Ascendant Copper Corporation recently made public its intention of selling $20 million of shares to continue financing its operations in Ecuador. We are concerned about flawed information in the company’s Preliminary Short Form Prospectus, and think the faults are significant enough that they can mislead potential investors, as well as the regulatory authorities of British Columbia, Alberta and Ontario. This letter highlights concrete examples of what we find to be the faults within the prospectus.
In its "Recent Development" section (page 8) and its discussion of the Junín Mining Project, we contend that Ascendant presents a completely false impression that they have resolved the obstacle of unrestricted access to the claimed concession by their false claim of having meet with the environmental group opposed to the mining project (pages 8 and 14). The false impression is further generated by Ascendant’s misrepresentation of the March 20th signing of agreements (page 8).
Present at the March 20th signing was the Consejo de Desarrollo Comunitario (CDC), a community development organization representing people from Intag region. The CDC, however, never made an agreement with Ascendant Copper. Instead, Ascendant and CDC signed independent and separate agreements with the government. In fact, none of the organizations opposing mining made an agreement with Ascendant Copper on March 20th.
Further, the CDC is a development organization, not an "environmental group" as stated in the prospectus. In fact, there were no environmental groups at the March 20th signing. DECOIN, the environmental organization that has been part of the vocal opposition to the Junin project since its inception, was nowhere near the city of Ibarra at the signing, and it did not make any agree with Ascendant.
DECOIN’s position is clear: it is opposed to the Junín mining project because of sound legal, environmental, political, and social reasons. Likewise, the Consejo de Desarrollo Comunitario continues to express its opposition to Ascendant’s presence in the Junín area, and has stated that it will not rest until Ascendant leaves the area for good, and will continue restricting access to the company’s claimed concession.
On page 8 we find the prospectus faulty because it fails to state that the referenced guns actually belonged to a group of 56 armed individuals who were employees of an Ascendant Copper contractor, Falericorp. Ascendant Copper was denounced by a prestigious human rights organization, Ecumenical Human Rights Commission (CEDHU), for organizing these workers into a paramilitary force.
On 2 December 2006 many of these armed individuals used tear-gas and fired weapons (two video tapes show they fired with reckless disregard for human life, aimed at the heads of key community members, and fired at least 40 rounds of ammunition) in an attempt to access land claimed by Ascendant Copper. [The video of the violence may be downloaded on http://www.intagsolidarity.org]
The targets of this assault were community members in opposition to mining. They peacefully detained the armed intruders, and confiscated the weapons that had been used against them. These are the weapons referred to on page 8 of the prospectus. We find it misleading that Ascendant Copper fails to identify the true owners of the guns and fails to explain the company’s responsibility for their presence and use in Intag region.
In addition to CEDHU’s denouncement of Ascendant Copper’s use of paramilitary violence, those in opposition to mining denounced the company’s violent tactics to the Interamerican Human Rights Commission (IHRC), Global Witness and Amnesty International. All three are investigating the issue. In the case of the IHRC, the process directly involves the Ecuadorian government, which has stated that all mining concessions in Ecuador will be reviewed because of the state of "civil war" in communities provoked by mining companies like Ascendant Copper.
In the "Recent Development" section Ascendant failed to mention the significance of the December events, especially how they turned Ecuadorian public opinion against the company, and increased local, regional, and national opposition to the project.
Omission of Material Information
We maintain that Ascendant Copper, by omitting what we think to be essential points of material information, such as those evidenced above, is misleading investors into investing money unwisely in a troubled project. The following facts offer more evidence to our stated concern:
I. Opposition to the Mining Project.
i. Ascendant’s prospectus fails to notify potential investors that every local government in Intag region opposes the Junín mining project, and the County and Provincial governments oppose it as well.
ii. Ascendant’s prospectus fails to state that the opposition extends to most communities and NGOs working in the Intag area- something easily verifiable in Annex A of the prospectus. For example, on page 14, Ascendant Copper goes out of its way to avoid the publicly stated opposition of all nine local governments. Instead, the company appears to want investors to understand that the opposition is principally from one environmental organization. Ascendant Copper has never been able to prove its claims to majority support, which is made ridiculous by the fact that the political leadership of the municipalities, parishes, and county are all democratically elected and are all in opposition to Ascendant Copper. If Ascendant’s claims were true, then the elected officials would all be pro-mining and embrace Ascendant Copper as part of their vision for the future.
iii. Ascendant’s prospectus fails to report that, due to the widespread community, county, and provincial opposition, they have been unable to fully access their claimed concession despite claiming ownership for more than 3 years. When Ascendant Copper’s Environmental Impact Study (EIS) was definitively rejected by the Ecuadorian state in December 2006, the Ministry of Mines and Energy’s lead rationale for the denial was Ascendant’s failure to consult with the communities. In part, this failure is the product of three years of Ascendant Copper’s inability to foster support for its project despite spending large sums of money on "socialization" projects.
