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Ecuador

Last Verified on Monday 25th June 2018

    • Ecuador

      Although Ecuador has been a mining country since colonial times, the exploitation of mineral deposits has not had major economic significance in its economic development.

      In recent years, substantial findings in the Ecuadorian Amazon region sent signals to the market, showing a promising future for the country.s mining development. Most significantly, Fruta del Norte, a gold deposit and several substantial copper depositss where discovered. All of these demand, according to the holders of the mining concessions, important investments. The exploitation contract with Ecuacorriente was executed in March 2012. Production is expected to start in 2019.

      In December 2016, Lundin Gold executed its exploitation contract.

      In addition, there are other gold and copper deposits with great potential such as Cascabel and Llumiragua keep increasing the good perspectives. The concessionaires for Cascabel – SolGold and Cornerstone – is executing advance exploration activities, whereas CODELCO, is conducting exploration activities in Llumiragua with its partner ENAMI, the state-owned mining company.

      Last verified on Monday 25th June 2018

    • Ecuador

      The Ecuadorian legal framework, is comprised of the following laws:

      • Ecuador’s Mining Law was enacted in 2009 and amended in July 2013;
      • The General Regulations to the Mining Law, enacted in November 2009 (as amended);and
      • The Environmental Mining Regulations and the Regulations for Small-Scale Mining, November 2009 (as amended). 

      Until February 2015, the Minister of Non-Renewable Natural Resources was the authority responsible for mining planning. In February 2015, the Ecuadorian government created the Ministry of Mines due to a desire of encouraging the country’s mining sector; nevertheless, the new government of Ecuador that took office on 24 May 2017, decided to unify the Ministries of Hydrocarbons, Electricity and Mining into a single one, called Ministry of Energy and Non Renewable Resources. This decision was made based on a government’s austerity policy seeking to reduce public expenditure.

      The new President has stated that he would promote mining but also has pointed out that environmental and social related issues derived from mining activities will be a matter of special attention to the government. In this respect, a public consultation process (referendum) took place during February 2018 where question 5 asked the people to expand the principle contained in the Ecuadorian Constitution regarding the prohibition to carry out mining activities in protected areas, urban areas and intangible zones, without exception (before the referendum the Constitution contemplated an exceptional case were the President of the Republic, with the authorisation of the National Assembly, could authorise such activity). With this approval, that amended article 407 of the Constitution, this exception does not longer exist so the prohibition has no exceptions.

      The Minister Energy and Non Renewable Resources responsibilities and planning powers for the mining sector will know be assumed by the Vice Ministry of Mines. The Mining Regulation and Control Agency is the administrative entity responsible for supervising mining activities. 

      The National Mining Enterprise (ENAMI), is an entity governed by public law that may carry out mining activities either by itself or under associations or strategic alliances.

      The Ministry Energy and Non Renewable Resources is in charge of negotiating service contracts for exploration and exploitation of minerals and to grant concession contracts for the same purpose.

      Provincial or municipal authorities do not overlap with national regulations, although they do have political influence on exploration and exploitation areas.

      Last verified on Monday 25th June 2018

    • Ecuador

      Foreign investment in the mining sector is permitted. No previous authorisation is required. Foreigners have the same rights and obligations as Ecuadorean nationals. Ecuador’s legal tender is the US dollar and there is a free exchange market in Ecuador. This 5 per cent tax is not applicable to the remittance of profits and the payment of loans’ capital and interests. Remittances abroad are permitted and are subject to a 5 per cent tax on the amount remitted. There is a free export market and companies are entitled to receive and retain the foreign currency obtained from export sales or for directly servicing their external debt.

      Last verified on Monday 25th June 2018

    • Ecuador

      In the past, Ecuador has entered into bilateral investment treaties (BIT) with different countries, whereby it intended to protect the investments of nationals of the signatory countries. Under such treaties, international arbitration was the selected dispute resolution mechanism. Nevertheless, based on political decisions, the National Assembly in February 2017 repealed all these investment protection treaties. According to declarations from the new government, the decision has been made, and already communicated to the countries with Ecuador had its BIT to renegotiate all these treaties specially changing the dispute resolution clause to accommodate them to the new Constitution of 2008 as explained below.

      Pursuant to the principles enshrined in the Constitution approved in 2008, the Ecuadorean state cannot submit its disputes to a foreign jurisdiction; therefore, all the treaties providing for international arbitration in international forums (ie, ICID) were terminated; nevertheless, international arbitration using rules of international organisations such as UNCITRAL, ICC and others, are still possible.

      Last verified on Monday 25th June 2018

    • Ecuador

      The Mining Law provides that the award of new mining concessions must be subject to a bidding proceeding or an auction.

      In March 2016, the national government invited interested parties to “reserve” mining areas wherein they may be interested in performing their activities. 

      Following the reservation of areas, the government invited interested parties to participate in a bidding processes for the purpose of procuring the largest investments.

      Since this is the first time this type of process is undertaken, some problems have arisen for which solutions have been devised over time. More than 280 mining titles have been granted by the government for the exploration of mining concessions.

