A wave of nationwide protests has shaken Ecuador and investor confidence in the emerging mining jurisdiction.
As part of President Lenin Moreno’s US$4.2-billion financial deal with the International Monetary Fund to fix the oil-exporting nation’s strained finances, the Ecuadorian government announced on Oct. 2 a package of austerity measures, including an end to four-decade-old fuel subsidies.
Without the subsidies, which cost the state around US$1.3 billion annually, gasoline prices rose 24% to US$2.30 a gallon, while diesel prices more than doubled to US$2.27 a gallon.
The move did not go down well. What began as a protest by taxi drivers and truckers against the price increases escalated into a nationwide revolt drawing in farmers, students and Indigenous groups.
Protesters mounted roadblocks on major highways, cutting some parts of the country off from others, and slowing production at one of the country’s largest oil fields. In the cities, bridges and major roads were closed and some buildings set on fire. Protesters took control of the Carondelet Palace and the National Assembly building in Quito, forcing the government to flee to the relative safety of Guayaquil, Ecuador’s largest city and main port, 422 km from Quito.
President Moreno ordered troops onto the streets to enforce a curfew. The carnage left seven people dead and hundreds under arrest.
Eventually, the president bowed to pressure and reinstated the fuel subsidies. He also started negotiations with opposition groups, including the Confederation of Indigenous Nationalities (Conaie), which played a key role in organizing the protests.
The mayhem — which lasted from Oct. 2 until Oct. 13 — comes at a delicate time for the country’s mining industry. With the start of production at the Chinese-owned Mirador copper mine in July, and the launch of Lundin Gold’s (TSX: LUG) Fruta del Norte gold mine, currently in the commissioning stage, large-scale modern mining has finally arrived in Ecuador.
Their success has attracted juniors as well as some of the world’s largest companies, including Anglo American (LON: AAL), BHP Group (LON: BHP) and Chile’s Codelco.
But anti-mining sentiment has been building in some parts of the country, with local politicians organizing referendums on whether to allow mining in the southern province of Azuay and Imbabura in the north.
The government has questioned the legitimacy of such votes, noting that mining is the prerogative of the national government. In September, the Constitutional Court refused to hear applications for a referendum against INV Metals’ (TSX: INV) 2.6 million oz. Loma Larga gold project on similar grounds.
But communities are not concerned by such legal technicalities.
Despite the growing tension, mining was not a central issue for most protesters. But the industry, often located in remote parts of the country, can find itself exposed.
In southern Ecuador, a group toting high-calibre firearms broke into Ecuagoldmining’s Rio Blanco mine camp and set fire to buildings and equipment, leaving it a smoking ruin.
“We hope that this time the authorities act with the full force of the law, and these acts of vandalism do not go unpunished,” the Chinese-owned company stated on Oct. 4.
So far the attack on Rio Blanco appears to have been an isolated event.
Still, companies were not taking chances.
Lundin Gold and SolGold (TSX: SOLG) ordered staff based in Quito to stay at home and delayed shift changes at their operations in the provinces, as major roads were blockaded.
Stocks of food and fuel at the Fruta del Norte mine, currently in commissioning, allowed most operations to continue throughout the unrest. As a result, Lundin says it is on track to pour first gold by year-end.
“But if protests had gone on much longer, we would have been forced to shut down mining activity,” president and CEO Ron Hochstein told The Northern Miner.
Ecuadorians seem keen to put the turmoil behind them and get back to normal life.
Both individuals and companies in Quito took a day off work on Oct. 14 to clean up rubble-filled streets and graffiti-strewn walls. Children returned to school on Oct. 15, after 10 days at home.
All eyes are now on negotiations between the government and opposition groups on a new economic package to resolve the impasse.
Although Conaie is strongly anti-mining, for now, talks look likely to focus on the economic issues, such as government spending and subsidies, Andres Ycaza, a mining lawyer, told The Northern Miner.
Given the government’s financial straits, President Moreno is unlikely to do anything to restrict mining. Key to his US$4.2-billion financing agreement with the International Monetary Fund is a commitment to attract more foreign investment, and with oil prices falling, mining looks like Ecuador’s best chance.
Still, the recent violence has given many a pause.
“This has changed the way I look at Ecuador,” admits Lundin’s Hochstein, who has lived in Quito for the past four years.
The sight of the army on Quito’s streets and a mining project up in flames have shaken investor faith in what had been one of South America’s most promising mining frontiers.
“I haven’t really got off the phone to investors for the past two weeks,” said Anna Legge, SolGold’s director of communications.
Shares in some mining companies in Ecuador have fallen since the start of October.
SolGold’s share price fell as much as 23%, but has since recovered the October losses, and at press time was trading at 38¢ per share.
For now, while some retail investors have sold up, most institutional investors are sitting tight.
“It takes them longer to become comfortable with a country, but once they are in, they are invested for the long-term … they understand that this is an emerging market, and this is just a bump in the road,” Legge said.
Others may see an opportunity in the sell-off. A week after the protests ended, Dundee Precious Metals (TSX: DPM) acquired a 19.5% stake in INV Metals for $10 million.
Many hope that with the turmoil over, the country’s many qualities will again come to the fore.
“The recent situation is of concern, but once the situation returns to normal, we remain firmly of the view that Ecuador is a great place to invest and has much to gain by welcoming foreign investment,” David Larenas, vice-president of the Ecuadorean Chamber of Mines, told The Northern Miner.
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