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Good news for mining from Ecuador (from IKN506)

This news is now ten days old (or so) and was reported to subscribers of The IKN Weekly last Sunday in IKN506. As it still hasn’t got the amount of recognition it deserves (outside of the pop in LUG.to at the time), here’s the note as published:

Ecuador: Significant changes to the mining
tax regime

A big
positive out of Ecuador
last week was the news (15) that the mooted changes in State burdens on mining
are now official. The main changes are:

  • The elimination of the
    Windfall Tax (WFT), which was always a line item that caused more heat
    than light but was a detrimental element to the marketing and image of
    Ecuador mining abroad.
  • Investment dollars are now tax
    deductible on remittance profits. That’s to say, if you are Lundin Gold
    (LUG.to) and you invest U$800m in FDI at FDN (so to speak), that’s now a
    tax credit on profits.
  • State royalties that were
    previously on a sliding scale of between 5% and 8% (depending on metal
    type, mine size, gross metal values etc) are now calculated on a sliding
    scale of between 3% and 8%, providing some relief if profit margins get
    thinner than expected.

All these
things are positives for the mining industry in Ecuador and that’s me, the notably
leery one on the country and its potential for mining investment, telling you
that. It’s no surprise that just about the safest way of playing the formal
Ecuador mining industry, Lundin Gold (LUG.to), took a big hike last week on the
news, with the main 1.4m share trades going through on the day of the tax
overhaul announcement.

The $5.54
close on Friday is the best price for LUG.to since May 2017. Because LUG.to has
done an excellent job in community relations and has built out FDN (so far)
without much fuss of disruption, as well as paying its “advanced royalties”
dues to the local and national governments, it’s about the only project I’d
feel comfortable about owning in the country. However, the newly relaxed State
burden regime (particularly the tax credit for investment now clear and without
question) is a significant and positive step forward for Ecuador.

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