Companies with mining projects around the world have one major issue to contend with no matter where they are located – uncertainty that their investments will be safe and secure. The mining industry is complex and expensive, and companies need to be sure that their investments are protected. Investment protection agreements are paramount in the mining industry and play a key role in the successful advancement of any mining project.
Investment protections in the mining industry include a variety of measures that protect the investments of companies, including contracts that guarantee payment of royalties, licenses, permits and land rights, legal safeguards against expropriation, and enforceable arbitration and dispute resolution mechanisms. These measures ensure that investors have the security they need to make investments in the industry, as well as provide the assurance that their investments will be respected and protected.
Typically, an agreement can be drafted to include tax rate stabilization, the protection of intellectual property rights, and the ability to repatriate profits and dividends. These are just a few of the measures that can be included in a contract with a host government or other party in order to protect the investments of companies.
One recent example of this is Solaris Resources’ (TSX:SLS) (OTCQB:SLSSF) Investment Contract with the Government of Ecuador for its flagship Warintza project which ratified the Investment Protection Agreement announced on June 9, 2022. The Investment Contract provides a foundation of certainty, significantly de-risking the Warintza Project by securing a stable regulatory and fiscal framework with international legal protections for the project while also enhancing its returns through permanent new tax incentives.
This freezes in place the stability of mining regulations, security of title and investments, and secondly, offer new incentives in the form of a further 5% reduction in income taxes bringing the total income tax rate to 20%. This reduces the overall combined effective tax rate including royalties to 37% which is the lowest effective tax rate in Latin America and one of the lowest in the world.
Another exploration company with a project in Ecuador, Adventus Mining Corporation, has also recently signed an Investment Contract with the Government of Ecuador for the Curipamba – El Domo copper-gold project. The agreement also includes stipulations related to the company’s commitment to invest approximately US$270 million over the next 12 years at the project.
Agreements such as these do more than just protect individual projects or companies. They also signal to the industry that governments are serious about attracting and retaining investments in the mining industry. This helps ensure that the investments made by companies are secure and that the mining industry can continue to thrive and make a significant contribution to the global economy.
Ecuador is a relatively new jurisdiction for mining, but one of the few globally that has a record since opening its mining sector in 2014 of encouraging growth by cutting taxes and royalties. This is accelerating under President Guillermo Lasso, who has a clear agenda of economic revitalization through private investment with one of the key pillars being growth of the mining sector. Ecuador is one of the only jurisdictions globally that is encouraging growth in the mining sector by cutting taxes, royalties and streamlining permitting. The signing of these new Investment Contracts is another example of how the Lasso administration continues to take consequential action to accelerate the development of the formal mining sector in Ecuador while embracing responsible approaches to community development and environmental protection.
Investment protections are essential for any company that is looking to invest in the mining industry. They provide the assurance of secure and stable investments, as well as the ability to repatriate profits and dividends. The recent agreements signed by Solaris Resources and Adventus Mining Corporation are a testament to the importance of investment protection agreements to ensure equitable outcomes for all stakeholders.