      The Ecuadorian state, through the Ministry of Energy and Non Renewable Resources , issues a "mining title" (a formal document equivalent from a juridical standpoint to a concession), which enables its holder to carry out exploration activities. Exploration and exploitation of minerals is open both to the state and to private parties.

      Since 2014 the Mining Law classifies mining activity into artisanal, small-scale, medium-scale and large-scale mining. The fundamental criterion for this division is production capacity. This division has effects with regards to authorisations prior to the granting of permission to develop mining activities, method of implementation, and contributions to be paid to the state.

      The initial exploration period may last up to four years upon the prior authorisation of the Ministry of Environment through the issuance of an environmental certificate or licence (granted after approval of an environmental impact study and management plan) depending to the phase of the activity. Thereafter, the advanced exploration period may last four additional years and the economic evaluation period may last two years, extendable for two additional years.

      If the programmes are met, the holder of the mining title has the exclusive right to pass to the next mining phase. 

      To carry out exploitation activities, a service contract or exploitation contract must be entered into. 

      Under service contracts, contractors only receive a compensation or fee from the government for the services performed. In our opinion, although there are no antecedents in the mining area regarding this type of contracts, this payment may be received in cash or in kind (with the same mineral). The subsoil is the exclusive property of the state.

      Under exploitation contracts, contractors assume the risk and must make investments on their own and pay royalties and taxes as established in the relevant laws. Those contracts pertain to all minerals within the concession area.

      Last verified on Monday 25th June 2018

    • Ecuador

      A) Mining concessionaires are required to pay the "conservation patent" for each mining hectare.

      Payment of the conservation patent differs according to the type and phase of mining activities.

      a. Artisanal mining: exempt from payment.

      b. Small-scale mining: must pay 2 per cent of one Consolidated Basic Remuneration (US$354) for both the exploration and exploitation phases.

      c. Medium-scale mining: must pay the same rate as large-scale mining (described below).

      d. Large-scale mining: 

      • must pay 2.5 per cent of one Consolidated Basic Remuneration (US$366) in the initial exploration phase; 5 per cent of one Consolidated Basic Remuneration (US$366) in the advanced exploration and economic evaluation phase; 10 per cent of one Consolidated Basic Remuneration (US$366) in the exploitation phase.

      B) Fifteen per cent of company profits must be distributed as follows: 3 per cent among the workers and the additional 12 per cent must be delivered to the state, which will invest it through sectoral entities for social projects in the area where the mining project is located. For small-scale mining, 10 per cent of profits are delivered to the workers, and 5 per cent is delivered to the state.

      C) Mining contractors must pay a royalty on sale prices of minerals to the state, related to the “base price” established or agreed in the contract.
      For the principal mineral and secondary minerals the percentage does not exceed 5 per cent, and for copper and silver it does not exceed 8 per cent.  

      D) Finally, a legal provision currently in force establishes a tax on windfall profits obtained by companies that have entered into contracts with the state for exploitation of non-renewable natural resources. For the purposes of such tax, windfall profits are deemed to be those earned by the contracting companies from sales of minerals at higher prices than agreed upon or provided for in the respective contracts. The windfall tax rate is 70 per cent.

      By virtue of amendments to the Mining Law and to the Tax Equity Law, windfall profits are understood to be solely those that are earned 48 months after the month in which pre-operational investments for preparation and development have been completely recovered from a financial perspective.

      Last verified on Monday 25th June 2018

    • Ecuador

      Pursuant to the current laws, mining companies must first obtain an authorisation for the use of water. Such authorisation is granted by the National Water Secretariat. Usually permits are granted for the duration of the mining project. Maintenance of rights is subject to payment of yearly water use fees. There are no current projects for desalination plants for treatment and self-supply of water, and no other water management mechanism has been introduced.

      Last verified on Monday 25th June 2018

    • Ecuador

      Mining rights are independent of the title to the land on which the concession is located. Easements may be established for access, construction of camps, electric line routes, and others. The term of such easements shall be concurrent with the concession period.

      Last verified on Monday 25th June 2018

    • Ecuador

      The grounds for termination of mining rights are basically failure to pay to the state (conservation patents or royalties), failure to comply with work and investment plans, environmental damage and voluntary surrender of mining rights.

      The Mining Law provides for the termination procedure in which the holder of the mining title is entitled to submit such evidence for its defence as it deems appropriate. Dispute resolution mechanisms may involve international arbitration through UNCITRAL rules as described above.

      As to the possibility to voluntary surrender mining rights and to disinvest in mining concessions, the Ministry has published some important guidelines. If the concessionaire decides to renounce mining hectares in concessions or projects, the partial or total surrender must be duly approved by the Ministry of Mining.

      In case of total surrender, the investment compromise must be complied with within the time that the surrender is requested.

      For partial surrender of mining hectares in concessions, if the bidder decides to partially surrender the awarded area, the commitment to comply with the entire amount of the investment for the first four years will remain in place and, at the time of application, at least with the minimum investment committed for each year.

