By Alexandra Valencia

QUITO (Reuters) -Ecuador’s government has revoked the environmental license granted to Canadian mining company DPM Metals for the development of Loma Larga, a gold project in an environmentally sensitive area, the government said on Saturday.

The decision follows strong opposition from residents and authorities in the Azuay province, where the Loma Larga project is located. They argue that its development would affect the Quimsacocha water reserve, posing significant health risks to local communities.

Ecuador’s Environment and Energy Ministry said in a statement the decision was the result of technical reports submitted by local authorities in Cuenca and Azuay that are responsible for local drinking water and irrigation systems.

“The national government reaffirms its commitment to the rights of nature, the defense of water sources, and, under the precautionary principle, the protection of the health and well-being of the people of Cuenca and Azuay,” it said.

DPM, which acquired the project in 2021, did not immediately respond to a request for comment.

The Loma Larga project was expected to receive investments of $419 million for an average annual production of about 200,000 ounces of gold during its first five years of operation, according to DPM.

In August, the Ecuadorean government had already suspended activities related to the project until the company released an environmental management plan, despite having granted it a license a month earlier to begin construction.

Despite having significant gold and copper deposits, Ecuador’s recent legal rulings and local opposition has often halted mining projects. Currently, only two mining companies operate in the country.

The Quimsacocha Reserve spans more than 3,200 hectares and encompasses the Andean “paramo” ecosystem.

Its springs form one of the main water sources in the South American country. The company had pledged to implement efficient and responsible environmental management in the area.

(Reporting by Alexandra Valencia; Writing by Sarah Morland and Gabriel Araujo; Editing by Alistair Bell and Aurora Ellis)