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C O N F I D E N T I A L QUITO 000100 
 
SIPDIS 
 
SIPDIS 
 
E.O. 12958: DECL: 02/01/2018 
TAGS: EMIN EINV ECON EC
SUBJECT: CHANGES PENDING IN ECUADOR,S MINING SECTOR 
 
Classified By: DCM Jefferson Brown, Reasons 1.4 (b&d) 
 
 ¶1.  (SBU) Summary:  On January 25, the GOE announced that 
approximately 15% of the country,s mining concessions would 
revert to the State for purported non-payment or late payment 
of fees.  Analysis of remaining concessions will continue and 
further reversions could be forthcoming.  Meanwhile, 
Ecuador,s Constituent Assembly is considering a GOE proposal 
for further reversions and contract renegotiations.  The 
Assembly is also expected to review and pass a new mining law 
by the end of March that would increase the state share of 
mining revenues, improve environmental controls, halt mining 
"speculation," enhance social responsibility programs, and 
possibly create a state mining company. Post is not aware of 
any U.S. companies significantly active in the Ecuadorian 
mining sector. End Summary. 
 
Mining Concessions Revert to the State 
-------------------------------------- 
 
¶2.  (SBU) On January 25, the GOE announced that 587 mining 
concessions (out of about 4,000) would revert to the State 
due to nonpayment or late payment of patents (companies must 
pay a "patent fee" each year, which increases based on the 
number of years they have owned a concession).  The payment 
deadline is formally March but companies have traditionally 
had a grace period of six months before facing penalties, and 
some take advantage of the grace period.  Petroleum and 
Mining Minister Galo Chiriboga said that analysis of mining 
concessions will continue in upcoming days and additional 
concessions could be subject to reversion.  The Ecuadorian 
Mining Chamber is working with the Petroleum and Mining 
Ministry as well as the Constituent Assembly (CA) to explain 
how the reversions will harm the sector and to seek a better 
solution. 
 
¶3.  (C) Some companies have been officially notified of the 
reversion of their concessions, but many, such as the large 
Canadian firm Ascendant Copper, have not.  Of the 587 
&reverted8 concessions, Ecuador,s Mining Chamber reports 
that about 500 are small-scale miners who are very upset with 
the announcement.  Cesar Espinosa of the Mining Chamber 
reports small miners are ready "with dynamite sticks," but 
that he convinced them to wait and see how the situation 
develops.  However, without clarity within a week or two, he 
expects they might begin protests.  He reports large mining 
companies are angry and are consulting with their lawyers 
regarding possible legal actions (many of the larger mining 
companies in Ecuador are Canadian, at times with U.S. 
investment).  The Canadian Embassy reports their mining 
clients are very upset, but as of January 29 none of them had 
been formally notified of reversions. 
 
¶4.  (U) No mining company has approached the U.S. Embassy to 
complain as of January 30.  The Embassy is not aware of any 
predominantly U.S. mining companies operating in Ecuador, 
although a few Canadian-registered companies have let us know 
of their U.S. investment and ties. 
 
Constituent Assembly Considers More Reversions 
--------------------------------------------- - 
 
¶5.  (SBU) The GOE also submitted a mining "mandate" to the 
Constituent Assembly (CA) for approval, which requests 
additional reversions (a mandate is similar to a law but 
remains in force only for the duration of the CA).  According 
to the Mining Chamber, the draft mandate would revoke 
concessions if a company had not paid its annual patent fee 
or paid late any time between 2004-2007, if a company had not 
"invested" anything by December 31, 2007 (although what 
constituted "investment" is not defined), or if the 
concession is in a protected area.  The Chamber notes that 
although there is no mining in national parks in Ecuador, 
there is mining in protected forests. 
 
¶6.  (SBU) The proposed mandate would seek to negotiate new 
contracts with the remaining concessions, and if no final 
agreement was reached with those companies within one year, 
their concessions would be revoked as well.  It also notes 
that the GOE could declare certain areas of the country 
"strategic areas" where only an Ecuadorian state mining 
company would have authorization to operate.  Finally, it 
asserts that a new mining law will be presented to the CA 
within 60 days, which would provide for royalties of no less 
than 3% (although it does not define on what the royalty will 
be assessed).  Artesanal miners from the provinces of El Oro, 
Loja, and Zamora Chinchipe are displeased with the potential 
mandate and met with members of the CA January 29 to discuss 
the situation.  The Mining Chamber sent representatives to 
Montecristi to review the mandate with the CA, but is not 
optimistic that the CA will make substantial changes and 
expects the mandate could be approved the week of February 4. 
 
New Mining Law Also in the Works 
-------------------------------- 
 
¶7.  (SBU) The Correa Administration has said that the current 
mining law is inadequate as it does not provide for 
royalties, along with other deficiencies.  The GOE has also 
said that environmental protections and penalties for 
environmental damage should be stronger, and that it deserves 
a larger share of mining company profits. 
 
¶8.  (C) The GOE reportedly plans to submit a new mining law 
to the CA for approval by March.  Local media report that the 
GOE wants the law passed by the end of March (consistent with 
the deadline in the proposed mandate).  Ecuador,s Mining 
Chamber has been working with the Petroleum and Mining 
Ministry to try to help shape a draft law, and says that it 
is willing to work with the GOE on a number of key areas. 
These include GOE plans for a larger share of mining revenues 
for the state (in the form of royalties), improved 
environmental studies and controls, halting speculation 
(where companies hold a concession but do not develop it), 
and enhanced social responsibility programs.  Although the 
Chamber is reluctant to see penalties imposed to stop mining 
"speculation" (which could be subjective), Espinosa reports 
that the Chamber could work with a GOE proposal in this area, 
such as a mandatory investment amount per hectare.  One item 
the Chamber adamantly opposes is the GOE,s proposal to 
create a state mining company, similar to Petroecuador in the 
petroleum industry. 
 
Comment 
------- 
 
¶9.  (C) The reversions of mining concessions came as a 
surprise ) even the Mining Chamber, which had been 
attempting to work with the GOE on its draft mining law, 
heard nothing of them until the day before they were 
announced.  It is unclear who is behind the reversions and 
GOE-proposed mandate.  Our understanding is that a mandate 
passed by the CA would only be in force for the duration of 
the CA.  It is therefore odd to first pass a short-term 
mandate and then a law on the same issue.  Espinosa believes 
the reason is so that the GOE can first gain control over all 
of the concessions and then later negotiate new mining 
concessions/joint ventures under a new mining law.  He does 
not believe the GOE wants to nationalize or keep full state 
control over mining concessions. 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
JEWELL