      For partial surrender of mining hectares in projects, the amount of the investment committed for four years must be met in the project, regardless of the area to which the investment of the economic bids submitted has been allocated. If the bidder decides to surrender hectares that are part of a project, the bidder must comply with the minimum amount of the investment during the years elapsed and of the current year at the time of such surrender.

      Surrender will mean 50 per cent decrease of the investment commitment corresponding to the areas to be surrendered. A formula has been established to calculate the investment commitment after surrender: final commitment for the project = final commitment for the project – [(initial commitment for the project)] x (percentage of hectares granted that are being reduced) x 50 per cent].

      Last verified on Monday 25th June 2018

    • Ecuador

      Road and electric power infrastructure is good throughout the country.

      However, the largest mineral deposits are located in remote mountain regions where infrastructure is scarce and where, in most cases, self-power generation must be installed. Export port facilities are good along the Ecuadorian coastline, but not necessarily located near the exploitation areas (ie, the EcuaCorriente project involves the construction of an export port).

      Last verified on Monday 25th June 2018

    • Ecuador

      Generally, mining rights may be assigned or transferred upon a prior authorisation from the Mining Regulation and Control Agency, and are freely transferrable in the event of death. Irrevocable promissory agreements for assignment or transfer of rights and actions on mining titles or, generally, any other mining rights may be entered into. Pledges, security assignments and other types of security arrangements provided for in the laws may be entered into in accordance with the provisions and requirements established in the Mining Law and its General Regulations.

      Last verified on Monday 25th June 2018

    • Ecuador

      Yes, our legislation provides the figure of the “assignment of rights in guarantee” granted by concessionaire in favour of creditors an assignment of the mineral rights to the creditors will occur in the case of a concessionaire’s default to comply with it credit obligations. This contract requires the prior approval from the competent mining authority. In addition, creditors (as assignees) are also entitled to request the signature of a “direct contract” with the competent mining authority whereby the latter is obliged to notify the former in case of concessionaries’’ default in the compliance of its contractual obligations and to guarantee “step in” rights to fulfil the concessionaire’s defaults under the exploitation contract.

      Last verified on Monday 25th June 2018

    • Ecuador

      The Ecuadorian legal system permits judicial enforcement of pledges; no out-of-court auctions are permitted. All types of guarantees provided for in Ecuadorian laws may be used, including pledges of mining rights, shares or assets, pledge of assets, mortgages on real state and future contracts committed as security.

      Last verified on Monday 25th June 2018

    • Ecuador

      Under Ecuador’s laws, insurance policies covering risks which are to be covered pursuant to the law (eg, environmental risk insurance) must be taken out in Ecuador; however, nothing prevents companies from taking out international insurance to protect their concessions in Ecuador. In practice, insurance is often procured abroad and an insurance company authorised to operate in Ecuador provides fronting insurance.

      Last verified on Monday 25th June 2018

    • Ecuador

      Ecuador’s laws provide that 80 per cent of the labour in mining activities must comprise Ecuadorian nationals except in the case of employment of Mercosur nations, including Chilean and Bolivian citizens, where such citizens are considered Ecuadorians for the calculation of this percentage.

      Last verified on Monday 25th June 2018

    • Ecuador

      A fundamental issue to be considered in dealing with financing mining activities is the social and environmental issues deriving from the current legal framework that must be observed in order to conduct mining activities. Social consultation processes on the activities to be conducted, together with the requirement to obtain an environmental certificate or licence (depending on the phase of the mining activity) before entering into any activity are fundamental elements that must be complied with by companies and financial institutions involved in these projects. Non-compliance with these two requirements may lead to suspension of mining activities, including cancellation of the concession contract.

      There are no new trends in the types of financing recently closed or under discussion for mining projects in Ecuador.

      Last verified on Monday 25th June 2018

    • Ecuador

      At present, the current Mining Law already provides for a windfall profit tax in case of variations of commodity prices and that has been duly and properly regulated. This event was included in the exploitation contracts executed with EcuaCorriente and Aurelian, which are expected to provide the bases for a long juridical life, so it is expected that renegotiations will not be necessary. Regarding payments of royalties, the government has requested an upfront payment of royalties, even without production. The argument is that such royalties will be used in the area of influence of the project to benefit infrastructure and social programmes in such areas, which will help convince people of the benefits of the mining industry.

      From July 2013, amendments were introduced into several Ecuadorian laws, in particular the tax laws and mining law. The main amendments were: 

      Regarding the 70 per cent windfall tax, it was recently established through regulations that windfall income will be considered solely as that received after the 48 months after pre-operational investments for preparation and development in the mining contract area or concession, undertaken exclusively before the commencement of production, as declared by the competent body, have been completely recovered from a financial perspective. 

      In November 2014, amendments to the General Regulations to the Mining Law were issued. These amendments established the definition of windfall profit and the method for determining the tax base thereof; how to determine the “base price” on which said tax will be calculated; how to determine the “benefits for the state” and how this figure is reached; and the method for calculating contractor profits. A specific formula for its calculation was included in the exploitation contracts.

      Last verified on Monday 25th June 2018

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