iv. Given the history of growing community opposition, basic logic dictates that since the communities have vowed to continue restricting access to the company’s claimed Junín concessions, there’s no reasonable prospect that Ascendant Copper will be able to conclude an EIS acceptable to the national government. Given the leftist, nationalist, and environmentalist politics of President Correa and considering that it was a Ministry of Energy and Mines that actively promoted foreign led mining development that originally rejected the company’s flawed EIS, basic reason concludes that Ascendant Copper may never produce an acceptable EIS. Lacking the EIS, Ascendant Copper will not be able to conduct operations to determine the commercial viability of its concession, or even its precise location relative to a nationally protected ecological reserve, a fact that is highly relevant to the investing public. These considerations are in direct contradiction to what the company claims on page 14 of its prospectus, where Ascendant Copper implies that the issue of restricted access was resolved by the March 20th agreements.
II. Problems With the Company’s Environmental Impact Study (EIS).
i. According to Ecuadorian law, no exploratory activity can take place in a mining area without the EIS being approved by the Ministry of Energy. On December 7th 2006, the company’s EIS was rejected for being inadequate and "non-processable". Yet, the company, in their 2006 year-end report, stated that Ascendant Copper has spent over two million dollars in exploration costs for their claimed Junín concession. In their Short Term Prospectus, the company claims that they are responding to the Ministry of Energy and Mine’s rejection of their EIS. Ascendant Copper, however, fails to warn potential investors that the Ecuadorian government issued a stop-work order. This order makes exploration work illegal.
III. Alleged Support for the Project.
i. The company’s recently published 2007 First Quarter report claims that Ascendant Copper signed a work agreement on November 27th 2006 with the local Parish government of Garcia Moreno, and the so-called local organization "ODI," which they claim represents 90 communities. The company, however, never sates the fact that said agreement was officially annulled by the Garcia Moreno government on 2 December 2006, one short week after its creation.
ii. Ascendant Copper fails to present any proof whatsoever that ODI represents the communities it claims it represents. In fact, on 2 December 2006, the Parish government of Garcia Moreno made public a legal document annulling the agreement with ODI and Ascendant Copper, clearly stating that ODI is not a legal organization and that it does not represent anyone.
IV. Concerns Specific to Ascendant’s Project.
i. On the section titled Concerns Specific to Ascendant’s Projects in Ecuador, the company states that "Concern regarding exploration and potential development of a large mining operation in the Junin area stems from the proximity of the deposit to the Cotacachi-Cayapas Ecological Reserve (the "Reserve"), which is often referred to as a bio-diversified hotspot."
This statement is grossly misleading, because it ignores the multiple, substantive, documented, and legitimate concerns regarding the project. Along with our gravest concern for fate of the Cotacachi-Cayapas Ecological Reserve, as well as the entire cloud-forest complex of Intag region, we contend that principal concerns regarding the Junin mining project must also include:
o The high probability of forced relocation of at least four communities
o Negative impacts to the area’s water resources
o Destruction of primary forests
o Threat to dozens of threatened mammals and birds species.
o Continuation of grave human rights violations the company has been accused of by respected Human Rights organizations, such as Quito-based CEDHU.
ii. Primary Forests and Ascendant.
Ascendant Copper has an internal policy of not mining in virgin, primary forests. Yet, according to a 2006 study carried out by Jatun Sacha, a prestigious environmental organization, the Junín concession claimed by the company are exceptionally rich in primary forests. Jatun Sacha, in fact, concluded that 62% of the area studied was composed of primary forests. Ascendant Copper has repeatedly and falsely stated there are no primary forests within the Junín mining concession.
iii. Endangered and Threatened Species.
The project’s future is also compromised because of the high potential for negative impacts to the dozens of threatened animal species identified by several prestigious scientists and ecological organizations. A short list includes: jaguars, spectacled bears, an extremely rare amphibian, and one species of critically endangered monkey- also mentioned in the company’s own EIS. The existence of these animal species constitutes a serious and clear obstacle to Ascendant Copper’s plans for Intag region, and with a more environmentally sensitive national government reviewing any future EIS offered by the company, we think the investing public needs to be warned of this investment risk. There are dozens of international organizations that will undoubtedly cooperate in denouncing this project for the significant threat it represents to highly threatened and endangered species. Ascendant’s prospectus, however, makes no mention of this obstacle to their project.
iv. The Issue of the Protected Area.
Even though Ascendant Copper admits that they have not explored in the Junín site, they claim in the prospectus that: "The identified Junin deposit itself is located more than six kilometres from the nearest point of the Reserve and down the southern (opposite) side of the top of Toisan Range, which marks its boundary."
