Argentina Will Launch Four Mining Projects in 2009
Despite changing its mining laws, Argentina has become the third major producer of gold in the Americas, and it expects total metal production to increase 40% this year
By Cristina Kroll
Argentinean officials have high hopes for the country’s mining industry, predicting as many as 18 new international projects by 2015. Mining investments could reach $11.4 billion. The Argentine Mining Secretariat foresees the value of the country’s mineral production reaching $10.3 billion ($8 billion in exports) during the same period. Currently there are 403 mining projects (metal and nonmetal) under consideration in the country. “For the first time in 200 years, Argentina will have 14 world class mining projects in production in 2009,” said Jorge Mayoral, Argentina’s Secretary of Mining. “In the first months of the year, four new projects will be inaugurated, which is a historic record for the country.” These projects include Pan American Silver’s Manantial Espejo mine in Santa Cruz province; Yamana Gold’s Gualcamayo mine in San Juan province; China Metallurgical Group’s (MCC) Sierra Grande mine in Río Negro province; and Silver Standard’s Pirquitas mine in the Jujuy province. The last two are projects that were restarted after being idled for more than 15 and 30 years, respectively.
Some mining companies are taking a new look at different regions in Argentina. The Brazilian mining company Vale has recently acquired potash assets from Rio Tinto, including the Potasio Río Colorado mine. “Vale is also conducting feasibility studies to explore a potash deposit at the Neuquén province, although they have not been concluded,” said Vale spokeperson Fátima Cristina Do Santos. Minera Sud Argentina recently initiated exploration work in areas of San Juan province with high potential of gold and copper production.
Starting from a relative low amount, Mayoral estimated that metals production will increase 40% in 2009. “Estimates from the government show that this year silver is expected to have a historic increase of 78%,” Mayoral said. “Iron ore production will grow from 50,000 metric tons (mt) in 2008 to 500,000 mt in 2009. Gold will also experience a 20% growth this year”.
Mining is becoming a more important sector for the Argentine economy. “Mining in Argentina, in spite of its early stage, is between the top three exporting industries in the country”, said Martín Dedeu, vice president of the Argentinean Chamber of Mining Enterprises (CAEM). A study from the Sector Economic Research agency valued mining-related exports at $2.8 billion in 2008, which represented an increase of 18% compared to 2007. According to the agency’s study, copper and gold represented more than 69% of the mining-related sales receipts.
Similar to the major mining regions, Mayoral explained that Argentina posted many milestones in 2008. As far as exploration, the mining industry drilled 665,945 meters (m) throughout Argentina’s mining regions in 2008. That was an 11% improvement over 2007. In fact, the Argentine mining industry, takes the second place in the South American countries and the seventh place worldwide, in relation to the land area destined to exploration and production which is of 3.8 million sq km. The main mining areas are located in the San Juan, Catamarca, Santa Cruz, Salta and Jujuy provinces.
“Argentina is characterized for its gold and copper exploitations, and also now there has been an important movement in regards to uranium,” said Dedeu. “Although the local production is still young, due to its exceptional potential for this business soon some refineries for gold and copper could be operating in the country.”
The future looks promising for Argentina’s gold producers. “Argentina already produces more gold than Chile and Brazil,” Mayoral said “The country is the third largest gold producer in the Americas and fifteenth in the world. With an annual production of 42 mt, Argentina is the second major producer of gold in South America, after Peru.” During the next five years, Mayoral expects Argentina to rank among the top nine major gold producers due sustained growth gold and new initiatives.
“The companies involved in gold mining in particular will benefit from steady prices this year,” said Jay Djemal, analyst, FitchRatings. “Latin American metals and mining companies positioned slightly better to weather the global downturn, than metal mining companies in the U.S. and western Europe in 2009. However, EBITDA reductions are expected by as much as 50% as a result of depressed prices and subdued demand. Taking that into consideration, the performance of Argentinean mining companies is expected to fit-in with these regional expectations”. The analyst also warned that Argentinean mining companies’ recovery will be dependent on the scope of governmental stimulus plans and infrastructure expenditure.
A FitchRatings report states that prior to the downturn, Latin American metals and mining companies enjoyed a sustained period of strong revenue growth throughout the first nine months of 2008, following on the heels of strong demand during the last four years fueled by Chinese construction, which came abruptly to an end in the middle of last year. To respond to this pressure, most of the Latin American metals and mining companies have announced delays in capital expenditure projects, reduced output levels and have refocused their efforts on working capital and cash flow management, according to the report.
Mining Laws & Investments
Argentina recently enacted mining legislation involving export taxes for companies that were previously exempt. In 1996, it was passed the Law N° 24.196, which was the first to regulate the mining industry. The central point of this law was to guarantee fiscal stability for 30 years for those firms that would begin to operate in the country from that moment forward. “But in 2002 a resolution from the government set export taxes to mining companies that came to Argentina after that year,” said Julio Ríos Gómez, president, the Group of Mining Exploration Companies of Argentina (GEMERA). Then, in December 2007, Ríos explained, the government passed a resolution extending the export taxes already established in 2002 to all mining enterprises, including the firms installed in Argentina between 1996 and 2002.
In relation to this change in the legal framework, Dedeu explained that this new measure included in this same export tax regime all the companies operating in the national territory. “Firms that were present in this country before 1996 and the ones that came after 2002 were already paying this export taxes,” Dedeu said. “In this new scenario, mining companies have to pay a 5% fee if they export the product with added value or a 10% tax if they export it raw.”
Regarding the impact that export taxes had on the mining sector, the Mayoral was conclusive. “Since 2003 there has been a record growth for the industry, which shows there has not been a negative impact in the normal development of the activity due to the mining legislation,” Mayoral said. “When the initiative of the National Mining Plan started in 2003, which is the first plan for the development of the Argentine mining activity, there were only 40 projects in the country; but currently there are more than 400.”
