The National Post is Canada’s second largest national paper.
Ecuador is run by the left-wing caudillo windbag Rafael Correa, whose hero was Hugo Chavez
The great eighteenth century lexicographer and wit Samuel Johnson described second marriage as the “triumph of hope over experience.” How then might one characterize the tendency of Canadian mining companies to return again and again to the altar of commerce with foreign government partners who recall Glenn Close in Fatal Attraction?
This week, Vancouver-based Lundin Group confirmed that a subsidiary would take over the Fruta del Norte prospect in Ecuador from Toronto-based Kinross Gold Corporation for US$240 million. Ecuador is run by the left-wing caudillo windbag Rafael Correa, whose hero was Hugo Chavez, the man who turned oil-rich Venezuela into a basket case.
Mr. Correa’s preferred mode of money-raising is the shakedown. The two most spectacular examples in recent years have been an attempt, via the “Yasuni Initiative,” to blackmail the rest of the world into putting up US$3.6 billion in return for Mr. Correa (italics) not (close italics) drilling for oil in an Amazonian nature reserve; then there is a beyond-fiction trumped-up court case against California-based Chevron Corp. seeking (at last count) US$9.5 billion for alleged damage to the rainforest.
Kinross took a massive flier by buying Fruta del Norte in 2008 for $1.2 billion when Ecuador had no clear mining policy. The company’s attempt to develop FDN turned out to be the proverbial marriage from hell. When that mining policy did emerge, its most significant feature was a crippling “windfall” tax of 70%. Kinross eventually abandoned hope.
Lundin — a mining and energy conglomerate run by two brothers, Lukas and Ian Lundin — has the advantage of at least offering a fresh start to the relationship. However, given Ecuador’s history, one might be forgiven for thinking that Lundin’s investment is less a matter of hope than confirmation of P.T. Barnum’s insight about the birthrate of suckers.
Still, if you’re a mining company, you have to go where the minerals are, and FDN’s estimated 6.8 million ounces of high quality gold reserves make it one of the best prospects on earth. Also – as FP’s Peter Koven noted in an analysis on Thursday— Lundin has a record of working in difficult jurisdictions, including Argentina and the Congo.
For the rest of this article, click here: http://business.financialpost.com/2014/10/24/peter-foster-the-limits-of-ecuadors-shakedown-statism/