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Formalization and local labor

In Ecuador, artisanal and small-scale mining accounts for 22% of recorded gold production, according to the World Bank, but creates “precarious jobs and significant environmental damage,” factors that fuel anti-mining acts, which extend to the formal sector.

Asked about this point, the financial manager of SolGold Ecuador explained to Bloomberg Línea that the demand for human talent for the mine in its construction stage will come especially from the Lita and La Carolina parishes, the closest to the project. And then, according to needs, labor will begin to be demanded from the Ibarra canton, within the province of Imbabura.

“We could supply direct, more qualified, more technical labor if needed. So, we are going to give priority to everything that has to do first with personnel obviously from the area of direct influence, and we are going to expand in that circle, then to the canton, then to the province, then to the country and then to the region. ”he added.

See more: 74% of Ecuadorians consider it difficult to prosper in their country; insecurity weighs

What is missing for the construction of the Cascabel Mine to begin?

At a legal level, the Cascabel project is already in the exploitation stage with the signing of the contract that took place at the beginning of June, but construction and development activities cannot take place immediately, since an environmental license is required for the exploitation of the mine, which under Ecuador's mining model, was not necessary to sign the contract.

“We are working on the process of obtaining the environmental license, which is what formally enables us to begin construction and then development and finally begin operations of the mine. Until the license is obtained, we estimate it will take between a year and a half, and two years,” said the SolGold executive, pointing out that it will also be necessary to carry out an environmental consultation by the Government.

Cont …..

In the first quarter of 2024, Ecuador exported 201,358 metric tons of minerals, sales that were worth US$754.7 million, according to the Central Bank.

In addition, Sánchez named a factor that has become key in the negotiation of mining contracts in Ecuador: advance payment of royalties.

“The mining law does not require you as an investor concessionaire to pay advance royalties. However, in the last two mining contracts signed (Mirador and Fruta del Norte), in both cases the concession companies agreed with the government (the payment of advance royalties), and little by little it has become the tradition for this size of contracts, especially because construction takes a long time and so does the start of operation,” Sánchez explained.

The advance payment, compared to the totals that the State will receive, is lower. It will be US$75 million payable in three stages, starting in 2026 and subsequent years, until production begins.

“The State obviously needs an incentive to also focus its efforts on starting the mine as soon as possible,” added the vice president of SolGold in Ecuador.

The opportunity that Ecuador has with the mining sector

In a recent report, the World Bank showed that the country's mining exports multiplied more than seven times in the last four years, becoming the fourth largest export sector, thanks to two large-scale mines, Fruta del Norte and Mirador, which began to be produced in 2019.

“Ecuador has a portfolio of medium and large-scale mining projects that are expected to begin this decade and that can help the country take advantage of the growing demand for metals in a decarbonizing world,” stated the text titled 'Ecuador: resilient growth. for a better future'.

However, the agency recognizes that social and political opposition to formal mining is increasing in the country, which could slow down the development of large-scale projects that benefit finances and local communities.

“Institutional deficiencies limit the potential positive impact of formal mining on tax revenues, local communities and the environment. For example, local development opportunities are limited because the mechanism for transferring mining revenues to local governments does not work, and local governments have limited capacity to implement impact projects,” the World Bank added.

If this front is not worked on, in which policies are adopted to guarantee the positive impact of mining on communities, there could be an “increase in illegal mining and its adverse effects, including the resurgence of organized crime and insecurity.”

Regarding this final point, Sánchez of SolGold said that in a recent meeting with state authorities, the government gave a “clear signal” to be very concerned about illegal mining and to take action “before it gets out of hand.” . At the same time, he said that it will not be a problem for the Cascabel mine, since its deposits are more tha

It’s coming Red

“ If the construction and entry into operation schedule is met, the concession will recover the investments made in 2034. The economic spillover for Ecuador will be billions

Bloomberg Línea — At the beginning of June 2024, the government of Ecuador signed the exploitation contract for the Cascabel project, a mine that could produce copper, silver and gold for up to 100 years.

With a planned investment of US$4.2 billion for the coming years, the Cascabel mine would begin construction in 2026 and its mineral production would begin in 2030. The project has proven reserves with metal content of 3.2 million tons of copper; 9.4 million ounces of gold; and 28 million ounces of silver, during the first 28 years of the mine's life. The signed contract contemplates 33 years of exploitation, with the possibility of extension.

See more: Ecuador and Solgold sign negotiation minutes for Cascabel mining project

If the construction and entry into operation schedule is met, the vice president and financial manager of SolGold in Ecuador, Luis Mario Sánchez, told Bloomberg Línea that the concession will recover the investments made in 2034.

“We plan that the point where we begin to show positive flows, that is, the beginning of what is known as payback, will be in year 4 of operations. “It is very fast for this type of project,” he explained in an interview. “We already contemplate positive flows starting in year four, recovering everything invested in construction in that year of accumulated reform,” he added.

And he clarified that from the first year of operation the mine will be profitable, if seen each year separately, but the total recovery of the investment and the accumulated positive flows will be from year four.

The economic spillover of the Cascabel mine for Ecuador: there will be advance royalties

SolGold explained that this is a strategic project, highlighting the access roads it has, the proximity to the Port of Esmeraldas (180 kilometers) and the creation of jobs, which could reach 3,700 during the construction stage.

But beyond what it may mean for the country in terms of mining positioning and exports, the fiscal accounts will be the most attractive.

It is estimated that the mine will give the State more than US$8,000 million between royalties and taxes in its initial operational life: US$6,700 million will come in sectoral and general taxes, and at least US$1,611 million will come from royalties during the life of the mine.

In the first quarter of 2024, Ecuador exported 201,358 metric tons of minerals, sales that were worth US$754.7 million, according to the Central Bank.

In addition, Sánchez named a factor that has become key in the negotiation of mining contracts in Ecuador: advance payment of royalties.

“The mining law does not require you as an investor concessionaire to pay advance royalties. However, in the last two mining contracts signed (Mirador and

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