With significant mines developed over the last 15 years and immense geological potential, the Argentinean mining sector has set the foundations to become one of the world’s major mining countries. The task ahead is to convince Argentineans that this is good news.
It was only in the 1990s that the Argentinean government created the conditions for the development of a modern mining sector. Under the government of Carlos Menem, the legislative passed rules designed to liberalize the economy and attract foreign investment. The main milestones in these first years were the startups of Bajo de la Alumbrera (1997), a gold-copper mine today operated by Xstrata, and AngloGold Ashanti’s Cerro Vanguardia gold-silver mine, which has been in production since 1998.
Since then, the sector has had its ups and downs. First, there was the financial crisis in 2001-2002 that brought the country’s economy to its knees and saw five different presidents rule Argentina in just a month. After that Barrick’s Veladero, a $2 billion investment, became the country’s largest gold mine. In 2008-09 it was the turn of Western markets to collapse, leaving the sector short of the necessary cash to invest in exploration. Exploratory drilling in Argentina decreased from the record of 668,000 m in 2008 to 570,000 m in 2009, according to the Argentinean Chamber of Mining Entrepreneurs (CAEM).
This last crisis, however, did not prevent the opening of several new mines in 2008-09 including Yamana Gold’s Gualcamayo (gold), Pan American Silver’s Manantial Espejo (silver-gold), Silver Standard’s Pirquitas (silver) and China Metallurgical Group Corp.’s (MCC) Sierra Grande iron ore mine. Moreover, the huge bi-national Pascua Lama project is now under construction by Barrick; Brazil’s Vale is making a multi-billion dollar investment in potash; and as the world seems to have left the worst part of the subprime crisis behind, the prospects on the exploration side look much better now, with renewed dynamism from junior companies already noticeable during 2010.
Growing Pains and Legal Aspects
Argentina has traditionally been an agricultural country endowed with a large, century-old hydrocarbons industry (today in decline). Metals mining is the latest large sector to be developed, even if some pioneering operations, such as Mina Aguilar and Mina Pirquitas, were already up and running in the first half of the 20th century. “Mining exists in Argentina since the creation of the Argentinean Republic, yet modern mining only started 15 years ago. The good thing about being a new industry is we have the latest technology available,” said Manuel Benítez, president, CAEM.
The problem is not everyone sees the new industry with positive eyes. The sector has been the target of never-ending campaigns that have transformed open-pits and cyanide into things to be hated, as producers have failed to explain that without mining, people could not have a mobile phone, a car or even electricity. Being a heavily politicized country, Argentinean congressmen and provincial governors have not taken long to include anti-mining initiatives as part of their political agenda. This is a result of either environmental concerns, a lack of knowledge about the industry, or often a mere strategy to gain votes.
Moreover, Argentina is a federal country where the provinces are the owners of their natural resources. The procedure for the approval of environmental studies is undertaken at the provincial level, but more importantly than this, some provinces have enacted laws over recent years that are equivalent to an upfront ban of certain mining activities; notably the prohibition of using cyanide in mining processes.
“When an investor goes to two different provinces, it would seem he goes to two different countries,” said Leonardo Rodríguez, lawyer, Marval, O’Farrell & Mairal.
Adolfo Durañona of Baker & McKenzie agrees. “If all provinces were as pro-mining as San Juan and Santa Cruz, the mining map of Argentina would be radically different.”
The two main arguments used against the mining industry in Argentina are mining has an unbearable environmental impact, and the mining sector does not pay enough taxes. The prohibition of using cyanide in provinces like Chubut and Mendoza has left very good projects on hold, at least for now.
“These laws contradict the constitutional right to develop a lawful industry. Prohibiting the use of cyanide for mining, while it is legal in any other industry, is a clear discrimination without cause and is unconstitutional. Considering our current laws and regulations for environmental protection, there are no technical or legal arguments to substantiate such initiatives,” said Ignacio Celorrio, lawyer, Quevedo Abogados and president of the Argentinean Chamber of Uranium Companies (CADEU).
With regard to the taxes debate, Rodríguez explained taxes are nothing if compared with the impact mining brings in employment and technology development. The sector, he argues, creates four indirect jobs for every direct job.
According to governmental data, the industry employed 272,500 people in the country in 2009 (direct and indirect jobs), while in 2003 the figure was just 98,700. In spite of this positive impact, some mining companies saw their 30-year tax stability contracts broken in 2007 when the government approved tax retention on mining exports.
Considering all of these aspects and its federal structure, how mining-friendly is Argentina as a whole? “I do not think having different approaches to mining is a killer for Argentina and it is probably unfair the country is ranked so low in surveys like the one of the Fraser Institute. If you look at Canada or the U.S., you have big differences between states. Nevada is not California; Alberta is not British Columbia. Argentina as a whole ranks worse than Chile or Peru, but if you take San Juan as a jurisdiction, the situation is very different,” said Hernán Zaballa, a lawyer at Brons & Salas.