Long-term mining investments need clear and stable rules and not everyone, however, agrees with Mayoral’s assessment of the situation. A source that wished to remain confidential explained that the modifications of the 24.196 law of 1996 completely changed the scenario for mining firms in Argentina. Yamana Gold’s Gualcamayo project, for example, started exploration in 1998 and will begin operating after 14 years, in April or May of 2009, in a very different legal framework from when it started.
The measures that the government took would have affected around 14 firms, and some of them have initiated legal actions. On the other hand, there were mining companies that had to reduce their staff and their investments. Canadian Intrepid Mines, as an example, had to postpone the construction of its gold and silver Casposo project in the San Juan province due to the lack of financing. Vale idled the Coipita project in the Cordillera area. Yamana Gold carries on the Agua Rica project in the San Juan province, but it is expecting clear signals from the government. “We need signs that fiscal stability will be respected to continue with this project, which is also been affected by recent copper price swings,” said Mario Hernández, vice-president, Minas Argentinas, Yamana Gold. At the same time, Dedeu believes most of the frozen projects were not a consequence of the change in legislation, but a result from the lack of capital for these investments. “All the projects that were already being installed in Argentina moved forward, in spite of the economic crisis”, said Dedeu.
GEMERA’s position, however, is less optimistic. Gómez explained that in 2008, 125 firms were looking for minerals in Argentina. In 2009, 60 remain, and only30 of them are operating. This situation could continue. “By 2009, the projections on exploration were $250 million, from which $120 million would be invested in the summer season--from November 2008 to March 2009, during this period, however, only $30 million were actually invested,” said Gomez.
Local projects and new initiatives
During the recent Prospectors & Developers Association of Canada’s conference in Toronto, several announcements were made regarding mining investments in Argentina, including the Argentinean state company Fomicruz and the private operator Exeter Resource, which have announced a $27.3 million investment for the exploration of gold and silver deposits in Santa Cruz province. MCC also announced that in April 2010 it will begin operations at the Sierra Grande project; that will put Argentina in the iron ore mining business. The initiative required a $100 million accumulated investment in the province of Río Negro and it’s expected to produce 1 million mt of iron ore and 400,000 mt of concentrated iron per year.
Among the main mining projects in Argentina, there are several that stand out, due to its international level and the investment they involved. For instance, the Argentinean-Chilean Lama Pascua in San Juan province, which according to Mayoral required an investment of $2.2 billion and is currently in construction. This is carried out by the Canadian Barrick Gold, which also operates the Veladero gold and silver project in the San Juan province. Veladero began producing in 2005 and involved an investment of $553 million. Last January, Barrick confirmed that it will add to this project an investment of $70 million, destined to build a new plant and to extend the productive capacity of Veladero from 50,000 mt/d to 85,000 mt/d.
Potasio Río Colorado, another multi-million dollar project in Mendoza province, has been recently acquired by Vale for more than $828 million. This implied the purchase of the Río Colorado mine which has a nominal capacity of 2.4 million mt/y of potassium chloride, and potential to be expanded up to 4.35 million mt/y.
The Pan American Silver’s $171 million Manantial Espejo project in the Santa Cruz province will produce gold and silver and is expected to reach sales for around $2 million in this initial stage.
The Swiss Xstrata Copper is also present in Argentina, operating the El Pachón copper project in the San Juan province, which required an initial investment of $1,857 million, and the Alumbrera copper and gold mine in the Catamarca province, that required a $1,062 million investment. Another Swiss company in Argentina, Compañía Minera Aguilar in the Jujuy province, is developing the Aguilar mine--one of the Argentina’s oldest, more famous mining districts--producing zinc, lead and silver. Compañía Minera Aguilar invested more than $132 million in Minera Aguilar.
Other major projects in Argentina are AngloGold Ashanti’s $382 million Cerro Vanguardia gold and silver mine, which is situated in Santa Cruz province; the $280 million San Jorge project in the Mendoza; and the $88 million San José project, from the Peruvian-Canadian Hochschild, which is currently under construction.
Challenges for the Mining Business in Argentina
Among Argentina’s different advantages for the development of the mining industry, Mayoral emphasized are the state policies, as well as a huge recognized potential in mining resources, and its competitiveness in comparison to other markets.” He stressed that there have been active policies implemented for the strong recovery of mining. And there is an institutional presence in all of the country’s mining districts, which will only add to Argentina’s stature in the world mining community.
Ríos Gómez pointed out that Argentina is a country almost “virgin” in the mining industry and it needs to send clear signs to investors.
The country’s natural wealth makes it an exceptional destination for mining. “Argentina’s mining deposits are high-grade and can be extracted at relatively low cost due to sound infrastructure, modern technologies, and low labor costs,” said Dedeu. “The country also has a lot of potential with large relatively unexplored regions.” However, the analyst also warned that some issues that may pose challenges for mining businesses may arise from possible government intervention, anti-mining legislation, and strike action from labor unions.
Meanwhile, the Argentinean mining business will move forward and the country can look forward to the added value to the primary production, as prospects for new business partners by opening doors to unconventional companies, just as it already has with relationships with Russia, China and India.
Based in Buenos Aires, Cristina Kroll is a correspondent for several international business publications and reports regularly on many industries throughout Latin America. She can be reached at: [email protected]
Recent Argentinean Milestones
Law 24.196, for Mining Investments, sanctioned in 1996, was the first for the mining sector;
2008: exploration record, 665,945 meters drilled;
Four projects of international level to inaugurate in the first quarter of 2009:
2009: 14 new mining projects announced:
Metal production increases of 40% during 2009; and
2015: 18 big mining projects in production