TD Flash note Top PickEcuador's New Mining Policy — Bucking Recent Political Trends Event Late last week, Ecuadorian President Guillermo Lasso issued Decree 151 that defines a new mining policy and provides a plan to support responsible mining in Ecuador as a key driver of the economy.
Impact: POTENTIALLY POSITIVE
In our view, this Decree continues to demonstrate Ecuador's commitment to becoming a more favorable jurisdiction to invest in (recall in recent years the country eliminated the windfall tax, reduced royalty rates, and introduced VAT rebates).
Moreover, this is happening at a time where recent political developments in both Chile and Peru (see Higher Tax/Royalty Risk Increasing in Chile/Peru) have increased the likelihood of higher taxes/royalties being imposed.
The new Mining Policy recognizes the relevance of the 2020-2030 National Development Plan for the Mining Sector (coincides with the new government's desire to create a favorable environment for new investment and exports in the mining industry, in our view).
Decree 151 speaks to the support for exploration and mining that is done with community engagement and care of the environment. The Decree essentially lays out a clear plan to develop an environmentally and socially responsible mining industry and to promote foreign investment.
The Decree makes it clear that mining-related matters are managed by the central government (not the provinces or any other entity) and defines a tight timeline for the achievement of specific action items (Exhibit 1).
Lundin Gold (LUG-T; BUY; target price C$16.00; ~C$2.5bln market cap) — LUG's Fruta del Norte project (Ecuador's first large-scale gold project; first pour in 2019) is a current producer that helped develop the framework for the mining industry to progress in the country, in our view. Solaris Resources (SLS-T; SPEC. BUY; target price C$21.00; ~C$1.5bln market cap) — Solaris remains our top pick among the developers/ explorers.
Solaris has completed Ecuador’s first Government-Sponsored Prior Consultation process for a mining project in 2019, and signed the first Impact and Benefits Agreement for a mining project in Ecuador in 2020 with the Shuar nations of Warints and Yawi.
SLS continues to be a leader on the CSR front, in our view. Please see Solaris' report 'Warintza CSR Bulletin' for further details.