Full article

http://seekingalpha.com/article/8912...

by Christopher Ecclestone

1. The law is ready. Correa has inspected it. It will be published "any day now".
2. The "three concession maximum" rule has been scrapped. In its place there is a mechanism that will allow a larger concession area in the exploration phase, but when the company begins focussing on particular areas of its concession, the unused areas will lapse. By the time the miner is actually producing, its total concession area will be reduced to 5,000 hectares approx. This sounds sensible in that it allows the explorers to do their job correctly, and then it allows the government to take back what isn't wanted by the company at a later stage.
3. The concessions that have been taken back by the government in the last few months will be submitted to tender again. The companies that lost the concessions can bid for them again, but on equal terms with other bidders. This is different from previous information that said the ex-holders would get right of first refusal.
4. The concessions will have a 25 to 30 year time limit. They will also be subject to a 10-year "use it or lose it" clause.
5. There will be no forced joint venture with the state.
6. The law will be ratified and enter into active operation in September 2008, almost certainly before Ecuador votes on its separate draft constitution. The mining law will be passed into law by the interim "Congresillo". In real terms, this means miners can get back to work in two months' time. Not the best situation, but by no means the worst either.
7. The environmental controls will be strict by world standards. This will be a main promotion point of the national government to the great unwashed. It will be making very strong noises about the severity of environmental controls that miners will have to abide by, and the penalties/immediate closures they would suffer by breaking these laws. However for responsible modern, medium and large-scale mining, these regulations will not be too difficult to comply with successfully.
8. The state mining company will be set up from scratch before the mining law becomes active. It will concentrate on non-metallic mining only (e.g. cement, clay, brickworks etc).
9. Royalties will be due on gross profit. The limit on royalties is either 5% or 6%. There is no windfall tax in the new law.
10. There will be mandatory minimum investments to be made on all concessions. If those minimums are not met, the concession is lost.

So the bottom line here is a piece of legislation that would probably wash in any legislature around the world excepting the concession-limit which is rather novel. We can understand the rationale behind this too, as Ecuador is one of the smallest countries in LatAm and to maximize activity it is better to have as many players having access as possible. It is an old LatAm habit of miners (big and small) to bite off more than they can chew and then go into “dog in the manger” phase. And its not just miners if we look at the pathetic Sitting Bull attitude of Repsol on its Argentine exploration blocks which has lead to virtual stasis in exploration in Argentine oil and gas since the 1990s.

At the current time, Ecuador remains highly prospective but may remain that way. The country’s oil reserves are interesting but not overwhelming (moreover they scarcely make jobs) so Correa should take to heart the adage that the devil makes work for idle hands. Seemingly not all are convinced that Ecuador is a washout as Kinross just threw $1.2bn at a bid for Aurelian, the largest independent player in the country. The evolution of Aurelian’s Fruta del Norte mine and Iamgold’s Quimsacocha would go a long way towards making Ecuador less of a theoretical mining location and more of a profit-center for the Ecuadorian finance ministry. Nothing focuses the mind like some royalty checks rolling in.