Lundin Gold Close to
Tax Deal in Ecuador

Issue 147, December 2015

Continued from Page 1 ➤

...other industries. It has split its resources ministry into two, separating mining from oil and gas, and hired consultancy Wood Mackenzie last year to tweak its mining code.

Pressure

A strong mining industry would “take away a bit of the pressure that we have now with oil,” the Minister said. “We depend too much on oil.” Ecuador's five largest mining projects could generate tax revenue of $800m per annum by 2025 and around $4bn of exports, according to Ministry forecasts.

Ecuador's standard corporation tax is 25 per cent and its mining code specifies royalties sliding from 5 to 8 per cent, depending on the gold price, but Lundin looks set to land a flat rate of 5 per cent. “It's not the best time for the market, the gold price is very low, so it's not in our interest for the government to try to push for a higher royalty,” Cordova said.

An advanced royalty payment that Kinross agreed to, totalling $60m to $65m, need only be paid “in stages”, the Minister added. Lundin will also be refunded for its VAT receipts, lopping roughly $80m off the project's capex, according to estimates by Scotiabank.

"Icebreaker"

“If there is anyone who is going to serve as an icebreaker within the country from a mining standpoint,” one broker at Scotiabank says, “Lukas Lundin and Ron Hochstein likely have a better shot than anyone else.”

“Lukas has a phenomenal ability to just smell a good deal,” says one of his chief executives. “I've taken a lot of stuff to him and he goes, err, no. And there are other things where he's gone, yes, that's a good idea, and before you know it he's tripled his money. He has an incredible nose for business.”

Shares in Lundin Gold last traded at C$4.01, valuing the company at C$400m ($300m).

“He has an incredible nose for business.”

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