Argentina poised to bounce back. Mining Journal. Aug2015

4/27/2016 Argentina poised to bounce back. Mining Journal. August 2015 Synergy Resource Capital
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Argentina poised to bounce back. Mining Journal. August 2015
December 23, 2015  |   Articles,Latin American Mining,Synergy in the news   |   0 Comment
In this article, Paola Rojas, Business Development Director of Synergy, was interviewed about mining in Argentina.
Argentina poised to bounce back
by Paul Harris   August 4, 2015
Argentina is poised for a rebound in mining and exploration activity following the October presidential election, with the leading candidates expected
Argentina’s Macri steps on the gas. The
Northern Miner. March 2016
In this article, Paola Rojas,
Business Development Director of
Synergy, was interviewed among several
other experts about the new business
environment in Argentina, following
Mauricio Macri being elected as President.

to usher in policies that will be more positive for business and lead to a resumption of the mining boom the country experienced at the start of the
decade.
Goldcorp declared commercial production at its Cerro Negro operation in January this year
Economically speaking, Argentina has been through the mill since the turn of the millennium and is still living with the repercussions of its 2001 bond
default that saw the government again default on its debt in July 2014 after a legal battle with some creditors – which the government labels vulture
funds – who declined to join its debt restructure.
President Cristina Fernández de Kirchner would not negotiate with the creditors who rejected Argentina’s efforts to renegotiate its debt after the 2001
default, which saw them go to the courts in the US and win the right to repayment.
With reduced access to international funding, general economic conditions in Argentine have steadily deteriorated leading the president to implement
emergency measures that began in October 2011 and have included currency controls and restrictions on the repatriation of profits.
These have hurt the mining industry and foreign investment in general due to the difficulty of taking dividends out of the country and the impact of
doubledigit inflation and the emergence of a parallel dollar market, called the blue dollar, which is roughly 30% weaker than the official dollarpeso
exchange rate that companies have to use.
The president is from Santa Cruz, a province that has benefited from mining, yet despite her understanding of the conditions that mining requires to be
successful, she had to adapt state policy to the expediencies of the moment as the country’s economic situation deteriorated.

“The mining industry had a relatively good relationship with the Nestor and Cristina governments until the end of Cristina’s first term in 2011,”
Thomaz Favaro, senior analyst at Control Risks, told Mining Journal. “Then we saw a series of changes in the rules of the game that affected the
profitability of the sector.”
“In no way were these measures aimed at the sector, but mining companies became as trapped as other entities – locally owned firms and
individuals – as outflows of capital was severely restricted,” Paola Rojas of Synergy Resource Capital told Mining Journal.
Martin Dedeu of Argentina’s mining chamber CAEM said:“On top of the external problems [the fall in commodity prices], there have been internal
issues in Argentina from political decisions adopted in the country that have been negative for investment in general in the country, such as the
difficulty [in] being able to repatriate dividends and profits, the exchange rate and increases in internal costs that have made it complicated to import
and export.”
However, he was quick to point out “this is not exclusive to the mining sector”.
Other government efforts to shore up the economy and its finances have included a return to the import substation methodology that was typical of the
Latin American Structuralism period from 19501980.
Import control measures were implemented in May 2012 and mean that miners have to get prior approval for overseas purchases and submit import
plans 120 days in advance. Restricted licences for imports make it harder for companies to obtain raw materials and equipment and they face a
mandatory requirement to replace supplies from international purveyors with locally sourced materials.
Minister of Industry, Debora Giorgi, worked with miners and small and mediumsized companies on a validated list of products made incountry to
supply to miners in Argentina. This included safety glasses, springs, flexible metal pipes and ear protection, among other things.
“Companies had to negotiate on a casebycase basis their plans with the government to substitute their imports of supplies and equipment with those
made locally. However, it is not that easy to find a local equivalent of many mining inputs with the same quality and price levels,” said Favaro.
Whilst economic measures have not targeted mining specifically, they have had a dramatic impact and mining activity in the country has decreased
significantly.
Mining investment peaked at just shy of US$4 billion in 2012 and 2013 before plummeting to just over $2 billion in 2014 and the forecast $1.7
billion this year, according to Synergy Resource Capital. However, Argentina still has about 20 large mines in operation and some 3040
active firms, according to Rojas, and a similar number on a care and maintenance.
Resilience
Despite the headlines of economic doom and gloom, Argentina’s economy has been quite resilient, indeed, growth in Argentina’s stock market
outstripped that of the S&P500, Canadian TSX and several Latin American markets in the first half of this year.

