Importance of Relatively Stable Government for Mining Companies - ARU.V Bloomberg Equador - Argentina

In any mining project - aside from the abundance of minerals in the ground, several other elements are also necessary.

- Management commitment (successes in the past? Related experience?)
- Technical Abilities (Miners / Engineers / Geologsts?)
- Support from locals? (unless you're planning to fly in geologists and drillers for North American wages... it's gets $$$ REALLY fast)
- Support from locals - also relates to mining permits

And most recently... government!

You see, government in developing countries welcome mining companies to come in and stake out land for potential mines for many reasons (not exhaustive list)

- boost in economy
- job creation
- elevating their country's visbility as a mining capital etc (see Mexico / South America)
- royalties / taxes

And what would government do without taxes?

About a month ago, Aurelian Resources (TSX-V - ARU) had to suspend all their operations and mining activity because the Equadorian government decided they were not getting enough of the pie so to speak.

With large overhead and ongoing worker contracts this is a huge blow not to mention delay for any mining company... this is magnified for a junior mining company with limited capital to sit around on assets for long! (article from Bloomberg below)

Aurelian, Miners Plunge as Ecuador Suspends Mining and issues Moratorium
http://www.bloomberg.com/apps/news?pid=20601082&sid=aB8omBsvC2L4&refer=canada#

Definition of moratorium:
A period of time during which a certain activity is not allowed or required.

As a result of this news, ARU.V droped over 45% within hours. (see right)

Thanksfully there is light at the end of the tunnel... the Ecuadorian government realizes the blow it has dealt to potential business for the area in the future and quickly issues a press release about a clarification on June 27, 2008.

Despite political quagmire, Ecuador may produce a workable mining law

http://ibtimes.com/articles/20080612/despite-political-quagmire-ecuador-may-produce-a.htm

Consultation with mining companies is expected to continue until June 17 with a formal review of the draft mining law to be presented to President Rafael Correa on June 22 and publication of the draft on June 27. "An international road show by senior Ministry officials is expected to follow to sell the merits of investment in Ecuador's mining sector."

I'm sure ARU.v investors are waiting anxiously for this to get resolved and for activities to get back to normal. Chances are there will be heftier taxes imposed on the Gold / Copper ... which for an operating business will mean higher costs and lower revenue.

Large brokerage house analyst at Haywood Securities stated:

"Like everyone, we continue to be in the dark on exactly how the future will unfold in Ecuador," metals analyst Eric Zaunscherb noted, "Overall, we continue to see significant risk to investors exposed to Ecuador."

"But we also sense that the outlook is improving as pieces fall into place," he declared.

Keep in mind, Aurelian rose from pennies of $0.70 to $23 in 2007. Even after dropping to $11, that's still over a 1,000% return since inception for the initial investors!

Of course, things are much easier when you're in a country or province that is known to be mining friendly like Mexico and Argentina.

- Lower cost of employment
- Mining subsidies (lower cost for start-ups and new properties)
- Less taxes / expenses on exporting minerals

I will cover more about Argentina next entry, have a great weekend everyone.

Comments welcomed!