Contrary to this misleading claim made by a company that has never actually conducted exploration in the area concerned, a previous environmental impact study undertaken by the Japan International Cooperation Agency (JICA) clearly demonstrates that the project would impact the Cotacachi-Cayapas Ecological Reserve. Unlike Ascendant’s unsubstantiated opinion, the JICA study had full access to the geographic zone described in Ascendant’s flawed prospectus. We assert that it is irresponsible and disingenuous for Ascendant Copper to claim the project will not affect the highly biodiverse protected area when they have yet to explore the Junín site. We insist that the JICA study, which was actually accepted by the Ecuadorian government, trumps any unsubstantiated theory advanced by Ascendant Copper, a company whose EIS was rejected by the Ecuadorian government and has yet to be re-submitted for review.
V. Archeological Considerations.
i. On the section Concerns Specific to Ascendant’s Project, Ascendant Copper’s Short-Term Prospectus correctly reports that mining is illegal in archeological sites. The prospectus, however, fails to report the actual existence of major archeological discoveries within its claimed concession. This fault bewilders us because Ascendant Copper voluntarily reported the existence of such archeological artifacts in its September 2006 EIS. Basic logic leads to the conclusion that such an oversight on a legal matter that can halt Ascendant’s project is either a sign of managerial incompetence or an attempt at concealing critical evidence about the project from the investing public.
VI . Political Considerations.
i. Ascendant Copper’s prospectus attempts to evaluate some of the political risks that may affect the company’s mining projects. We find that Ascendant Copper fails to honestly reflect the magnitude of the political risk. While Ascendant Copper has always acknowledged that investing in Ecuador is inherently risky due to factors like political instability, we think the risk is even greater since the new government, led by Rafael Correa, took power in January 2007. President Correa rejects the so-called "neoliberal consensus" and embraces many of the ideas contained in Venezuela’s "Bolivarian Revolution." He is an economic nationalist who places primacy on national control over natural resources. President Correa’s environmentalism was highlighted by his selection of Dr. Acosta to serve as Ecuador’s Minster of Energy and Mines. The president, as well as the Minister of Energy and Mines, have publicly stated that: a) all the mining concessions are a chaotic mess and will be reviewed; b) that the concessions have been given away by past governments without carrying out the Constitutional mandate of previously consulting with the communities; and that c) the mining law is unfair for the country and needs drastic revision. Additionally, high-level government officials have made references to increasing the royalties for the nation’s benefit, which will make many mining projects financially unviable. Recently, Correa proposed to hold off petroleum development in the Amazon in exchange for debt relief and a cash payment from the Global North. Such a proposal is entirely possible for the mining sector as well. President Correa and Minister Acosta have been quoted multiple times in the Ecuadorian press making nationalist statements, specifically using Ascendant Copper as an example of the problems within the mining sector that his administration wants to fix. President Correa has accused the foreign mining companies of creating a volatile situation in communities, one that he calls a state of "civil war." All these factors can negatively influence the outcome of Ascendant’s projects in Ecuador, yet the company determined to avoid substantive presentation of their analysis of the political situation that may risk investor’s hard earned money.
ii. A Constitutional Assembly, with powers to reform the constitution and laws, will convene within this year, and it is very likely that the leftist-nationalistic fervent sweeping South America will directly affect extractive industrial projects in Ecuador- including all of Ascendant Copper Corporation’s. It is expected that Ecuador’s new Constitution will take a more nationalistic view of the country’s natural resources, and that it will impose new financial burdens for companies exploiting them, in addition to creating stricter environmental regulations. Once enshrined in the Constitution, many of the legal complaints advanced by communities, ngos, and human rights organizations will have greater chances of success at preventing Ascendant Copper form moving beyond its three years of no success in developing its claimed concession.
It is our contention that Ascendant Copper’s prospectus does not sufficiently address the threats these likely political measures pose to mining in Ecuador.
Whereas Ascendant Copper’s proposed project puts at risk the existence of several communities that have energetically articulated their opposition to mining, threatens one of earth’s most important regions of biodiversity, and risks the financial resources of the investing public, we are dismayed that the company’s prospectus offers only a very short reference to the Junín project. We even more surprised when we reflect on the importance the company has placed upon Junín in their corporate strategy. Given such short treatment we were stunned by how faulty it is, and that we were able to identify a disturbing number of instances of misinformation, which should lead Canadian securities regulators to reject the prospectus, and prevent Ascendant from selling shares on Canada’s stock exchanges.
For more information on the nature of the problems affecting Ascendant Copper Corporation’s Junin project, and other instances of the company’s misconstruction of the facts, please contact us, and visit DECOIN’s web site at: www.decoin.org, MiningWatch Canada’s website at http://www.miningwatch.ca, and Ascendant Alert, at http://www.ascendantalert.com.
Intag Solidarity Network