Development of Ecuadorian Basic Industries

Opportunities in the Oil, Gas & Energy sector

ECUADOR

MINING

• ADVANTAGES MINING OF ECUADOR

• Government stability and

• support

• Operational advantages

Ecuador is a well-established democracy where the

government enjoys high approval rates

Stable and well-established democracy

President Rafael Correa Delgado won:

72% ApprovalPopularity rating

President Rafael Correa is one of the most popular presidents in Latin America

Extremely popular Government during 90 months in office

9Consecutiveelectoral processes

Including:2 reelections in the first round3 referendums

Ecuador: One of the most dynamic economies in Latin

America

Source: World Bank, ECLAC y CEPAL

ECUADOR VS LATIN AMERICA – GDP GROWTH RATE (%)

(%) Between 2007 – 2014, Ecuadorgrew 4,26% while Latin America grew in average 3,15%

Ecuador has one of the lowest unemployment rates in Latin

America

Latin American Average: 6,5%

Source: Central Banks and Statistic Offices of each country

UNEMPLOYMENT RATES - 2014

Ecuador has experienced many developments in social

economical aspects over the past decade

PER CAPITA GDP GREW 70%

CREDIT ACCESS INCREASED BY 9 P.P.

Per capita GDP (PPP)U$K

Credit Access% of GDP

Source: UNPD (United Nations Development Programme), World Bank, Central Bank of Ecuador, Ministerio de Finanzas, CIA World Factbook

+70%

+9 p.p.

POVERTY REDUCED BY 23 P.P.

Population below poverty line% de of the population

-23 P.P.

IDH INCREASED 7%

Human Develop Index (HDI)Measure 0.0 – 1.0

+7%.

1.5

2.5 2.8 2.9 3 3.1 3.3

3.3

3.3 3.6

3.6 3.7

3.7

4.6 5

.15

.1 5.4 5.5 6

.1 6.2

9.1

12

.4 13

.6

Uru

guay

Jam

aica

Arg

enti

na

Nic

arag

ua

Gu

atem

ala

Mex

ico

El S

alva

do

rC

ost

a R

ica

Co

lom

bia

Bah

amas

Par

agu

ayD

om

inic

an R

ep.

Ch

ileV

enez

uel

aH

on

du

ras

Hai

tiB

razi

lSu

rin

ame

Bel

ice

Per

uP

anam

aEc

uad

or

Bo

livia

Source: ECLAC, AGO/2013, Ministry of Finance

10 11

1821

2428 29

31 31 32 33 34 3538 38 39

46

59

Ch

ile

Par

agu

ay

Per

u

Ecu

ado

r

Gu

atem

ala

Hai

ti

Mex

ico

Bo

livia

Nic

arag

ua

Co

lom

bia

Do

min

ican

a

Ho

nd

ura

s

Co

sta

Ric

a

Arg

enti

na

Pan

ama

Uru

guay

El S

alva

do

r

Bra

zil

Average: 31%

Ecuador has also been able to sustain high level of

investment while managing a relatively low public debt

CENTRAL GOVERNMENT DEBT (%GDP, 2012) CAPITAL EXPENDITURE (%GDP, AUGUST 2013)

Source: ECLAC, Ministry of Finance

Average: 4,922

Evolution of Public Debt in Ecuador

INTERNAL + EXTERNAL DEBT % GDP - CURRENT US$

* Date for Jan-Jul 2014Source: Ministry of Finance

10

12 improved and 3 new351 millions USD 2007 – 2014

AIRPORTS

FIBRE OPTIC COVERAGE2006 – 3.500 KM 2014 – 35.000 KM

ROADS $ 7.600 millionsTOP 3 IN LATINAMERICA

GENERATION OF ELECTRICITY

2006 – 3.700 MW2016 – 8.700 MW

6.200 millions 2007 - 2014

Ecuador has improved its competitiveness by investing in ports,

airports, telecommunications, roads, and electricity generation

Historical National Government Investment

in Strategic Sectors

ACCUMULATED INVESTMENT: $30.4 BILLION

Note: *Estimated Budget as of August 2014Source: MICSE

Public Expenditure in Higher Education (As a percentage of GDP)

Source: Ministry of Finance and Secretary of Science, 2013.UNESCO, Total Public Expediture on Higher Education as % of GDP, 2010.

