Mining, especially large-scale mining, is an emerging industry in Ecuador. In 2009 the Mining Law was passed, after the approval of the 2008 Constitution and the temporary Mining Constitutional Mandate that suspended any new granting of mining concessions, and the expiration of several of the concessions in Ecuador (owing to the lack of activities and environmental impact studies).
Since 2009, under the Mining Law Ecuador has faced a new legal framework and enthusiasm for the large-scale mining industry, supported by the government of the former president Rafael Correa, through the commencement of the three negotiation processes for the mining exploitation agreements for the three strategic projects in Ecuador (three out of five strategic projects), Mirador (Ecuacorriente-Chinese) in production to this date, Fruta del Norte (Lundin Gold Inc.-Canadian) will be in production in fourth quarter of 2019, and Loma Larga (INV Minerals-Canadian) suspended due to an anti-mining local consultation process.
The previous government strongly supported the mining industry in Ecuador, during which period the two contracts mentioned above were signed and the third contract (Loma Larga) was agreed and several of the legal and regulatory reforms that will be explained later in this chapter were made. The current government also supports the mining industry, especially as a new source of revenues for the country.
The whole of Ecuador is rich in terms of mining. For several years now, top-level enterprises have surveyed the country and discovered gold and copper reservoirs in Azuay, Zamora Chinchipe, Morona Santiago, Imbabura and other provinces. Ecuador has granted mining concessions to private companies. Some of those projects are under exploration and other are coming into the exploitation phase. These projects are known as second generation projects and include: Cascabel-Solgold, Llurimagua-Codelco with ENAMI, Cangrejos-Lumina, La Plata, Curipamba among others.
The Constitution considers as strategic sectors, among others, energy in all its forms; telecommunications; non-renewable natural resources and those belonging to the state's inalienable and imprescriptible heritage, but may exceptionally be delegated to a private party. The mineral substances belong to the state, but mining concessionaires have the exclusive right to prospect, explore, exploit, benefit, smelt, refine, market and dispose of all mineral substances that may exist and may be obtained in the mining concession area, becoming a beneficiary of the economic returns obtained from said processes.
The Constitution divides the powers of the government into five branches: the legislative branch, assigned to the National Assembly; the executive branch, headed by the President of the Republic; the judicial branch, headed by the National Court of Justice; and other branches: the electoral branch, managed by the National Electoral Council; the Electoral Contentious Tribunal; and the transparency and social control branch, represented by six entities, the General State Comptroller, the Superintendencies, and the Ombudsman and the Citizen Participation and Social Control Council.
In terms of rights, the Constitution is an example of the development of new constitutional theories worldwide. For instance, it acknowledges the rights to a good standard of living, free communication, free information, decent housing, healthcare, labour; it also determines groups that should receive priority rights (for example, indigenous people, disabled people and the elderly) as well as the rights of the different nationalities and peoples that coexist in Ecuador. Additionally, it considers nature as a rights holder.
Outlook and trends
From the date of issuance of the current Mining Law, 29 January 2009, which replaced the previous Mining Law of 1991, and its General Regulations issued on 16 November 2009, Ecuador has seen the interest of international mining companies in developing large-scale mining projects in our country. As a result of the negotiation processes of the exploitation mining agreements and the lessons learned from them, the Ecuadorian state proceeded to carry out certain legal and regulatory reforms, which were approved in July 2013, February, September and December of 2014, December 2015, April 2016 and August 2018. In the reforms to the Mining Law the following changes were made to the mining regime:
- simplification of procedures and permits;
- greater control of illegal mining activity; including a maximum 8 per cent royalty (5 per cent minimum and 8 per cent maximum) for metallic minerals;
- establishment of a due process in the cases of caducity of mining rights and the right to remedy or comply with the non-compliance;
- clarity regarding the ownership of certain assets;
- creation of the medium scale as a mining category, with more favourable economic conditions and without the obligation to enter into a mining exploitation agreement with the state;
- payment of the sovereign adjustment after the recovery of the initial investments;
- inclusion of formulas to calculate and pay the sovereign adjustment;
- reimbursement of VAT paid as of 1 January 2018;
- legal and tax stability for medium and large-scale metallic mining with the execution of the investment protection agreement; and
- derogation of the windfall tax.
There have been efforts by the government to improve the investment climate in the country, especially for the mining sector, through reforms that try to provide security to the investors by fixing floors and ceilings, formula of calculation to avoid any subjective parameters negotiation, legal and tax stability, derogation of certain taxes, among others.