Ecuador gives investors new bout of the shudders

The government of Ecuador has done what mineral investors the world over feared they might, and Canadian-based miners exploring the country’s terrain have been hit hard because of it.

The head of the Constitutional Assembly, Alberto Acosta, announced that some mining activity was to be stopped completely and immediately while the government drafts new mining legislation.

In Toronto on Apr. 18 companies with key assets in Ecuador that were hardest hit by the news were: Aurelian Resources (ARU-T) off 30% to $5.14, Corriente Resources (CTQ-T) off 11% to $4.11, EcuaGold Resources (EGR-V) off 19% to 9, and Dynasty Metals & Mining (DMM-T) which was off 34% to$4.05.

Reuters reports that Acosta specifically pointed out Aurelian, Corriente and IamGold (IMG-T) as companies that had to immediately stop all activity on their sites.

IamGold shares were off just over 3% to $7.13 on 1.3 million shares traded.

Acosta also went on to say that he plans to call for a national referendum to ban open-pit mining in Ecuador.

The current stoppage was approved by a wide margin of 95 to 1 in the Constitutional Assembly. Their ruling calls for some companies to be stripped of their concessions while most projects must halt operations for up to 180 days.

Since coming to power in 2006 President Rafael Correa has said he would look to rework the national mining policy so that the government could capture more cash flows.

This despite the fact that the country does not yet boast major mineral producing facilities — instead it has been a hotbed of exploration activity. Such activity now appears to be in grave jeopardy.

Reports out of Ecuador say many of the roughly 5,000 mining concessions handed out in the country are being cancelled along with a moratorium on new concessions until new mining laws are passed.

Acosta was quoted as saying that the new mining law will “favor serious entrepreneurs, not the speculators, because with clear rules, they will be able to work.”

For Aurelian, the news is just the latest in a long string of share price depleting edicts from the government. Its market cap has been hacked away at mercilessly, as towards the end of March its shares were closing as high as $9.80.

Aurelian built up such market value on the back of its discovery of the countries largest gold deposit, Fruta Del Norte, which boasts an inferred resource of 13.7 million oz. of gold and 22.4 million oz. of silver.

Not surprisingly, Correa’s move to reign in foreign mining companies coincides with sky rocketing mineral prices.

But despite the scary signal sent to the markets, Correa insists his government is not against mining. Reports out of the country quote him as telling a gathering of miners that while he supports the mining industry the measures are about “mining with social, environmental and economic responsibility.”