Undermining mining: Cuenca court ruling could prove an economic blow to Ecuador’s economy

Aug 18, 2018

By Ramiro Crespo

Ecuador’s difficult path towards becoming a responsible mining economy has once again taken a stumble.

Courts in Cuenca have stopped development of the Río Blanco project, a gold mine nearing completion owned by Chinese mining company Junefield. The rulings have received support from Cuenca’s mayor, Marcelo Cabrera, and umbrella indigenous organization CONAIE. While the risks of mining projects do imply a need to take particular care of the environment over the lifetime of mines, the plight of Río Blanco instead presents the risks of doing business in Ecuador in a bad way.

Ramiro Crespo

Río Blanco is a 5,000 hectare concession west of Cuenca, with 600,000 inhabitants. Ecuador’s third largest city. The underground mine, which is slated to occupy 3.6% of the concession, is estimated to hold 605,000 ounces of gold and 4.3 million ounces of silver. Over the 11-year lifetime of the mine, it is estimated to have a throughput of 800 metric tons a day. For Ecuador, that makes it a mid-size project, although it would be small in Chile or Peru. Its location near the Cajas National Park, an internationally significant high-Andean wetland area, has contributed to major environmental controversy ever since project development began, as has its potential impact on human settlements in the area.

Ecuador’s troubled experience with oil, but also with mining, means that these concerns should not be taken lightly. Proper use of the public funds obtained by mining is also of concern. Not all of this has been fully resolved. We are only at the beginning of a process, with the prospects for a sovereign wealth fund with contributions from mining only a tantalizing possibility. Still, major universities, notably Universidad San Francisco de Quito and Universidad Técnica Particular de Loja, have started academic programs in cooperation with private industry players, both local and foreign, to get mining on serious footing.

Some claims meanwhile have gone beyond the reasonable. Many in Cuenca believe that the mine could poison the city’s water, which could actually only happen if the water were to flow uphill. If there is a problem with the water, it will affect communities downriver, including Ponce Enríquez, a small town in the coastal lowlands where the provinces of Azuay, Guayas, and El Oro meet and where the ore from Río Blanco is supposed to be processed. Nearby Tenguel is an area already suffering from mining pollution. Claims that the Cajas will be pockmarked by mines are almost as exaggerated as only small parts of concessions are, if ever, developed. One must remember that only one of 1,000 prospective sites ever make it from discovery to actual mining. In part, the inability of industry and the government to present mining in a more realistic way has undermined public confidence in the industry.

Rio Blanco protesters blocked mine access in May by destroying part the access road.

President Rafael Correa (2007 – 2017) managed to alienate both environmentalists and the industry. Defenders of the natural heritage suffered political persecution when Correa dropped his position against large-scale mining, triggering resistance, while companies pulled back investment in the face of maximum rent-seeking by his administration, mirroring problems he had with the oil industry. Towards the end of his final term, the realization that exaggerated financial demands hindered mining development gave way to a far more realistic regulatory regime. This led Ecuador to become something of a mining darling under Lenín Moreno,
Correa’s successor.

As Río Blanco neared completion however, its little-guarded camp was occupied by protestors in May. Versions of what happened next conflict starkly. According to police and the government, the protestors destroyed the camp. Media report that protesters have managed to block access to the mine. On their part however, CONAIE and environmentalists working with the organization report harsh police repression of the protests. Yaku Pérez, an indigenous leader and lawyer, says that he was kidnapped while driving on May 9 for several hours by people who damaged his car and accused him of orchestrating the burning of Río Blanco’s camp.

Indigenous leader Yaku Perez

In June, at the request of Ecuarunari, CONAIE’s Andean branch, and environmental organization Yasunidos, a first-instance judge ruled that Junefield had not properly consulted the community, suspending the concession and ordering a demilitarization of the area. Center-left mayor Cabrera supported the decision and asked for a reversion of the concessions in the area “at least” until the completion of soil analyses by local universities. One might not expect him to understand the details of mining industry workings, but to expect a government to revert a concession only to then possibly hand it back is absurd. The appeal meanwhile has upheld the first-instance decision.

Additionally, the judges who reviewed the initial ruling said that the February 4 referendum, in which two thirds of local residents voted in favor of banning mining from protected areas, implied that they were against the project. It’s not clear however that a majority of local residents reject the mine as several have filed amicus curiae suits in favor of it.

Deputy mining minister Henry Troya has criticized the ruling. He says that the judges have no legal basis to interpret last February’s vote, which was supposed to give the industry legal security, as an additional tool to limit mining outside protected areas.

While an appeals process is possible, the future for Río Blanco presently looks dim as a judge has refused to let the government’s request for clarification of the appeal to go forward. Now, the government is considering going to the Constitutional Court, which is facing a full restructuring, meaning that it’s unclear when that court might be able to review the case. This means that the timeline for mining investments of $4.5 billion agreed between companies and the government through 2021 may not be met, at least regarding those of Junefield.

While other projects, most importantly the Lundin Gold mine in the Cordillera del Cóndor, are going ahead smoothly, this crisis could lead investors to lose confidence in Ecuadorian mining again. Junefield, after all, had all the legal permits to develop the project.

We have strongly supported CONAIE during much of the Correa era as the regime politically persecuted the organization and its leadership. While the incident against Pérez must be investigated by prosecutors, it appears that CONAIE and Yasunidos’s environmentalism is little more than a pretext to put forward anti-capitalist economic ideology as the organizations are doing little to combat the scourge that is illegal small-scale mining. This ultimately undermines the legitimacy of environmental protection in a country that sorely needs to do more to safeguard its mega-diverse heritage.

Ramiro Crespo is chairman of the board of Analytica Investments, a Quito-based financial services firm.

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