Shares in Ecuador-focused SolGold (LON, TSX:SOLG) took a hit on Thursday, following media reports of a potential referendum on mining in Imbabura, the province in which its flagship Cascabel copper-gold project is located.
The company’s stock dropped more than 28% in London to 24.26 pence in early morning, but recovered in the afternoon to close at 32p, leaving its market cap at almost 589m pounds ($743m). In Toronto, in turn, shares were last trading 10.2% down at 53 Canadian cents.
The Australian miner, which holds 72 mineral concessions in Ecuador through four subsidiaries, responded to the sharp fall of its stocks with a press release in which it stated its interests in the country were not as risk. SolGold also noted that it continued to receive “full and objective support” from the government.
The copper and gold explorer said that, under Ecuadorean law, individuals are allowed to put forward petitions to the Constitutional Court for the inclusion of specific questions in a future vote. In this case, a group of locals wants to have a say on the future of mining in the northern province.
If that question is viewed as valid and legal by the body, the next phase is for the petitioning party to gain 10% of the signatures of the voting population of the provinces involved, SolGold said.
Next week, the Ecuadorian Constitutional Court will receive arguments from those who have put forward the referendum, as well as those who oppose it.
The court will then decide if the question on the future of mining is valid and legal, after which it must be approved by the electoral council to be included on ballot papers.
In March, Girón — in the province of Azuay — voted against mining activities in a popular referendum held alongside a regional election. The move casted a doubt on the future of INV Metals’ (TSX-V: INV) Loma Larga gold, silver and copper project. The Canadian miner has already announced it would relocate the proposed processing and tailings facilities outside of Girón canton.
In two landmark cases last year, Ecuadorian courts sided with rural and indigenous communities who argued the national government had failed to inform them it was setting aside parts of their territories for mineral exploitation.
“The Cascabel project is a key project in Ecuador’s developing mining industry and a critical driver for the future of Ecuador’s economy. SolGold continues to receive full and objective support from the Ecuadorean government,” the company said.
Earlier in the day, SolGold had announced that initial exploration of its Rio Amarillo project, also in Ecuador, had identified five different prospects in two concessions with significant copper and gold.
The Cascabel copper-gold project has piqued the interest of major miners, including BHP (ASX, NYSE:BHP). The world’s largest mining company last year acquired a 6.1% stake in SolGold, increasing its exposure to copper.
The move pushed Australia’s largest gold producer, Newcrest Mining (ASX: NCM), to up its holding in the company, consolidating its position as SolGold’s top shareholder.
While Ecuador has gained ground as a mining investment destination in the past two years, existing and future projects risk delays and potential halts due to growing local opposition to the extraction of the country’s resources, a report by Fitch Solutions Macro Research shows.
As mining projects face headwinds from rising tensions, investors’ courage will be tested, the study concluded, which could thwart Ecuador’s plan to attract $3.7 billion in mining investments in the next two years, up from $270 million in 2018.