How Ecuador could become the next big thing in mining

Favorable legal rulings, projects that are advancing and government efforts to help Ecuador's mining industry are encouraging investors and companies.

With only two industrial-scale mines in production, mining exports exceeded US$3.3bn in 2023 and are expected to be even higher this year.

Ecuador could also benefit from higher copper and gold prices in the form of investment inflows and royalties, but more needs to be done to drive the industry forward.

BNamericas speaks with former deputy mining minister Rebeca Illescas, now director of Universidad UTE's social and mining energy innovation, about the things Ecuador is getting right and what still remains to be done to become a mining power.

BNamericas: What makes Ecuador an attractive mining destination?

Illescas: Ecuador is a country that has been very little explored and not much extraction. It is estimated that only about 10% of the territory is explored.

The geological map of Ecuador, which is the base information on the minerals that exist, is barely 35% complete.

However, various studies have documented the existence of minerals in many areas. This information has been known for many years but isn't structured and needs to be updated.

Ecuador has the advantage of being part of the Andes mountain range. Due to its geography and geology, we possibly have mineral deposits that haven't yet been discovered.

BNamericas: Chile and Peru are also in the Andean copper belt. What can Ecuador offer that these mining giants can't?

Illescas: In addition to its geology, Ecuador is a small country with competitive advantages, such as the availability of ports, airports and highways. Having good connections is an added value.

Regarding Peru and Chile, although they have consolidated industries, where it is easier to advance because the system works better, their deposits are in remote areas or have water and electricity problems or difficulties in connecting regions.

Ecuador is a small country with easier connections. It's close to ports, and there's an abundance of water, essential for mining projects.

Although we are in a crisis in terms of electricity and no longer export energy as we did in the past, the projects are profitable.

The law requires permits for water use, and companies have to return the same amount of water to the state in which they found it in each of their projects, so there are no risks for the resource or for communities.

Last year, when we had an electricity crisis, Lundin Gold and Ecuacorriente, which operate Fruta del Norte and Mirador, respectively, provided electricity to reduce the number of hours of power outages in the province of Zamora Chinchipe, where these mines are located.

This shows that work between the government and mining operators can be done in a coordinated manner.

Another important competitive advantage is dollarization. Investors coming to Ecuador have it easier because they do not lose in currency exchange, as is the case in other countries.

Additionally, since Ecuador doesn't have a consolidated mining industry, it's easier to learn and draw lessons from other places where mining has not been done well.

At the moment, the industry has better international standards on social and environmental issues. There's also a lot of innovation that allows us to think about new ways to have more efficient operations with new technologies.

Mining today isn't the same as it was 50 years ago.

BNamericas: How could the country make sure that companies that are already in Ecuador remain and that new companies continue to arrive?

Illescas: I always recommend that companies have local partners because it's very difficult to understand the language of Ecuador.

I think it's important for workers and decision-makers to be accompanied by local experts. They shouldn't just be lawyers because this is not only a legal issue; it's about understanding the country's social, political, and economic dynamics.

In order to do their best work, companies have to be open to working with local teams.

On the internal side, the government must give better and more positive signals.

BNamericas: Could Ecuador become a destination for mining investment?

Illescas: Without a doubt. [Globally] there are fewer and fewer projects and there's talk that there's less and less effectiveness in the discovery of new projects.

Most mines around the world, especially copper mines, are mature. In Chile, Chuquicamata, one of the oldest mines in the world, began as an open pit and today the operation is underground.

These operations are very expensive and that could be an advantage for Ecuador because if interesting deposits are found, it should be more economical to build a mine, as the minerals are closer to the surface, and that's easier in economic and technical terms.

Ecuador is attractive, competitive, and necessary due to the price of commodities and the growing need for minerals.

BNamericas: How is the situation regarding legislation and regulation?

Illescas: Ecuador has been working for years to be competitive in terms of taxes and the tax burden on investments.

Several companies are in Ecuador. We've attracted important players and we have large investment commitments.

In general, today the regulations for exploration and extraction, especially for large-scale mining, are quite good.

In terms of tax burden, we're competitive in the region. Depending on the mineral, we have a tax burden of between 23% and 25%, which is quite competitive. In Peru, it's 21-23%, and in Chile, 19-20%, which are lower because they have different industry dynamics.

BNamericas: How complicated are regulatory procedures for mining companies in Ecuador?

Illescas: The challenge the industry faces is to make investments and it can't do so, among other issues, due to the difficulties in obtaining so-called prior administrative acts, which are environmental permits, water permits, permits from the defense ministry [for explosives use], the social license, among others.

Analyzing the latest exploration investment commitments, we see that they haven't been able to advance. This is mostly because they don't obtain the necessary permits with the agility the activity demands.

BNamericas: How should the lack of state policies in the sector be addressed?

Illescas: That's the discussion we need to have as a country. We need a citizen conversation, which isn't about political situations or governments.

If we want development, we have to think about how we see ourselves in the coming years, about developing our natural resources, what we're going to do and how we're going to do it.

BNamericas: Can mining replace oil?

Illescas: Of course, and not even in the long term, but today. Mining exports total around US$3.5bn and are the fourth largest export category.

Ecuador's hydrocarbons industry [a key foreign currency generator] is badly hit. Stopping extraction at the ITT block is a mistake.

Furthermore, the country runs on dollars. What other industry can provide income to maintain dollarization? The answer is mining.

So mining is for today and it's for the future. What we need to discuss is how to do it right and demand transparency.

BNamericas: How do you see Ecuador's mining future?

Illescas: I think the country has a great need to understand how the mining industry works. Unfortunately, opposition to these activities has gained space and a negative narrative has been created around an activity that works perfectly in many parts of the world.

Ecuador has very few possibilities to grow, and to have a safe country, better social and economic conditions, we need to have industries and companies that generate employment and income for the State.

Mining is the only industry that, in the short term, will allow us as a country to improve economic conditions.

It's a shameful dichotomy to continue talking about water versus mining when, thanks to mining resources, there are many cities in the world that are among the best planned and developed.

Taking into account that the narrative of the anti-mining sectors pushes the conversation toward basic topics, which are no longer even discussed elsewhere in the world, we must continue training, talking about everything mining involves, talking about legislation, the mining law, touching on technical, social, environmental and even gender equity issues.