July 10, 2005

I understand that Ascendant Exploration has presented a preliminary prospectus as an early step in the process of being listed on a Canadian exchange.  I write to share information and express concern about this company.  I am an associate professor of Latin American history at DePauw University.  In addition to teaching history courses, I also teach in the university’s management program, and I chaired DePauw’s conflict studies program between 1999 and 2001.  Prior to being an academic, I worked in international ocean freight, as line manager in Chicago for Christian Canadian African Line, an ocean carrier serving Canada and South Africa.  I had this job during the 1980s, the highpoint of the international sanctions against the apartheid government, an experience that made me keen to the issues of corporate transparency, conduct, and ethics.  I learned first hand the many ways companies have for making things seem to be what they are not.  I fear that such is the case with Ascendant’s efforts to be listed on Canadian markets.

I have conducted research in Ecuador since 2000.  During this time, I have meet frequently with Ecuadorian government officials, human rights organizations, the American Chamber of Commerce, and the United States Embassy.  Since 2000, I have spent considerable time in Intag region, have interviewed many people, and have analyzed the dynamics around the mining controversy.  Among the communities I have spent time with is Junín.  This past June, I spent three weeks living in the community.  While I seldom claim to be an expert, I do feel confident that I know plenty about what is happening in Intag region.

It is my conviction that for a capitalist market system to provide benefits to investors and society transparency in corporate organization and conduct is essential.  If we have learned anything from tragedies like Enron, it is that we must use highest criteria when evaluating claims of companies seeking capital from the general public.  I think extra caution is merited when a company like Ascendant has multiple names, subsidiaries, divisions, and other twists to corporate structure.  I have now lost track of the number of reorganizations undertaken by Ascendant, the number of companies they have within the company, and exactly who is in charge for what has happened and what may happen in Ecuador.  Is Chris Warren, for example, the top executive officer?  If so, does the fact of his past foul history with the United States Security Exchange Commission have any bearing upon evaluating investor risk?  Should the investing public be warned that people like Mr. Warren are involved with Ascendant?  Transparency, key for investor confidence, means answering some basic questions.  How much money, for example, has Ascendant spent so far in Intag region, and what are the real results of their spending?  How much infrastructure is in place, and what are the real costs for building the needed infrastructure?  Has anyone done an independent audit of Ascendants books, especially for money spent on programs like CODIGMEGA?  Why is a former Ecuadorian general in charge of community relations?

Transparency is tightly connected to the serious problem of corruption in Ecuador.  When I meet with businessmen from the American Chamber of Commerce, the number one item they focus on when discussing the business climate in Ecuador is corruption.  Their concern is for good reason, as Ecuador consistently ranks as one of the world’s most corrupt countries.  Obviously, transparency and corruption undermine investor confidence, and in this particular case, they make Ascendant a very, very risky proposition.  In evaluating their prospectus, I want to know what safeguards they taken to prevent corruption from perverting their company, especially among the people they have hired on the local level?  I think this question is especially relevant considering the company’s close relationship with General Villacis as well as ex-congressman Andrade.  Investors need to know exactly who these individuals are, why they are on Ascendant’s payroll, as well as the high risks Ascendant has undertaken by using them as front men on the local level.  In my view, Villacis and Andrade are draining Ascendant of money, pocketing capital that the company thinks it is spending on community projects and infrastructure development.  I think it is highly probable that both men have engaged and may be engaging in illegal activities, such as arms trafficking and narcotics trafficking.

I find it very interesting that Ascendant is widely known in Intag to be campaigning against the mayor of the canton of Cotacatchi, Auki Titiuani, who is widely recognized as one of the most honest politicians in Latin America.  He won an international prize for honesty in government.  A company divorced from corruption would welcome the opportunity to work with such a high profile example of a good politician in Latin America.  Instead, Ascendant seeks to have Auki thrown from power.  Investors need to be aware of the political decisions Ascendant has made, who their partners are, and who they have determined to be enemies.  Siding against honest, clean, politicians and in favor of people widely known to be corrupt reveals the very poor judgment that characterizes Ascendant’s business style in Ecuador, and constitutes a serious investor risk.

