Is mining now the sector that Ecuador's economy needs?

The double blow that the Ecuadorian economy has suffered from the effects of COVID-19 and the collapse in the price of oil, its main export product, has positioned mining as the sector that could support the economic reactivation.

Ecuador already has around 100,000 positive COVID-19 cases and epidemiologists do not rule out new outbreaks in several cities that would force a suspension of activities again, like in March when the first outbreak began.

"The economic situation in the country is very complicated," Walter Spurrier, director of private consultancy Grupo Spurrier, told BNamericas.

Spurrier estimates that the country's financing needs are around US$13bn, between the fiscal deficit of the non-financial public sector and the payments that Ecuador must make to multilateral organizations on its debt.

The government has little maneuver room and the economic recovery will depend to a great extent on the evolution of the pandemic, Jaime Carrera, executive director of local think tank Observatorio de la Política Fiscal, told BNamericas.

In this difficult scenario, mining is seen as the activity that could help reactivate the economy, despite the fact that Ecuador only has two large mines in production: the Mirador copper mine, which is operated by Ecuacorriente, a subsidiary of the Chinese consortium CRC-Tongling Nonferrous Metals, and gold mine Fruta del Norte, which is operated by Canada's Lundin Gold.

Although the companies have been affected by around three months of keeping minimal operations as part of the pandemic-related restrictions, they have seen a positive impact from recent increases in copper and gold prices. Their contribution to the Ecuadorian economy is therefore significant and set to continue growing in the medium term.

Large companies such as Anglo American, BHP, Grupo México and Lumina Gold participate in Ecuador, but only with exploration projects.

Regarding small miners, lawyer and sector expert Stevie Gamboa said that these would contribute to economic growth by the end of the year, as would foreign mining juniors.

“Junior mining companies’ capitalizations for projects in Ecuador have exceeded US$50mn in recent months, which shows the importance of the projects and their future," said Gamboa.

Among the companies that have raised capital for projects in Ecuador are Adventus, Titan Minerals and Luminex.

According to the deputy minister of mines, Fernando Benalcázar, Ecuador could see a mining boom in the next decade when between eight and 10 projects that are at different stages, will be consolidated and in production.

By 2024, at least four projects should go into production: Curipamba, Loma Larga, La Plata and Cangrejos. And after them other projects of major importance, such as Cascabel, Ruta del Cobre and Llurimagua.

According to data from the ministry of mines, around 98% of the investments in mineral exploration come from Canadian and Australian investors.

In 2018, the Ecuadorian mining sector received 53.1% of the country’s foreign direct investment and in 2019 it was 42.1%.