Ecuador: Country with the highest investment in superior

education in Latin America

• ADVANTAGES MINING OF ECUADOR

• Government stability and support

• Operational advantages

2,6

The mining sector in Ecuador presents competitive advantages, such as low electricity costs and developed infrastructure:

Electricity tariff for industrial sector by country Other advantages

Current copper grades

Ecuador has some of the best copper grade

projects in the region

• Very good mineral grades• Low overburden ratio• Access to water• Modern infrastructure- Ports and roads

• Dollarized economy (stability)

Opportunities in the Mining sector

USA

Kazakhstan

(1) Currently the industrial tariff is 8,0 cents/kWh

Operating costs: Ecuador’s gold and copper

projects are forecast to be very low cost

15

Note: This analysis only includes production costs of the mine, excluding the gold used for investing and tax.

Source: Wood Mackenzie

Gold and Copper mining: operating cost of accumulated production capacity (t) (World, 2020)

0

1,500

1,000

500

0

1,5001,000500

Loma Larga 165Fruta del Norte 293

Long term price $1.350/oz

Ecuador projects

Others

Peru: Latest projects

Chile: Latest projects

20,000

0

300

40,000

200

100

30,000

400

0 10,000

Mirador 80Llurimagua 84Panantza 89

Long term price ¢350/lb

USD

/oz

USD

¢/l

b

Gold

Copper

• Gold and copper project

expected to be 1st Quartile

• Operating costs much

lower than regional peers

• Competitive advantage in

40% of operating costs:

o Work force

o Electricity

o Fuel

o Freight

The state has taken concrete actions to reduce the

tax burden and to provide tax stability

16

INCENTIVES APPROVED

Fiscal Stability ContractsAvailable for metal mining projects

Accelerated depreciationOf 5-10 years, allowing the mining sector to increase its tax shield

NPV used to calculate the Sovereign Adjustment cumulative benefits on present value basis (discounted net cash flow)

ISD tax credit for the mining sector (tax on foreign exchange outflow)

Standardized extraordinary gains tax fix the base price to guarantee predictability

1

2

3

4

5

Block Province Potential

Block 1 Esmeraldas Au

Block 2 Carchi, Imbabura Au, Mn

Block 3 Esmeraldas, Imbabura Au, Pt, Co, Mn, Te

Block 4 Santo Domingo Au, Ag, Cu, Pb, Zn

Block 5 Napo Au

Block 6 Cotopaxi, Bolivar, Los Rios Au, Cu

Block 7 Chimborazo Zn, Cu, Ag

Block 8 Cañar Au, Ag, Zn

Block 9 Morona y Santiago, Azuay Au, Magnetite, Pyrite

Block 10 El Oro Au, Zn, Co, Te, Poly

Block 11 Zamora Chinchipe Au, Ag

Block 12 Loja Au, Ag, Pb, Zn

Block 13 Zamora Chinchipe Mo, Th, Ba, U, Ce, W,

Nb, Sn, Pb

12

3

4

5

6

7

12

13

1

13

2

3

4

5

6

7

8

9

10

11

12

8

910

11

13 blocks of mining concessions to be auctioned in 2015

Project Company Metal

Mirador ECSA Copper

Fruta del Norte Lundin Gold

Rio Blanco Junefield Gold

Loma Larga INV Metals Gold

Panantza ECSA Copper

Cascabel Novomining Gold/Copper

Curipamba Curimining Gold/Silver

Caya 21 Lowell Gold

Ruta de Cobre Southern Copper Copper

Condor Gold Condor mining Gold

Vetas Grandes Cornerstone Gold/Silver

Caña Brava Cornerstone Gold/Silver/Copper

Bella María Cornerstone Gold/Copper

Barranco Colorado Agriplaza Gold/Silver/Copper

El Palmar – Los

Mandariyacus

Edgar Salazar Gold/Silver/

Copper/Zinc

Rio Zarza Dynasty Metals Gold/Copper

Warints Lowell Mineral Expl. Copper

Cangrejos Odin Mining Gold/Copper

Zaruma Dynasty Metals Gold

10

9

8

1

2

34

5

6

7

12

15

16

1314

1817

1

2

3

4

5

6

7

8

9

10

14

13

11

12

18

15

16

17

19

11

19

19 major discoveries are under currently evaluation and development

as private projects…

… and 8 more are currently under evaluation and development

as state-owned projects

Project Company Metal

Llurimagua ENAMI y Codelco Copper

Tola Norte ENAMI Iron Ore

Telimbela ENAMI Copper

El Torneado ENAMI Silver/Copper

Pacto ENAMI Gold/Copper

La Bonita ENAMI Gold/Copper

Sangola ENAMI Gold

Nanguipa ENAMI Gold/Copper

20

21

2425

2223

27

26

23

22

20

21

27

24

25

26

Note: ENAMI is the National Mining Company

Investing in Ecuador is

investing for the future.