February 16, 2012 / 7:29 PM / 6 years ago

Ecuador's gold mine deal with Kinross hits a snag

QUITO (Reuters) - Ecuador may not sign an operating contract with Kinross (K.TO) for its Fruta del Norte gold project because the Canadian company wants to renegotiate terms of a tentative agreement, Energy Minister Wilson Pastor said on Thursday.

Ecuador’s leftist President Rafael Correa is eager to attract investment to tap the country’s big copper, gold and silver deposits. But he is trying to maximize government revenue from mining, and negotiations with Kinross and Chinese-owned Ecuacorriente have been lengthy.

“It’s possible we may not sign a contract with Kinross,” Pastor told reporters after saying the Toronto-listed company wanted to renegotiate the terms of a tentative agreement it signed with Ecuador in December.

“We think their demands are a bit over the top ... there are things that we cannot accept because we cannot break or change the law,” Pastor said, adding that he still had some hope the parties would reach an agreement in the short term.

Kinross said it wanted to rework the current deal, under which the company would pay roughly half its income, after production costs, in taxes and royalties.

“We are looking for an improved package on both the royalties and the taxes ... I want to make it really clear for everyone: we won’t proceed there unless we have a better economic deal,” Kinross CEO Tye Burt said on a conference call to explain the company’s quarterly results on Thursday.

Kinross has also said it may want establish an strategic partnership with another company to develop Fruta del Norte.

ECUACORRIENTE TENTATIVE AGREEMENT

Ecuador is also negotiating a mining deal with Ecuacorriente for the company’s Mirador copper project.

“Last Thursday we signed a tentative agreement with Ecuacorriente ... We’ll sign a contract in the last week of this month,” Pastor said.

According to the government, the two deals would involve total investments of some $2.8 billion - about $1.2 billion by Kinross and more than $1.6 billion from Ecuacorriente.

The government says the contracts will be a template for future mining deals that should let Ecuador develop a large mining industry in which the state will have a greater degree of control and pocket most of the profits.

Ecuador is set to negotiate contracts this year with International Minerals IMZ.TO over its Rio Blanco gold-silver project, with Ecuacorriente over its Panantza-San Carlos copper deposit, and with IAMGold (IMG.TO) which plans to develop the Quimsacocha gold-copper-silver mine.

Those three are in relatively advanced stages of exploration, but junior miners have about 15 other exploration projects under way.

Analysts say the tough terms of the deals, and the risks of doing business in a socialist country, could deter miners from investing to develop their projects in the mineral-rich Andean country.

Correa has had a tumultuous relationship with foreign companies since taking office in 2007 with a vow to boost state revenue from natural resources and plow the money into poverty alleviation.

Additional reporting by Euan Rocha in Toronto; Writing by Eduardo Garcia; Editing by David Gregorio and Marguerita Choy

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