Investor confidence at stake: Ecuador prepares for referendum on mining in biosphere

Ecuadorans are set to decide in an August 20 referendum whether to ban metal mining in six districts of the Chocó Andino region northwest of Quito, a highly biodiverse area that Unesco declared a biosphere reserve in 2018.

That region of the country hosts around a dozen copper, gold and silver mining concessions in early stages of exploration, with six of them awaiting regularization when Ecuador's mining cadastre is reopened. Together, the mining concessions occupy around 27,000 hectares.

The referendum, in which around 2mn residents of Quito's metropolitan district will vote, asks the public whether metal mining should be banned in the areas of Nono, Calacalí, Nanegal, Nanegalito, Gualea and Pacto.

According to data from the country's electoral council, eight organizations have registered to campaign in favor of the ban and two against.

BNamericas speaks with Fernando Benalcázar, a board member of Latin American mining agency Olami and former Ecuadoran deputy minister of mines, about the significance of the referendum for the domestic mining industry.

BNamericas: If the public decides in the referendum to stop mining in Chocó, what are the risks for mining in other areas?

Benalcázar: If that is the case, it would be the second referendum that would be approved to halt mining activity in the country [the first was in Azuay in 2021] and it could lead to similar matters being opened in places like Loja province, where an injunction was filed to prevent mining in Gualel canton, with the argument being to protect water resources.

The biggest problem that these referendums could cause is legal uncertainty that can lead investors, mainly foreigners, to seek other destinations, such as Colombia, Peru and Chile.

BNamericas: But those countries have problems too.

Benalcázar: Yes, but when it comes to mining, Ecuador is still in diapers, still learning to walk, while Peru and Chile are already adults and Colombia is a teenager. There will always be social and political problems in any investment destination.

Ecuador has a geological wealth comparable to that of Chile and Peru, which has allowed it to become an investment destination for large companies in recent years, which is why we have the presence of Anglo American, BHP, Codelco and Newcrest in the country.

With the Ecuadoran state-owned company Enami, Codelco has the Llurimagua project, Newcrest has 32% of the Fruta del Norte mine and 15% of Cascabel, BHP has several concessions in the exploration stage and is looking for new opportunities in copper. Anglo American has a stake in the Pegasus project.

There are also lots of junior companies that have very important prospects that attract these big companies.

Unfortunately, in the political and social areas, the last few months haven't been very easy, so companies are assessing whether to come to Ecuador or go to Chile, Peru or Colombia.

BNamericas: In May Newmont announced the acquisition of Newcrest to its shareholders. What could that mean for Ecuador?

Benalcazar: The decision it makes on whether or not to stay in Ecuador will be a test of the country's attractiveness. It will be a thermometer to determine how one of the largest and most important mining companies in the world sees Ecuador.

If Newmont decides to stay in Ecuador, it will seek to acquire 100% of the Fruta del Norte mine and expand its interest in the Cascabel prospect.

I believe that Newmont will stay in Ecuador and use the path opened by Newcrest in its strategy to fully enter Fruta del Norte and expand its stake in Cascabel.

BNamericas: Do you think that after the referendum in Chocó there's a risk that other referendums will be held?

Benalcázar: Yes and even more so if the referendum in Chocó is successful [in banning mining].

BNamericas: How resource-rich could the Chocó Andino area be?

Benalcázar: The historical riches have been shown in similar geological formations and the fact that informal mining has existed for decades in Pacto and Gualea, as well as the wealth seen further north in the Buenos Aires district and El Corazón mine, as well as in the Llurimagua project in Imbabura province in Intag district would suggest that it's a very interesting area for prospecting.

BNamericas: Since there has only been initial exploration in the area, wouldn't it be better to concentrate activity in other regions of the country?

Benalcázar: At the moment, mining is carried out on around 27,000 hectares in Chocó Andino, where prospecting is being carried out.

It would be unfair for a country potentially rich in minerals to stop studying and analyzing the wealth that an area may have and make a priori decisions, such as this referendum that consults uninformed voters.

Most voters aren't residents of the area and aren't aware of the real situation of mining in Chocó, so they will make an uninformed decision in the referendum.

It seeks to ban mining activity, taking care of interests in activities that are carried out in the area, but disrespecting the interests of other residents, particularly in the four districts where mining has existed for several decades.

It's remarkable that the consultation isn't being carried out solely in the area of interest and has been extended to the entire Quito district. Around 90% of the voters will be people who probably don't understand what Chocó Andino is or even where it is.

BNamericas: Those who support the mining ban talk about the effects mining will have on biodiversity.

Benalcázar: It is important to clarify that there's no risk from mining. It's not true that Chocó will be destroyed.

To give an example, when the heavy crude oil pipeline [OCP] was built, the best technology was brought from Austria and Switzerland, and after 20 years the area of Chocó through which a section of the OCP passes is pristine and lots of the opposition who wanted to halt the construction are now big businesspeople in ecotourism.

Popular referendums have historically generated conflicts, as has already been seen in Azuay, where mining continues, but is now totally outside the law, such as what happened in the Río Blanco concession, which was halted by a judicial decision and where there are now illegal miners.

BNamericas: Will the results of this referendum be applied to future projects? That is to say, will the current concessions remain unaffected?

Benalcazar: That's right. The constitutional court, when authorizing the referendum, was very specific in stating that, if the ban is backed by the electorate, the effects will only be for the future and may not exceed the scope of constitutional and legal powers established for each level of government.

With that, it's clear that no actor will be able to say that if voters back the ban on mining in the referendum, the current concessionaires won't be able to move on to the production phase.

BNamericas: Those who are promoting the referendum say that the concessionaires have infringed a series of legal regulations and they will have to lose their concessions.

Benalcazar:  The 12 existing concessions, plus six that are being processed and must be regularized when the mining cadastre is reopened, are protected under this ruling of the court to advance in the future.

To withdraw the concessions, irreversible environmental damage would basically have to be clearly demonstrated, or that the committed investments were not fulfilled, that activities were carried out in neighboring concessions, that illegal mining activities were allowed in the concession area or that they didn't pay royalties.

BNamericas: What can be expected regarding mining under the government that will replace President Lasso until 2025?

Benalcázar: If the Lasso government is successful in issuing the environmental permits for the Curipamba and La Plata projects, what the transition government will do is try to offer the physical and legal security so that the construction processes of those two mines can continue, and that the processes of negotiating production contracts can advance for the projects that reach that stage.

If Lasso doesn't define and sign the production contract with SolGold for Cascabel, the next government will.