If you had to guess what the biggest factors for future copper production might be, you could be surprised to find that Ecuador’s changes have made it one of the future copper powerhouses thanks to policy changes. In 2021, President Guillermo Lasso signed an Executive Decree setting the guidelines for mining policy, with deadlines for a series of measures aimed at speeding up the execution of mining projects considered strategic. Why did he do this, and what has the result been so far for Ecuador’s push to meet global copper demand?
Copper’s Importance to the Global Economy
To understand the decisions from Ecuador’s administration, you have to first place copper within its global context. Copper is a key component of modern infrastructure, and its global demand is expected to grow. Copper is used in everything from wiring in buildings to components in cars and airplanes. It’s also used in a variety of manufacturing processes and is a major component in renewable energy installations.
The Decree and Its Result
The Executive Decree from Ecuador’s government was signed with the hopes of encouraging private investment in the country’s mining industry. Its stated objective is to improve the conditions for the development of copper-related projects and ensure that Ecuador can meet the global demand for copper. The Executive Decree has resulted in both the acceleration of existing projects as well as the development of new ones.
Ecuador has put in place the lowest effective tax rates for mining in South America paired with the fastest permitting timelines – a major project can be permitted in 12 to 18 months, which is unheard of compared to global peers.
For example, the Warintza Project, owned by Solaris Resources (TSX:SLS) (OTCQB:SLSSF) progressed at a rapid rate in the two years since the Decree announcement, with four major discoveries at the project and a 1.5 Bt mineral resource estimate released last year. With the resource establishing baseline credentials hosting a robust inventory, featuring a high-grade indicative starter pit and low strip ratio within a mining district, the Company has been busy locking in these attractive fundamentals and de-risking the project as much as possible.
The Company was declared a strategic priority project in 2022 offering an accelerated project timeline and recently signed an Investment Contract with the Government of Ecuador, providing a foundation of certainty by securing a stable regulatory and fiscal framework with international legal protections while also enhancing its returns through permanent new tax incentives.
While countries like Peru have suffered from protests and delays due to lack of social acceptance, Ecuador has managed to move ahead with its mining plans with relative ease. This is due to the government’s efforts to ensure that local communities benefit from the mining operations, as well as its commitment to the environment. This has resulted in an environment that is more open to the development of mining projects.
Furthermore, Ecuador’s geographic location makes it an attractive option for investors. It is close to the main copper-producing countries of Chile and Peru, and is well connected with the rest of South America and offers major infrastructure from highway access, ports, transmission lines with abundant and low-cost hydroelectric power, and freely available fresh water. This makes it easier for companies to move resources to and from the country and to move finished products to the global market.
Finally, Ecuador has a large pool of skilled workers and a competitive labor market. This makes it an attractive option for investors who are looking to set up operations in the country.
As China’s reopening and Ecuador’s initiative to promote mining activities continue, the demand for copper will increase. Ecuador’s policy changes, and the resulting changes to the mining industry, have created an environment for investments and new projects. The Warintza Project is a prime example of the potential of Ecuador’s mining industry, and it is expected that other projects will follow. As the global demand for copper continues to rise with prices, Ecuador is in a strong position to be a key supplier.