Industry Trend Analysis - Ecuador Mining To Continue To Gain Investor Attention - MAY 2017

BMI View: Ecuador will increasingly emerge as a mining investment hot spot in Latin America, supported by significant copper and gold reserves and key developments in improving the mining regulatory framework. The country's incoming President Lenin Moreno will likely continue the 'inclusive agenda of development' set forth by his predecessor Rafael Correa.

Ecuador's mining industry value is set to climb significantly over a multi-year horizon, driven by foreign investment into the copper and gold sectors. We forecast the country's industry value to increase from USD1.1bn in 2017 to USD7.9bn by 2021, accounting for a total of 6.5% of GDP by 2021 compared to 1.1% in 2017. Following major mining regulatory reforms in 2016, including making the tax process regionally competitive and creating a Ministry of Mines, Ecuador will overcome its lingering reputation for resource nationalism, allowing foreign mining investment to accelerate exploration and project development ( see ' Fruta Del Norte Development To Change Tide ' , September 23 2016). Indeed, Ecuador's Mining Minister expects mining investment to total more than USD4.0bn by 2021, increasing mining employment from 3,700 to approximately 16,000 over the next few years. The Ministry has approved 160 of 420 mining applications submitted since July 2016.

While left-wing candidate Lenin Moreno won the April presidential election over the traditionally more business-friendly centre-right candidate Guillermo Lasso, we expect the incoming administration to continue to support mining development, as initiated by Moreno's leftist predecessor Rafael Correa ( see 'Correa Legacy Will Live On Under Moreno Presidency', April 3). Under Correa, Ecuador relaxed the implementation of the 70% windfall tax on profits, now only applied after the firm has regained full capital investment and only if commodity prices reach pre-determined levels (USD1,500/oz for gold and USD8,818/tonne for copper). Government support of mining development aligns with Ecuador's efforts to diversify the economy away from oil.

Rich Resources To Attract Investment While Regulations Catch Up
Select Countries - Ore Reserves Sustainability & Mining Regulation Scores
Scores out of 100, higher score = more attractive market. Source: BMI Mining Risk/Reward Index

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