Mining industry

1. What is the nature and importance of the mining industry in your country?

The quality and quantity of Ecuadorian mineral resources is very similar to that of its neighbours, such as Chile and Peru, who have managed to develop their mining potential. However, most of Ecuadorian territory is still unexplored. In fact, according to the Financial Times, Ecuador has some of the most attractive gold, silver and copper deposits in Latin America, nevertheless, production has been almost non-existent. There are many reasons for the delay in developing this industry, but if we have to choose the main reason, we would point to erred public policy regarding the mining industry and the absence of legal security, owing to legislation largely inspired by the oil industry. In terms of the mining industry’s importance in Ecuador, considering the tendency for decreasing oil prices and given the fact that traditionally Ecuador is an oil dependent country, we do not see any industry other than mining capable of attracting investments to develop the country.

2. What are the target minerals?

The principal minerals targeted in Ecuador are gold, silver, copper, lithium, rare earth, potash, iron, uranium and coal. Ecuador has a much wider geological potential but, to an extent, the minerals targeted depend on global trends and the interest of individual companies.

3. Which regions are most active?

The most important gold and copper deposits discovered to date are located in the south-east of Ecuador, principally in Zamora Chinchipe, Morona Santiago, Azuay and El Oro provinces. However, it is also important to consider Imbabura province in the north of Ecuador since there is also considerable mining potential in this area. There are nonmetallic mineral deposits in the south of the country and in particular in the province of Azuay.

Legal and regulatory structure

4. Is the legal system civil or common law-based?

The Ecuadorian legal system is civil law-based.

5. How is the mining industry regulated?

According to the Constitution, the state owns all minerals and nonrenewable natural resources within the national territory. These minerals and resources are considered as strategic sectors, which are managed, regulated, controlled and governed by the state. The state can, on an exceptional basis, delegate the development of extractive sectors to individuals or entities by granting mining concessions for a term of 25 years. Thus, the concessionaire will have the exclusive right to explore, exploit, process and sell any metallic minerals within the concession. When a project is considered in the range of large-scale mining, prior to the commencement of the exploitation phase, the concessionaire must first sign an exploitation contract with the Ecuadorian state. This contract is not needed when a project is in the range of artisanal, small or medium-scale mining.

The Mining Act defines artisanal mining as that which is carried out for the subsistence of family units through the use of manual equipment or portable devices.

The daily production ranges for artisanal mining are:

• for metallic minerals: up to 10 tonnes in underground mining and up to 120 cubic metres in alluvial mining;
• for non-metallic minerals: up to 50 tonnes; and
• for construction materials: up to 100 cubic metres in alluvial deposits and 50 tonnes for hard rock open-pit mining.

The daily production ranges for small-scale mining are:

• for metallic minerals: up to 300 tonnes in underground mining, up to 1,000 tonnes in open-pit mining and up to 1,500 cubic metres in alluvial mining;
• for non-metallic minerals: up to 1,000 tonnes; and
• for construction materials: up to 800 cubic metres for alluvial terrace mining and up to 500 tonnes for open-pit mining.

The daily production ranges for medium-scale mining are as follows:

• for metallic minerals: 301–1,000 tonnes in underground mining, 1,001–2,000 tonnes in open-pit mining and 1,501–3,000 cubic meters in alluvial mining;
• for non-metallic minerals: 1,001–3,000 tonnes; and
• for construction materials: 801–2,000 cubic metres for alluvial terrace mining and 501–1,000 tonnes for hard rock open-pit mining (quarries).

Any range that exceeds those established for medium-scale mining is considered as large-scale mining.

By way of amendments to the Mining Law introduced on 16 July 2013, the process for obtaining environmental permits to carry on mining activities was simplified (see question 35).

6. What are the principal laws that regulate the mining industry? What are the principal regulatory bodies that administer those laws? Were there any major amendments in the past year?

Overall, there are several legal provisions regarding the mining industry within the Constitution. Added to that, there is the Mining Act that was enacted on 29 January 2009, further modified by the amendment passed on 16 July 2013 as well as the General Mining Regulations and the Small-Scale and Artisanal Mining Regulations that were promulgated on 4 November 2009. There is also the Mining Environmental Regulations for Mining Activities promulgated on 27 March 2014.

The principal regulatory body that regulates and controls the industry is the Mining Ministry, created in February 2015, which replaced the former Ministry of Non-Renewable Natural Resources (MNRNR). The other relevant bodies are the Ministry of the Environment, the Mining Regulation and Control Agency (ARCOM) and the National Geological Mining Investigation Institute (INIGEMM). In addition, with the Mining Act, the national mining company (ENAMI-EP) was created, which is responsible for developing state mining projects by itself or in association with private or public companies, or both.

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Reproduced with permission from Law Business Research Ltd. Getting the Deal Through: Mining 2017, (published in June 2017; contributing editors:  Michael Bourassa and John Turner, Fasken Martineau) For further information please visit https://gettingthedealthrough.com/area/22/mining-2017

Effective April 13, 2018, the Organic Code of Environment (OCE) will come into force.   This Code  regulates the administrative–environmental matters, and guarantees: i) the right of people to a healthy and balanced environment; and, ii) the rights of Nature.

Following is a summary of the OCE’s effects:

1. In environmental matters: public and private decisions shall incorporate the environmental  principles established in the OCE: comprehensive responsibility, best available technology, sustainable development, the polluter-pays, in dubio pro natura, access to information and participation, caution, prevention and subsidiarity.

2. The OCE incorporates regulations to protect the animals’ well being, including obligations, responsibilities and bans about treatment of animals.

