Ecuador open for business as Lundin advances Fruta del Norte flagship

TORONTO (miningweekly.com) – Lundin Gold’s Fruta del Norte gold project has become a symbol of Ecuador’s desire and confidence to further develop its nascent mining sector.

“We’re very happy with Lundin; they’re a world-class mining company and we’ve been working closely with them,” Mining Minister Javier Cordova told Mining Weekly Online on the sidelines of the recent Prospectors and Developers Association of Canada (PDAC) conference.

Ecuador wanted to develop a strong mining industry, one that was second only to its well-known oil and gas sector, he stressed. It wanted to attract more explorers and developers to help make this happen.

“That will be a focus for us this year,” he said. “Junior companies can then work and look to find the next Frute del Norte.”

Lundin acquired the project, in south-east Ecuador, from Kinross Gold at the end of 2014. The project’s resource contained 7.26-million ounces of gold indicated and 2.55-million ounces inferred.

It looked towards a feasibility study in the next few months, while also wanting to tap further exploration upside, said Lundin president, CEO and director Ron Hochstein, addressing conference delegates at Ecuador’s morning session at PDAC. 

In addition, the company was negotiating an investment protection agreement to follow the exploitation agreement it inked with the government in January. That deal established the framework for getting Frute del Norte into production.

The government and Lundin had also worked closely together to ensure agreements were acceptable to all parties, with much of the focus on equitable tax structures.

Fruta del Norte would be subject to a 5% net smelter return royalty and a series of advanced royalty payments to be invested in both civic and transport infrastructure. Profit sharing would stand at 15%, a rate all companies must pay, with 12% going to the government and 3% to the workforce.

“But that 3% is capped at a per employee level by law,” Hochstein told Mining Weekly Online. “Monies beyond the cap go into the national pension fund, which benefits all Ecuadorian citizens.”

Value-added tax recovery had been embedded, while income tax stood at a flat rate of 22%.

Ecuador’s windfall tax had also been overhauled and was now more competitive. Tied to this, Lundin would receive tax relief that equated to the capital expenditure needed to bring Frute del Norte on stream.

Cordova hoped mine construction would start in 2017, with production to begin in 2019. He was also confident future agreements between the government and company would go smoothly. 

Meanwhile, Hochstein stressed the country’s stance towards mining had undergone a sea change in recent years. “The message coming from Ecuador is that there is tremendous geological potential and mining is no longer a four-letter word in the country. But it has to be responsible mining because it is a beautiful country, with tremendous biodiversity. It’s a global treasure and we as an industry have got to do it right,” he said.