People who have spent considerable time in Intag, and know the communities well, think that Ascendant does not know what is happening on the ground.  I think the North American management has no sense of the local reality.  It is very clear that the North American management has spent very little time in Intag.  They overly depended upon Ecuadorians for information, and have little means for evaluating what they are told.  Concerned about the mess they have created in Intag, Gary Davis, President of Ascendant Copper, recently traveled to Intag region.  He met with people who favored mining, folks who were brought to the town of Garcia Moreno for the meeting.  To get the anti-mining side of the story he only met with one individual, Polivio Perez, who is perceived by Ascendant to be the leader of the anti-mining movement.  When Davis requested the meeting, Perez agreed, but only on condition that all the presidents from affected communities be present so they would hear what was said, and  have the opportunity to represent their communities.  Davis, however, declined those terms.  Instead, he showed up at Perez’ house, unannounced and after having cancelled the original meeting.  Fortunately, a British film crew was at Perez’ house, and the meeting was tapped (Davis is on record stating that if Junín does not want mining, Ascendant will leave).  It is unclear to me how Ascendant can represent the communities in Intag as favoring mining if their own president is unwilling to meet with the presidents of the communities?  It is also unclear to me how the North American management can have any correct estimation of local dynamics without such meetings.

I have studied the communities in Intag region longer than Ascendant has been in the area.  Anyone who knows the communities that will be directly affected by the open pit mine, can tell you that there is stiff, organized, and determined resistance to Ascendant’s plans.  In fact, there is a long history of resisting World Bank plans for mining in the area, as well as Bishi Metals efforts at building the mine in the 1990s.  This effort ended with the burning of Bishi Metals’ mining camp in May of 1997.  That victory is part of the local identity, the narrative that defines who people are in places like Junín.  These people are very clear in their opposition to mining.  The clarity is expressed in what may be the most often spoken response to what people think about mining:  “over my dead body.”  In reading Ascendant’s prospectus, I did not see that popular sentiment quoted.  It should be on the front page, in big bold letters.  This absence means one of two things:  either Ascendant does not know the history and extent of resistance in the region (in which case, hiring General Villacis as head of community relations is very hard to explain), or they are not truthful about the extent and nature of resistance.  In either case, the investing public has legitimate concern about the competence and transparency of Ascendant.

The company, I fear, is well aware of the vigorous resistance to mining in Intag region.  It is the one local dynamic they do understand.  While the rough physical terrain, torrent rainy seasons, and lack of infrastructure, far outpace Ascendant’s ability to develop such a large mine, the biggest obstacle to their ability to deliver is community resistance.  Ascendant knows this fact, and has been very aggressive with their efforts at eliminating community opposition.  Their main strategy is focused on demonizing DECOIN, attacking good, honest people who do not want the mine on their property, or suing the local newspaper, Periodico Intag, for libel.  Their tactics include disrupting community meetings, destroying minga (collective community work projects that are core to how rural communities in the Andean region function) projects, arming their employees (especially at the “experimental farm”), and direct forms of intimidation, including death threats.

Potential investors need to know who Mr. Carlos Alonso is.  He lives in Garcia Moreno, the pro mining stronghold showcased by Ascendant as example of community support.  Alonso walks around with two pistolas tucked into his pants.  In the United States, he is what we call a “good ol’ boy,” a person who can be your best buddy or meanest enemy.  Alonso is the local “rain man,” the fixer put in place by people like Villacis and Andrade, who dispenses cash to locals as means of buying them off.  He organizes trucks to drive people to pro-mining meetings, liquors them up on the way there, and feeds them a meal.  He’s especially known for organizing cock-fights, where people get plenty drunk and here lots of promises about what the mine will do for them.  Often they are asked to sign blank pieces of paper, which are latter used as evidence of local support for mining.  How does the Ascendant prospectus account for this way of doing business?  Are such practices the wisest means for winning over a community, especially for a project that has a long and controversial history?  Transparency means Canadian investors need to be introduced to Ascendant’s “Good ol Boys.” Perhaps a photo of Mr. Alonso at one of his cock fights with a band of drunk locals signing Ascendant papers should be included in the prospectus as evidence of their community development program?

