Mining sector eyes leftist tilt in Ecuador

Vancouver Mining companies with operations in Ecuador say they remain cautiously optimistic after leftist economist Rafael Correa emerged as the likely winner in Sunday’s presidential elections.

As Ecuador continues to draw a sizeable amount of mineral investment money, Mr. Correa appears poised to join other left leaning leaders in Bolivia, Brazil, Argentina and Venezuela after he won twice as many votes in Sunday’s elections as his closest rival.

During the election campaign, the 43-year-old economist called for Ecuador to cut its ties with the World Bank and the International Monetary Fund and said he wants to hold a referendum to rewrite the constitution to reduce the power of traditional parties and limit U.S military activities in Ecuador.

But given that Mr. Correa is unable to access the billions of petro-dollars that are available to his friend Hugo Chavez in Venezuela, mining sector officials expect Correa’s presidency to more closely resemble that of Evo Morales in Bolivia and Luiz Inacio Lula da Silva in Brazil, where initial left-wing fervour quickly gave way to the practical realities of running a country.

“A few good mineral properties in rural areas is what the guy needs to get the country going,” said Lee Chapman, chief executive officer of Colorado-based Ascendant Copper (ACX-T), one of a handful of Canadian and U.S. companies which have been attracted to Ecuador by its mineral prospectivity.

Others include IamGold (IMG-T, IAG-N, IGD-A), Corriente Resources (CTQ-T, ETQ-X), Aurelian Resources (ARU-V, ARUEF-O), Skeena Resources (SKE-V), and Goldmarca (GML-V).

“This is something that we are going to be watching,” said Iamgold chief executive officer Joe Conway in an interview.

Signs that the tilt to the political left is strengthening in Latin America has also caught the attention of mining sector analysts.

“Obviously it is a concern when we see someone getting elected who is a friend of left leaning politicians,” added Jim Mustard, a mining analyst with Haywood Securities in Vancouver.

Two weeks ago, the return to power of former Marxist guerilla leader Daniel Ortega sent a chrill through a community of mining companies with projects in Nicaragua.

Shares of Aurelian fell $3.50 to $33.55 Monday, following news that Mr. Correa looked set to defeat his main rival, the bible-toting banana magnate Alvaro Noboa. Aurelian is exploring a high profile gold project in southeastern Ecuador and has just closed a $75 million bought deal financing.

However, Mr. Mustard said it was hard to tell whether or not investors were responding to news from Ecuador or simply taking profits from a rally that sent Aurelian shares rising to $40 earlier this month.

In an e-mail to The Northern Miner, Aurelian chief executive officer Patrick Anderson said he believes the mining sector has little to fear from Mr. Correa. He also said it is far from certain that he will assume the role of President since Noboa has not yet conceded defeat.

“There is speculation that Noboa may be able to put together an alliance of the PRIAN/PSP/PSC parties, which would give his supporters an absolute majority in Congress, an uncommon occurrence in Ecuador and a factor which may force Correa to work with Congress,” he said.

Still, even if Mr. Correa becomes President, Mr. Anderson believes he will not want to stop new money from flowing into the country.

“His main thrust in any case has been attacking corruption and addressing poverty, neither of which is expected to be detrimental to business or foreign investment.” Mr. Anderson said.

The Aurelan CEO said he is also heartened by the fact that no one on Mr. Correa’s team has mentioned mining in any forum (public or private) that the company is aware of.

Rather, Mr. Anderson expects Mr. Correa to focus on the oil industry, where he has promised to renegotiate and standardize royalties, and remove the oil sales out of the hands of the 6-7 member cartel which has historically controlled the sales and is suspected of fairly serious corruption and personal enrichment.