Fiesta’s over in Ecuador

The chaotic unravelling of Ecuador’s mineral exploration scene dominated talk in global mining circles during the week ended April 19, the 16th trading week of 2008.

• On April 18, Ecuador’s Constitutional Assembly passed what it calls a “mining mandate” that effectively imposes a moratorium on all exploration activities in the country until a new mining law is enacted, possibly within 180 days. Among the more notable features of the new mandate are the cancellation of all applications for new mineral concessions in Ecuador, the creation of a state-owned mining company, and limiting to three the number of concessions that can be held by a company or individual.

A rough translation of the mandate into English is available at www.aurelian.ca.

Needless to say, while the move leaves many unanswered questions, it was a black day for the mineral exploration community in Ecuador, which had experienced a renaissance since a free-market-oriented government opened up the country to foreign investment in the mineral sector in 2000.

Foreign companies active in Ecuador and their followers issued a stream of press releases and commentary about the new mandate that varied from hopeful to deeply pessimistic.

Mining stocks told a more uniformly negative story, though, as investors bailed out big-time from Ecuador-focused stocks. Leading the charge down was market darling and Fruta del Norte discoverer Aurelian Resources, which lost more than half its market capitalization over two trading sessions.

• After a month of market turmoil, we seem to have entered another phase of intense mergers and acquisitions activity.

Teck Cominco tabled a $425-million friendly offer for Ross Beaty’s Global Copper, with its huge but relatively undeveloped, low-grade Relincho copper-moly deposit in northern Chile.

Across the pond, Ivanhoe Mines handed over its 42% controlling stake in Jinshan Gold Mines and its 217 mine in Inner Mongolia to Chinese gold miner China National Gold Group for $217 million. The sale could be either a statement on China’s fading allure as a destination for foreign gold developers, or a simple acknowledgment that Ivanhoe needs the money for its giant but long-delayed Oyu Tolgoi copper-gold project in Mongolia.

In Europe, European Minerals unveiled a friendly merger with Sergey Kurzin-led Lero Gold. The wildly successful Kurzin was once involved with European Minerals in its previous incarnation as Kazminco, and has had a hand in Bema Gold’s work at Kupol in Russia, in Frank Giustra’s UrAsia Energy play in Kazakhstan, and Russian chrome producer Oriel Resources, which is now being bought by Russian Mechel Mining.

• PricewaterhouseCoopers gives us a glimpse of the awesome scale of M&A activity in its new Forging Ahead publication. PWC notes that deal-making in the global metals sector soared to record levels during 2007, and was up 67% over 2006, with a shift from steel to aluminum, and away from Western Europe to the “new M&A hotspot of North America, and in particular Canada.”

There were 411 disclosed deals in 2007, up slightly from 385 in 2006, but the aggregate value of those deals was US$144.7 billion, way higher than the US$86.4 billion traded in 2006. The aluminum sector alone accounted for 56 transactions in 2007, collectively worth US$77.3 billion — much of that related to Rio Tinto’s takeover of Alcan.

• One long-simmering dispute in the diamond sector suddenly turned hopeful, as Archangel Diamond, Russia’s Lukoil and De Beers struck a new agreement to develop the Verkhotina diamond project in northwestern Russia.

Under the proposed deal, Archangel will pay US$225 million in stages to acquire a 49.99% interest in Arkhangelskoe Geologodobychnoe Predpriyatie, a Russian open joint stock company currently owned by Lukoil and the holder of the licence to explore and mine the Verkhotina licence area. Lukoil will continue to own the remainder. De Beers owns 58% of Archangel and will provide technical services.

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