Ecuador's crackdown on wildcatting at Australian mogul's mining lease faces backlash

Luminex Resources

05/08/2019 12:00

By Alexandra Valencia and Luc Cohen
    BUENOS AIRES, Ecuador, Aug 5 (Reuters) - Ecuador's
market-friendly President Lenin Moreno is cracking down on
illegal gold miners, who are increasingly encroaching on formal
mines, but keeping them away from an Australian billionaire's
concession for good may prove a tall order.
    Moreno last month sent 4,000 troops and police to clear
thousands of miners from a gold and copper mining concession
belonging to Hancock Prospecting, controlled by Gina Rinehart,
Australia's wealthiest person.
    Now, with the area under a 60-day state of emergency and
military and police guarding nearby Buenos Aires parish,
authorities say illegal mining, also known as wildcatting, at
the Imba-2 concession has stopped.
    But the move, which followed a request by Rinehart's company
that its contract be suspended due to the unrest, now risks
sparking a backlash with locals. 
    For dwellers of the hardscrabble agricultural community, the
"plastic city" of tents and makeshift restaurants near the mines
brought a jolt of economic activity to the remote, mountainous
area. Some wildcat miners pledge to return once the emergency
measures end.
    "This town was left poorer than it had been in a lifetime,"
said 50-year-old Buenos Aires resident Alba Martinez, whose
husband abandoned his crops when he went to work at the mine two
years ago. After the operation, he and the couples' two sons -
also miners - left town looking for work.
    The standoff underscores a wider conundrum for governments
in the developing world, including Latin American, African and
Asian countries, as they seek to court big miners and the jobs
and tax revenues they typically bring in, while trying to avoid
a backlash among locals, many of whom see wildcat prospecting as
their birthright. 
    "Of course, illegal mining generates uncertainty,"
Ecuadorean Vice President Otto Sonnenholzner, who chairs a task
force on combating illegal mining, told Reuters on the sidelines
of a conference last month. "There's no question of that. But
what is certain is that the national government will not
tolerate any illegal activity."
    Moreno has courted the sector by eliminating a windfall tax
on miners, lowering a sliding scale of royalty payments, and
reducing a capital gains tax on mining company transfers. 
    Last year, Ecuador received $742 million in foreign direct
investment in the mining sector, more than double 2017 levels. 
    Moreno cheered the recent opening of the Chinese-owned
Mirador copper mine in southern Ecuador, as well as progress at
SolGold PLC's  SOLG.L  Cascabel project in mountainous Imbabura
province. That is where the concessions of Hancock's local
subsidiary, Hanrine, are also located.  urn:newsml:reuters.com:*:nL3N1XC3B7 
    But obstacles have emerged. Communities near the Cascabel
mine challenged the project, seeking a popular referendum. That
has been turned back by Ecuador's Constitutional Court, but
similar challenges are pending.  urn:newsml:reuters.com:*:nL2N23R187 urn:newsml:reuters.com:*:nL2N24V12Q
    Several companies, including Canadian explorers Core Gold
Inc  CGLD.V  and Luminex Resources Corp  LR.V  have alerted
investors to risks posed by illegal miners, ranging from
depletion of reserves to environmental damages for which they
could be held accountable. 
    Hancock declined to comment. Core Gold and Luminex did not
respond to requests for comment.
    
    'THE PEOPLE HAVE LEFT'
    Illegal miners flocked to Hanrine's Imba-2 concession soon
after a farmer struck fool's gold while building a nearby road
in late 2017. As the ensuing gold rush attracted thousands, the
government grew concerned about human trafficking, environmental
damages and extortion by armed rebel groups.
    As a result, Hanrine could not access the area. In March
2018, authorities issued a resolution ordering the end of
illegal mining on the concession. 
    But the wildcat mining continued to grow, and this March
Hanrine requested that its contract be suspended so that the
clock on its four-year exploration license would stop ticking,
according to Santiago Chamorro, who coordinates mining policy
for Ecuador's northern region. He said the suspension was
granted on July 19. 
    The state of emergency in Buenos Aires, one of several such
crackdowns on illegal mining by Moreno, ended an economic boom
that had taken hold in the area.
    Buenos Aires resident Martinez, for example, had taken out
loans to run a catering business, which disappeared overnight
after authorities cleared the mine. On a Friday morning about
two weeks ago, the 60 soldiers and police occupying the town
vastly outnumbered residents out on the streets, while
restaurants, inns and credit unions all had their doors shut. 
    "The people have left, and now we do not have anything.
There is not a single source of jobs," she said.
    Chamorro said the development of formal, large-scale mining
would bring jobs to the area, pointing to laws requiring 80% of
mining workers to be Ecuadorean citizens and 60% of royalties
from a mine to be invested in nearby communities.
    "Illegal mining is not the cause, but the effect...of the
lack of employment, we have to be sincere," Chamorro said in an
interview at his office in Ibarra, Imbabura's provincial
capital. 
    But in Buenos Aires, two former miners said they were
plotting to return to the mine once the two-month state of
emergency ended and security forces retreated. 
    One of them, a 20-year-old who gave his name as Alberto and
said he earned up to $40 a day during nine months working at the
illegal mine, was skeptical of the government's assurances big
mining would bring jobs. 
    "Once the company arrives, there will be nothing left for
the people," he said. 

 (Reporting by Alexandra Valencia and Luc Cohen; Editing by
Christian Plumb and Marguerita Choy)
 ((luc.cohen@thomsonreuters.com; +58 424 133 7696; Reuters
Messaging: Twitter: @cohenluc))