Intag, Codelco and the Numbers Game.

Welcome to mining investment in Ecuador

Now, I'm not saying this is another BRE-X, but, well, read and decide for yourself.
First, after years of drilling in the 1990s, a Mitsubishi subsidiary “inferred” the existence of
450,000 tons of pure copper in a 76-million-ton ore body out here in the Llurimagua mining
concession, Northwest Ecuador. The drastic impacts reported in the preliminary environmental
impact statement were based on this deposit. Given where the concession is located, drastic is an
understatement.
The Japanese scientists working on the study predicted that there would be so much
deforestation—“massive” is their word—that it would change the local climate. They also asserted
that four communities would have to be relocated, and that many species of animals in danger of
extinction would be affected. Furthermore, there would be an increase in crime, and Intag’s rivers
and streams would be contaminated with heavy metals--such as lead, arsenic and cadmium. In all,
4,026 hectares would be impacted directly, including thousands of hectares of primary cloud
forest. All this for what is considered by the industry as a very small mine.
Then after two years the reported resources, inferred, grew to 2.26 million tons of pure
copper in a 318-million-ton ore deposit with 0.7% copper, five times more than the earlier
estimate. There was no impact study done for this potentially much bigger mine. Keep these last
numbers in mind.
After a few years, Canadian-owned Copper Mesa (previously Ascendant Copper), now the
concession owner, made up some new numbers, increasing the ore reserve to 982 million tons of
ore, now three times more than the last Japanese study and twelve times more than the original
estimate. This without spending one single day drilling—reminiscent of pulling rabbits out of a
hat. But like the Japanese, the Canadians didn’t last long in Intag before they too were chased out.
This was shortly after they were kicked off the Toronto Stock Exchange.
It gets better.
Chilean-owned Codelco and the Ecuadorian mining company, Enami, took over the project
in 2014 with the “assistance” of nearly 400 police and military personnel (Extractive Industry's
“Little Helpers”). A few months ago, several press reports asserted that
the Llurimagua concession, after years of drilling paid for by Codelco, was now up to 1,500 million
tons of ore, at 0.51% copper, resulting in an estimated total of a little over 7.5 million tons of pure
copper, that is, inferred pure copper. No one is saying that the figures have actually been proven
valid; inferred is a handy word in these precincts.
It’s worth mentioning that this latest made-up number represents about 30% of the
world’s annual consumption. At a processing rate of 100,000 tons per day, the copper would take
41 years to dig up. The only other comparable mine, in the south of Ecuador, proposes a daily
processing rate of 60,000 tons of copper ore per day. All those tons would yield a daily total of
around 300 tons of pure copper, all of it refined in China.
But wait, we aren’t done yet.
Last week the press reported that the government of Ecuador and Codelco are ready to
sign on to some kind of joint-venture project to open the mine and begin extracting. But now,
after four years of exploring by Codelco, the numbers are back to what the Japanese inferred in
1998: 318 million tons of ore, at 0.7% copper! Same ore deposit, three different reserve estimates
and two different estimates of metal content! Very funny!
If you are new to the mining game, you should know that mining companies are known to
play fast and loose in reporting on their mineral reserves. They do it with the assumption that,
well, basically people are stupid and/or lazy and won’t look into their parlor game. Actually, stupid
and lazy are not mutually exclusive. That's why millions of investors lose billions every year.
Companies are also into the withholding game. For example, here in Intag they withhold
from investors such information as the fact that this project sits in one of the most biodiverse and
threatened areas in the world, home to not just dozens, but HUNDREDS of animal species facing
extinction. And, they would never, ever report on the real state of the local opposition, which in
the past forced out two transnational mining companies, and is again gathering steam to kick some
new ass. Certainly it would be suicidal if they were to inform investors just how deep the ore
deposit is (very deep, thus very expensive to dig up). Or the unbelievable amount of subsurface
water present (one hell of a lot). If you are guessing that the presence of lots of underground
water makes mining very expensive, you would be right. Very right.
And, if by chance there are BHP or Solgold investors reading this, ditto for your companies
and the false dreams they are peddling. Ecuador is NOT Peru and much, much less the desert
regions of Atacama, where BHP and Codelco have some major mines. Ecologically, geographically
and geologically this is a whole different place. It rains 3000 times more here than in the Atacama
desert, and many more times than in most areas where big copper mines are located in Peru. The
geology is different too. You’ll discover this if you care to look closely at a geological map of the
Andes. The ore is much, much deeper than in most other mines, and mixed with some pretty
lethal heavy metals. And as you might surmise, the dirtier the metal, the higher the costs to
refine.
Combine these factors and you are guaranteed to lose your money. Big time. And in the
process, you’ll be complicit in creating world-class environmental nightmares.
Welcome to mining investment in Ecuador.
You can't claim you weren't warned.

Carlos Zorrilla
INTAG,
Ecuador