April 2, 2013 – Argentina. Once a haven for mining investment profit and lucrative tax write-offs, stricter environmental regulations and unfavorable macroeconomic policies are taking a toll on big mining in Argentina. El Pachón (Xstrata)—a once attractive large copper investment on the Argentine-Chilean border, Los Azules (McEwen Mining)—another copper operation in San Juan Province, Pascua Lama (Barrick Gold)—the much touted first bi-national gold operation, and others are putting on the emergency brakes as national economic policy freezes international currency flows and stricter environmental policy, like the recent Argentine National Glacier Protection Law, sets limits on what can and what cannot be mined. The national government’s scramble to hold back rampant inflation isn’t helping much either.
The mining media began circulating quietcomments about the extractive sector slowdown well over a year ago. Large telltale signs such as Barrick’s suspension of Pascua Lama last year forewarned investors. Quieter signs such as Xstrata Copper’s unexplained delay of environmental impact studies needed to launch El Pachón, are revealing with lesser fanfare, a growing and very significant problem bubbling up in the mining sector. Investors and investor media, are catching on.
Some of the principal mining sources have dared to put it in black and white. El InversorEnergético y Minero, one of the region’s key mining news sources, says it between the lines in very euphemistic tone on its latest cover headline, “mining investments … waiting to improve the business climate”, but the real message is clear and comes out unabashedly in the following pages … “… a chain of questions … external financing … cooling of international markets … And policy and legal guarantees. … Throughout 2012 mining companies operating in the country could not turn dividends to their parent … [because of national economic policy]”.
Pascua Lama (Barrick Gold)—slated to start operations in 2012 had to quietly postpone launch as their EDC/EXIM export credit deal fell through, presumably because of problems Pascua Lama has with the National Glacier Law as new evidence is showing Barrick lied about glacier impacts. Barrick argues the postponement was due to cost overruns.
Xstrata Copper, also with international complaints on glacier legal issues at three of its operations in Argentina (El Pachón, Filo Colorado and Agua Rica), seems to be having troubles convincing new owner Glencore, that Argentina is a safe investment. At a cost of US$6billion, El Pachón is a hard sell when you can’t export your profits out of the country, or import supplies due to import restrictions. The El Inversor report says “people close to the company warned that El Pachón construction is not among Glencore priorities. Mining.com reported ChalieSartain (Xstrata Copper CEO) saying, “Work at Agua Rica and El Pachón is progressing, but we need to consider the political risk in Argentina”.
Los Azules (McEwen), which changed hands recently from Minera Andes, will now cost more than US$3.5billion to get off the ground if it can ever get a glaciar clearance, as recent reports show exploratory work has damaged rock glaciers and periglacial environments, both protected by law and square in the middle of Los Azules. Legal action against Los Azules is around the corner from environmental groups following McEwen’s refusal to mediate a glacier dispute with a local environmental group. The El Inversor story reports insider information suggesting that McEwen also wants out of Los Azules and is looking for a buyer. McEwen, as others, are carrying out new exploratory work to make their projects more attractive for a near future sale. But the reality is that these once attractive and promising investments are now stalled indefinitely, and fledgling in ice-cold glacier water.
El Altar (Stillwater) another copper operation in the Western Andes is also under legal scrutiny for glacier impacts on project access roads and in the designated pit area. The Famatina project (Osisko) in La Rioja Province was suspended recently by a court order mandating that a full glacier study be carried out before operations are allowed to resume. One project after another is stalled by macro economic policy and environmental restrictions. La Rioja, Cordoba, Chubut, and Mendoza provinces have all passed anti-mining regulations further discouraging investors. Coro Mining’s San Jorge project was recently run to the ground due to anti-mining sentiment in the provincial legislature. A lawsuit is underway in Mendoza to recuperate at least some portion of the investment.
In Argentina’s Patagonia region, the Navidad project (Pan American Silver)—one of the world’s largest silver mining ventures, is completely stalled due to anti-mining regulations in Chubut Province.
The latest colossal collapse is the multi-billion dollar potassium project by the Brazilian company Vale, which despite National Government announcements and festivities around the launch several months ago, recently packed bags and abandoned Argentina due to unfavorable economic policy, leaving thousands jobless and billions lost in start up costs.
Provincial governments are also creating headaches for international mining investments. Organized under a new coalition of provincial mining governments, the OFEMI, they are attempting to circumvent the national mining law that limits taxes to 3% of mineshaft profit value. New initiatives creating public companies (such as JEMSE in Jujuy province for lithium ventures) to share shares and profit, and a rewrite of the 3% stipulation to reflect 3% of sales, are changing the game for mining and increasing the public slice of mining money. Even worker unions are getting into the mining game, insisting on legal reform to lower mining company profits in favor of worker compensation.
Standard and Poor recently downgraded Argentina’s credit outlook, from stable to negative stating unequivocally, “In our view, the recent government policies could increase risk to Argentina’s macroeconomic framework, squeeze its external liquidity, and hinder medium-term growth prospects”.
For now, mining in Argentina seems to be firmly set in glacier ice.
For more information:
Jorge Daniel Taillant
+54 9 351 507 8376