3. The government shall collaterally act in environmental damages in the following cases:

• Unrepaired environmental damages;
• In the absence of identified executors;
• The executors had breached the remediation plan;
• Due to the magnitude of the environmental damage, it cannot be expected the remediation by the executor; or,
• Risk of new damages that the executor is not able to assume.

4. The environmental impact has been classified as follows:

• Non-significant impact: No permit is required, just good practices.
• Minor impact: environmental management plan is required.
• Medium impact: environmental impact assessment is required.
• High impact: environmental impact assessment is required.

5. The government is obligated to make prior consultations to people directly affected by the development of projects. However, the Environmental Authority has the final decision regarding the execution of the activities. For this reason, this consultation is not binding.

6. The government will grant environmental incentives (economic, tax or honorary awards) for subjects that comply with regulations and improve the environment. The Environmental Authority will evaluate and grant such incentives.

7. The executor of the activity is fully responsible for environmental damages. The OCE included further standards to determine responsibilities for environmental damages as follows:

• In case of entities belonging to corporate groups, the responsibility may reach to the company that makes the decisions.
• The responsibility may reach to the person in charge of the control of the activity and the managers during his/her administration.
• In case of several causers, the responsibility will be joint and several.
• In case of death of an individual, the pending liabilities shall be borne by the heirs.
• In case of extinction of the entity, either the partners or the shareholders shall be responsible for the environmental damages in accordance with the regulations.

8. The executors of the activity are obligated to notify the respective authority within 24 hours of the occurrence of environmental damages, and they shall implement the following actions, without delay:

• Pollution contingency, mitigation and correction;
• Environmental remediation and restoring;
• Compensation and indemnification to affected people; and,
• Monitoring and evaluation.

9. The government shall establish sanctions in accordance with the magnitude of the environmental damage. These sanctions may involve several actions to achieve integral reparation.

10. Sanctions may include economic penalties, forfeitures, destruction of goods, suspension of activities, termination of permits, loss of incentives and evictions.

By:Northern Miner Staff July 24, 2018

Ecuador’s Minister of Energy and Non-Renewable Natural Resources says holders of mining concessions can now drill on early-phase exploration projects in the country. Previously, drilling was only permitted during the advanced exploration phase and required an environmental licence.

Under the June 28 decree enacted by Minister Carlos Perez Garcia, concession holders can drill from up to 40 platforms on each concession as long as they obtain authorization for industrial water use from the National Water Secretariat.

Allowing scout drilling during initial exploration is positive news for the Ecuadorian mining industry and especially for companies that made investments within the concessions that were granted through the tender processes that started in 2016, Cesar Zumarraga, a partner at Tobar ZVS Spingarn, wrote in a legal bulletin for the firm.

“When the [tender] process started, many companies committed to make investments with the understanding that permits and authorization would be granted in a timely manner,” he notes. “Regretfully, this did not occur and investments have slowed due to the delay on issuing licences and permits specifically from the Environmental Ministry and the National Water Secretariat.”

“We are confident that the possibility of carrying out scout drilling during initial exploration activities should restart the flow of investments,” continued Zumarraga, who leads the firm’s natural resources, energy and infrastructure unit. “For Ecuador and the companies, it is a win-win.”

Lumina Gold Corp. (TSXV: LUM; US-OTC: LUMAF) says the new decree will enable the company to drill previously untested areas on the west side of its Cangrejos deposit (C20), as well as its Gran Bestia satellite deposit, about 1 km away.

The Cangrejos gold project is in southwestern Ecuador’s El Oro province, 30 km southeast of the provincial capital, Machala.

The new regulations will also enable Lumina to start drilling at Orquideas, part of an earn-in with First Quantum Minerals.

Lumina’s land package in Ecuador consists of 135,000 hectares and includes the Condor gold-copper project in the country’s southeastern Zamora-Chinchipe province.

Court Decision rejects the petitioner’s submission on procedural technicalities, and doesn’t reflect on the merits.

Any project in any industrial sector with potential environmental impacts should be consulted to communities as part of the licensing process (prior consultation). This is not the kind of consultation at issue; instead, petitioners resorted to the public consultation process, a mechanism contemplated for quite different political participation purposes.

Under the Ecuadorian Constitution (EC), public consultation requests should be approved by the Constitutional Court (CC) before the National Electoral Council calls for a local or national vote, in order to ensure that the subject matter proposition is consistent with constitutional provisions. Respondents -including mining companies, business associations, government agencies, business chambers and other stakeholders- argued thorough amicus curiae that public consultations should not be allowed by the CC to the extent it calls into question constitutional or legal rights or would otherwise contradict constitutional provisions. Also, to the extent a given consultation is not intended to amend the law -there is a very specific and qualified national process in that regard-, the CC must also ensure that consultation requests do not attempt to by-pass the legal constitutional process that would otherwise be necessary in order to change the legal framework.

In case 0002-19-CP, where the consultation’s question would have called fora vote on whether mining is accepted or not, the CC could have rule out, once and for good, public consultation requests of the sort, particularly as the EC provides for specific mechanisms of prior consultation designed to ensure community participation. The CC avoided dealing on the case merits and limited itself to reject the petition on legal standing grounds and further technicalities. Given this outcome, the industry should expect anti-mining groups to reformulate their legal approach and come back in the short term with a number of public consultation requests to be heard by the CC.

It should be stressed that the threat the mining industry is facing as a result of the abuse of the consultation mechanism may extend to any other industry, so it can be also expected that other business sectors will get organized and join the defence of the rule of law.

The mining industry has still a number of legal and communication initiatives to advance its cause and deal with the upcoming wave of political consultations, this time hopefully through a proactive strategy.

For more information and deeper understanding of this ruling or of the legal and political battle ahead, please contact INFO@TZVS.EC.