment proceedings against him.The winner of the August presidential election will form an interim government, which will last about 18 months until Ecuador's normal presidential election cycle resumes. "Whoever wins [the August election] will spend 18 months campaigning for the subsequent election," said Jorge Paz Durini, managing partner at Dentons Paz Horowitz, told Mining Journal.Participants in the legal and regulatory panel concurred that an interim government is unlikely to be good for the sector, as environmentalism is likely to be a key theme throughout the two election processes, with anti-mining overtones."There are candidates with an environmental discourse who may seek to implement reforms. [Indigenous leader] Yaku Perez [of the Pachakutik party] is likely to look to restrict mining concessions. Luisa Gonzalez [of the Citizen Revolution Movement of former president Rafael Correa] has indicated she may convene a constituent assembly to restore institutionality to the country, and with so much fragmentation who knows what would result. The first round and composition of the assembly will be a good thermometer of what will happen," said Andres Ycaza, partner at Flor, Bustamante, Pizarro & Hurtado.ConcessionsWith turmoil at the centre of government, panel participants held little hope of the mining cadastre, which has been closed for seven years since the Correa presidency, of reopening soon.Despite this, the panelists said there are mechanisms the government could use to award concessions and get exploration moving again if there were the political will to do so. "The government declare special areas and auctions them in regions without social conflict. [State mineral company] Enami also has preferential rights and could seek mechanisms to advance exploration in joint ventures with other companies," said Durini.With various concession applications in limbo following the closure of the cadastre, Stevie Gamboa, partner at GSG Abogados suggested a clean start may be better by removing the requests which have been stranded. "The sector is paying for the inefficiency of the state and the problems of the past. To award a concession today for an application that was made in another time would be a negative message and would reactivate opposition against the sector. We need a transparent system with a cadastral that is updated, accurate and transparent," he said.The result of this is a decline in exploration investment, said Rene Ayala, president of the Ecuadoran Mining Engineers Association (AIME). "There have been no new deposits discovered. The state has been unable to capture investment resources, and the people cannot benefit. If we don't have exploration investment, we don't have education, health and all the benefits [that mining brings]," he said.Diversified miner BHP is among the frustrated companies keen to invest more in Ecuador, given its exploration focus on copper and nickel. The company is one of the main shareholders of SolGold, which has the large Cascabel copper-gold deposit and its Tarqui exploration project. "There is enormous uncertainty about where copper resources will come from as we are not finding new resources, and existing resources are declining. We hope Ecuador can take advantage of this opportunity," said head of corporate affairs Rodrigo Darquea.A positive on the exploration front is that CRIRSCO (Committee for Mineral Reserves International Reporting Standards) October meeting in Brazil will consider the admission process for Ecuador to award the qualifying person designation.PermittingEcuador has several projects which have advanced to the permitting stage, but until a couple of weeks ago, were blocked by a court-mandated requirement to undertake an environmental consultation for which norms and procedures had not been established. After calling the August election, President Lasso also signed a decree establishing the norms and procedures, allowing the consultations to advance.While positive for the mining sector, the lack of resources of the environmental and other regulatory agencies remains a concern. "If the agency doesn't have the resources, you are one of hundreds of other projects, and while the regulatory framework isn't much different to that in other countries, the process is more bureaucratic, and the agencies are underfunded," said industry consultant Steven Botts.ParadoxWhile extractive industries often face political and social headwinds, the paradox is that Latin American governments are quick to seek rents from them. This aspect may form part of the political debate going forward, said Felipe Hurtado, a consultant with Profitas. "Governments always lack money. They have fiscal deficits that feed into a perverse cycle of regulatory changes to generate revenue to balance budgets, decentralise, deal with inequality, affect wealth redistribution, etc. The political cost of doing this is lower," he said.Economic benefits at the national and local levels are the key aspects project promotors emphasize to get permission to build mines. And while mining developments are shown as a vehicle for prosperity, elements of rural communities in parts of Ecuador reject mining development, particularly among some indigenous communities, which is another paradox. "The reality of indigenous communities is poverty, a lack of basic services, and poor access to health and schooling. The gaps in poverty indices between the city and the country are increasing," said Hurtado.Social and environmental conflicts are increasing risks to projects, particularly as climate change increases the focus on mining projects and the environmental and water impacts they have. "Communities feel more empowered and are generating new protest themes to claim benefits and demand more from companies," said Daniela Cuellar, a consultant with FTI Consulting.Funding fallEcuador is not alone in being perceived to have increasing political and country risk. Recent years have seen several left-leaning presidents across South America, with the majority having disapproval ratings of 50% or more, led by Ecuador's Lasso with a more than 80% disapproval rating. Consequently, exploration juniors are finding it harder to raise funds for projects in the region. "Retail investors are shying away from Latin America due to the risk aspects, political situations, and the uncertainty this causes. South American fundraises are down 79% to C$200 million in the first six months of 2023. Ecuador has been in a downtrend since 2019, with C$27 million raised so far this year," said Kai Hoffman, president of Soar Financial.

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