Codelco Seeks Entry to World-Class Ecuador Mine: Chamber

Codelco, the largest copper producer, is negotiating access to a “world-class” deposit in Ecuador, paving the way for the state-owned company’s expansion outside of Chile, according to an industry group.

The Junin deposit in northern Ecuador contains enough copper and molybdenum to rival the biggest mines in Chile and Peru, which include Anglo American Plc (AAL) and Xstrata Plc’s Collahuasi and BHP Billiton Ltd.’s Escondida, Santiago Yepez, president of Ecuador’s Mining Chamber, said in an interview in Quito. Chile and Peru are the world’s top copper producers.

“Junin could be one of the most significant copper deposits in South America,” he said yesterday, citing earlier exploration work by Canada’s Ascendant Copper Corp. and Mitsubishi Corp. The Mining Chamber represents companies exploring in Ecuador including Kinross Gold Corp. (K) and Tongling Nonferrous Metals Group (000630) Co. Codelco officials are “frequently” in Quito to meet authorities and the chamber, Yepez said.

A deal with Ecuador’s state mining company Enami would give Codelco access to a large-scale copper deposit outside of Chile for the first time in its history after spending about a decade exploring in northern Brazil and Mexico. Kinross and Tongling are also in talks with Ecuador’s government to start large-scale mining in the South American country for the first time.

Codelco officials declined to comment on talks with the government. Ecuador’s Ministry of Non-Renewable Natural Resources didn’t respond to telephone and e-mailed requests for comment.

Farmer Opposition

Codelco is focused on spending more than $20 billion to revamp its mines in Chile and may create a unit to expand overseas, Chief Executive Officer Thomas Keller said last month.

Ascendant lost the Junin concession after facing opposition from coffee growers and farmers in the nearby valley of Intag, Yepez said. Codelco faces a “tough task” in convincing locals to accept drilling at the site, he said.

More than 90 percent of Ecuador’s terrain is unexplored and offers “gigantic potential” for copper and gold discoveries amid the Andean mountains that run through Chile, Peru, Ecuador and Colombia, Yepez said.

Ecuador’s metals deposits, valued by the government at $220 billion, may contain more than 39 million ounces of gold reserves and more than 8 million metric tons of copper, according to the most recent data from the mining chamber.

In 2008, Ecuador annulled more than 4,000 mining concessions including Ascendant’s rights to explore Junin, while President Rafael Correa rewrote the country’s mining laws the following year to give the state greater control over the country’s mineral resources.

Windfall Tax

Correa said yesterday he will revise a windfall tax after talks with Kinross to develop one of the world’s biggest gold discoveries stalled.

“We have to make it more reasonable,” Correa said. “We have the most demanding contracts in the world but we have to be very demanding because the opportunities are enormous.”

The windfall tax gives the state the right to earn 70 percent of mineral profits above a pre-negotiated base price and has deterred investment, Yepez said. Codelco will be able to acquire up to 49 percent of Junin while Enami will retain a controlling 51 percent stake, he said.

Election Season

Ascendant delisted from the Toronto Stock Exchange following the annulments, while Southern Copper Corp. (SCCO) acquired the rights to Ascendant’s Chaucha project in the South American country, beginning exploration this year.

Correa may wait until after February presidential elections before signing any mining accords because of opposition from environmentalists and other constituents, Yepez said.

“Without a doubt, the Ecuadorean government wants to support the mining sector and they are doing it,” Yepez said. “Sadly, we are in an election season.”

Large-scale mining faces resistance from local communities in Ecuador, like neighboring Peru where five people have died in demonstrations against Newmont Mining Corp.’s Minas Conga gold and copper project in Cajamarca. In March, Ecuadorean protesters forced their way into China’s embassy in Quito in a failed attempt to stop the government from signing a contract with Tongling’s unit, Corriente Resources Inc.

Chavez Ally

Changes in mining laws and the government’s inexperience in negotiating large-scale mining contracts have deterred investors, said Xavier Andrade, a partner at Quito-based law firm Andrade Veloz Abogados. Codelco should have an easier time reaching a deal with the government than Junin’s previous owners as Correa, an ally of Venezuela’s President Hugo Chavez, has said he favors doing business with state-owned companies.

“The government is having a lot of trouble trying to understand how mining laws should be,” Andrade, who specializes in the country’s mining code, said yesterday in an interview at his offices in Quito. The country’s laws give Codelco an advantage over other mining companies interested in developing the deposit, he said.

To contact the reporters on this story: Nathan Gill in Quito at ngill4@bloomberg.net; Matt Craze in Santiago at mcraze@bloomberg.net

To contact the editor responsible for this story: James Attwood at jattwood3@bloomberg.net

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