Gold Mining in Ecuador


By Dave Brown – Exclusive toGold Investing News

Ecuador is largely reliant on its oiland gas resources, which have accounted for more than 50 percent of the country’s export earnings and one quarter of public sector revenues in recent years.

The country is bordered by Colombia to the north, the prolific gold producing country of Peru to the east and south, and by the Pacific Ocean to the west. The country totals just over 256,000 square kilometers with a population of almost 14,000,000.  Although Ecuador is only a marginal producer of precious metals, a number of foreign mining companies, particularly operating in the south east of the country, have found some world-class gold, silver and copper deposits.

In April, the World Gold Council reported the confirmation of at least 15 gold-bearing veins present in south-east Ecuador.  Geologists have traced some of the structures to over a kilometre in length and believe they could extend as deep as 1,500 metres below the surface. The announcement asserts that between 1905 and 1950 the region yielded over 4.5 million ounces of the precious metal, which had an average grade of 14.5 grams per tonne of gold.

Political and Economic Context

Following moderate growth in 2007, the economy reached a growth rate of 6.5 percent in 2008, in large part due to high international petroleum prices. Poverty levels declined to about 35 percent by the end of 2008. President Rafael Correa, took office in January 2007, raised the presence of a sovereign debt default and followed through on those threats in December 2008, defaulting on $3.2 billion in international bonds, representing over 80 percent of Ecuador’s private external debt. Economic policies under the Corea administration, including an announcement in late 2009 terminating 13 bilateral investment treaties, have generated economic uncertainty and discouraged both domestic and foreign private investment. The Ecuadorian economy contracted in 2009, primarily due to the global financial crisis, sharp decline in world oil prices and remittance flows.

The market is likely to continue applying a risk premium to mining projects in the country as mining regulations were issued last November, allowing explorers to turn their drilling machines back on following a 19-month halt in mining activity. Although the industry welcomed the news, regulations remain troublesome in two critical areas: the already high 5 percent minimum royalty still lacks a maximum and the 70 percent windfall profits tax is now enshrined. Even worse, both taxes are to be negotiated individually for each new exploitation contract.

Mining Projectcs

Kinross (TSE:K) and its mega-rich Fruta del Norte (FDN) project in Ecuador recommenced drilling in November and expects production by 2013. The company expects some cash flow will come from its Lobo-Marte mine in Chile, scheduled to become an operating mine in 2012, one year earlier than FDN. In July, the company received its Environmental Licence for the La Zarza concession, the location of the FDN orebody and proposed exploration decline. Kinross received approval to proceed with geotechnical and hydrogeological drilling on the Colibri concession, the proposed site for the processing plant and tailings facility. Kinross has submitted the terms of reference for an Environmental Impact Assessment (EIA) with a project pre-feasibility study on schedule to be completed by year-end, at which time the company also expects to declare a NI 43-101 compliant reserve.

IAMGOLD (TSE:IMG) is working on the development of its Quimsacocha project with probable reserves of 8.1 million tonnes, at an average grade of 6.5 grams of gold per tonne of ore containing 1.7 million ounces of gold, within an indicated resource of 9.9 million tonnes, at an average grade of 6.6 grams of gold per tonne of ore containing 2.1 million ounces of gold.  A final feasibility study, at a cost of $14 million, is expected to be completed within 15 months of the mining regulations being in place, providing significant upside exploration potential. Preliminary estimated annual production is 202,000 ounces at a cash cost of $272 per ounce.

Dynasty Metals & Mining (TSE:DMM) is involved with three mining exploration areas in Ecuador, wth two advanced stage gold projects reportedly nearing production, the Jerusalem and Zaruma projects, and one new large-scale discovery at the Dynasty project.

October 18th’s Gainers: Top 5 Best Performing Gold Stocks of the Day

Company Symbol Price Currency Growth
Great Basin Gold Ltd TSE:GBG 2.79 CAD 4.10%
SEMAFO TSE:SMF 11.34 CAD 4.04%
Rubicon Minerals Corporation TSE:RMX 3.93 CAD 3.69%
Siver Standard Resources NAS:SSRI 25.00 USD 3.09%
Hecla Mining Co. NYSE:HL 7.16 USD 2.43%

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