San Juan, a western province in the Andes, home to the Veladero and Gualcamayo mines, is indeed a remarkable example of economic development. This is due to the wholehearted support given by José Luis Gioja, its governor, to mining investments. According to Gioja, the province’s exports will amount to $1.3-$1.4 billion this year, 60% of which will be from mining (total exports from San Juan were just $146 million in 2003). The governor does not lack arguments to defend his pro-mining policies. “Provinces legislating against mining developments do not have an urgency to provide opportunities for their population. Yet in my province if we did not have mining 300,000 people that directly or indirectly make a living from the industry would have to go somewhere else. Besides, with the income provided by mining companies we have created a fund to finance infrastructure and social projects like roads and transmission lines.”
What’s Next?
Production levels in Argentina are still negligible if compared with its potential. In copper, the country only ranked as the 17th largest producer in 2009; in gold, Argentina should make it to the world’s top 15 in 2010 thanks to a significant output increase in Barrick’s Veladero; and in silver, Argentina was the 12th largest producer last year. In all of these metals there are significant projects in the pipeline, including the aforementioned Pascua Lama bi-national project (Chile-Argentina) and the Navidad project, recently acquired by Pan American Silver, which is known as the world’s largest unexploited silver deposit. For copper, it is expected Chile’s enormous reserves will surely be replicated in many instances on the Argentinean side of the Andes range.
Argentina also has enormous potential in uranium and lithium, strategic minerals for which demand is expected to rocket with the construction of new nuclear reactors worldwide and the popularization of hybrid and full-electric cars in the next couple of decades. In the case of lithium, of which Argentina is already the world’s second largest producer after Chile, the country is living a true boom in its northern provinces thanks to its abundance of lithium-containing salars (salt flats) where it can be produced at low costs.
“In the past, strategic minerals were a monopoly of the state, but now many companies are very active. In lithium we believe we can reach the same levels of reserves and production as Chile,” said Julio Ríos, president, Group of Exploration Companies of Argentina (GEMERA).
Political uncertainty and the relationship with the local authorities and communities are the main challenges for the development of mining in Argentina. The geological potential is huge; the country is a paradise for geologists and there are several world-class deposits waiting for a more favorable environment. With regard to the shortage of service providers, this can be seen as a natural stage in the growth process and can be addressed relatively quickly as the industry develops.
“What the country is lacking is a framework to protect the investments in the field,” said Ríos. “The timing of the mining industry is completely different than in other industries; it requires long-term investments. When you have countries like Peru and Chile that offer great geological potential and also have all of the needed infrastructure and service providers in place, we need to give something extra to be competitive.”
The industry has already shown its will to make the most of Argentina’s potential, the latest example being the $3.4 billion announced acquisition of Andean Resources, owner of the Cerro Negro gold project, by Goldcorp. “Argentina’s mining industry is growing and if we keep working in a responsible manner the perception of the people will surely change,” said Dante Vargas, general manager, Veladero. Should the industry be able to overcome the political and social challenges, the next decade could be the mining decade in Argentina.
The Argentine Constitution entrusts the National Congress (ANC) with passing laws concerning minimum environmental protection standards and the provinces are entrusted with the passage of supplementary environmental rules and regulations.
Although glaciers did not lack protection under the existing legislation, in 2008 the ANC approved a first bill on Protection of Glaciers, under which (a) the notion of glacier is defined in a very broad sense to include the periglacial environment; (b) new activities in glaciers or periglacial zones that can affect them are prohibited, expressly including mineral and oil exploration and exploitation; (c) such prohibited activities in glaciers or periglacial zones are excluded from the evaluation of environmental impact that would allow evidencing the sustainable development of a certain activity; (d) Existing activities in glaciers and periglacial zones are subject to re-evaluation to determine if there is significant impact.
This bill was vetoed by the Argentine president, who argued: (a) ANC does not have the constitutional powers to impose prohibition through the establishment of minimum environmental requirements, since this would be an invasion of provincial powers; (b) the prohibition of the activities may impair the economic development of some provinces and hinder the performance of any kind of activity or work in the Andean areas; (c) the provinces are the owners of the natural resources existing in their territories.
Recently, ANC has approved a new bill with a text that has a similar scope as the vetoed bill. This new bill will have to be considered by the Executive Power and if approved also subject to further regulation that will determine its final scope. In the meantime, some provinces (Santa Cruz, San Juan and La Rioja) have enacted provincial law for protecting glaciers, aiming to defend their competence and full exercise of their constitutional powers.