I understand that in the recent past there have been legal challenges against the method that Ascendant has acquired its concessions.  I think investors have the right to know the full history of how concessions were acquired, and the history of the many legal challenges.  Do we know if any of these legal challenges are still active?  Are any cases still in court?  Will questionable land titles withstand the guaranteed onslaught of legal challenges that will be filled by Ecuadorian non-governmental organizations?  Or, are potential investors expected to be so naive about land titles in Latin America that they will gobble-up Ascendant’s representation of their property holdings?

Investors also need to know that Ecuador’s current political climate has left the court system dysfunctional (assuming it is even functioning at all).  I do know that there is an immense backlog of cases, and that prospects of continued political instability in Ecuador leave the legal status of Ascendant concessions very much open to question.  Transparency on the company’s part demands full recognition of this political reality.  Likewise, investors need to know that the proposed mine will border or be very close to the Cotacatchi-Cayapas National Preserve, a federally protected wildlife area.  I understand that there is an ecological buffer zone that protects the preserve, and the proposed mine would conflict with that buffer zone.  Given the fickle nature of Ecuadorian politics, it is not entirely impossible that an ecologically minded government might change many of the rules, regulations, practices, and enforcements that could have a direct and negative impact on Ascendant’s plans.  Likewise, Cotacatchi county is a mining free county.  To accomplish its project, Ascendant would have to circumvent or openly violate this county ordinance, a practice that could complicate the company’s legal standing in Ecuador and cause delays, added expense, and possible failure to their project.  Perhaps this ordinance is why Ascendant works to displace Auki Tituani as mayor, as well as why Ascendant is behind an effort to form a new county outside the control of Cotacatchi?  Is the effort by a Canadian company to form a new political jurisdiction in another country legal?

When I walk the dirt roads and mountain trails that link the communities that would be destroyed by Ascendant’s mine, I am always baffled about how this company (or any company) will build an open-pit copper mine in Intag.  As I contemplate the scope and scale of the undertaking, I falter at imagining how Ascendant will do it.  They do not have the capital for such an undertaking, nor do I think they have the competence.  Investors need to know a fair estimate of how much money the project will take, and that estimate needs to be measured against two things.  First it needs to be measured against the costs of existing mines in similar places.  Do the cost estimates of Ascendant match the real costs of existing mines?  Second, it needs to be measured against what Ascendant has already spent and what it has so far accomplished.  Lack of transparency thus far makes it nearly impossible to evaluate the company, but I think it fairly certain that the company is bleeding money on the local level.  I think they are in it so deep and are so blind to the local realities, especially about the people they poorly selected to do the ground work, that no rational person should invest money in them.  Even if they raise capital on Canadian markets, I see no way possible that Ascendant will build this mine.  It will take a major mining corporation to pull this off, a Rio Tinto Zinc, for example.  If half the fantasies I read in the prospectus are true, the smart investor will have to ask why a company like Rio Tinto Zinc has allowed this opportunity to pass them by?  Why is such a minor actor the only company to pursue this copper mine since the Bishi Metals fiasco?  What do companies like Rio Tinto Zinco know that Ascendant clearly does not want the investing public to know?

As an historian, I attempt to avoid predicting the future.  In this case, however, I am confident that the people Ascendant has hired in Ecuador will laugh all the way to the bank if the company is traded on Canadian exchanges.  People like Villacis, Andrade, and Alonso playing Ascendant brilliantly, and they will rob Canadian investors blind.  Ultimately, for them, it does not even matter if the mine ever gets built, because they will get rich from the effort.  When Canadian investors catch-up to such a sad reality, there will be no mechanism for accountability.  Holding a phd in Latin American history, I can tell you straight-up that through the decades this scenario has been played out many times over.

If you have questions or want further information, I should be pleased to respond to them.

Sincerley,

Glen David Kuecker, phd
Associate Professor of Latin American History
Department of History
Greencastle, Indian 46135
gkuecker@depauw.edu

Ps.  Please extend the courtesy of confirming receipt of this letter.  I am best contacted by email.