This in turn, and the expectation of a change in government policy, is starting to produce a change in investor perceptions of the country and
investment is starting to flow again. In May, JP Morgan Chase & Co said it would make Buenos Aires its regional hub and triple its staff there in
anticipation of a more stable monetary outlook.
Investor sentiment towards Argentina’s mining sector is also turning. “There has been the perception in the capital markets in recent years that
Argentina is high risk and the pools of capital do not invest there,” John Kanellistas of Lithium Americas told Mining Journal.
“That view has now changed for the better. We have seen for the first time in years large and sophisticated pools of capital looking to invest here
anticipating the change.”
“We started observing interest in Argentina increase 1824 months ago and people are now less frightened by it as a jurisdiction,” John DeCooman,
VP corporate development at Silver Standard told Mining Journal. “People anticipate that the next president will be more market friendly.”
“A year ago, only a handful of investors would even discuss the country,” said Rojas. “Now we are getting many more inquiries. People want
to know what is happening, what the candidate’s policies are, and what their stance on business, foreign investment and mining is. They are
looking for advanced opportunities at reasonable discounts to prior valuations.”
It is not just international investor sentiment that is changing towards Argentina. Local investors are also seeing opportunities. The
performance of Argentina’s economy is perhaps one reason why miners facing capital access issues have started to tap into local investors,
says Rojas. “The majority of the top 10 wealthiest Argentinean groups have become involved in mining and we think this trend will
continue,” she said.
Election
The October presidential election has developed into a twohorse race between the favourite Daniel Scioli, of Fernández’s Frente Para La Victoria
party and the current governor of Buenos Aires province, and Buenos Aires mayor Mauricio Macri of the PRO party.
Sergio Massa of the Frente Renovador party, a former cabinet chief under Fernandez de Kirchner, is now an outside possibility. Most agree though
that all three candidates would bode well for the country’s mining sector.
“The three presidential candidates with the best possibilities have the mining sector as one of the substantial themes for the development of the
country in the next few years,” said CAEM’s Dedeu. “All support sustainable mining and have it clear that mining is an important and transcendent
activity for the country.”

Cristina Fernandez de Kirchner’s government has fallen out of favour with miners
“There is general consensus in Argentina on the importance of mining as an economic engine for the future of the country,” Michael Harvey, regional
director of corporate affairs at Goldcorp, told Mining Journal.
Scioli is Fernández’s favoured candidate, and he is running with Carlos Zannini, picked by the president herself. Scioli recently gave an indication of
what the mining sector can expect should he become president when he spoke at a press conference at the International Conference for Mining and
Sustainable Development, which took place in San Juan in July.
Scioli said: “Mining is capable of generating $30 billion (of economic activity in Argentina) in the next four years, as well as hundreds of jobs,”
telling delegates that, “If I am made president, I will create a great development so that the millions of dollars that this activity attracts, as well as the
great number of jobs it generates, arrive in Argentina”.
He also provided reassurance to the sector by stating that, “our objective is to bring certainty, security, calm and prevision to business executives, that
in Argentina they will have the necessary conditions to develop a sustainable mining industry”.
Adding weight to Scioli’s mining credentials is the fact that he appeared at the press conference flanked by a who’s who of Argentina’s provincial
mining authorities, including San Juan’s retiring ultrapromining governor Jose Luis Gioja, as well as incumbent or governors elect of mining
provinces Jujuy (Eduardo Fellner), Mendoza (Francisco Pérez), Catamarca (Lucía Corpacci), La Rioja (Luis Beder Herrera and Sergio Casas),
Neuquén, (Jorge Sapag), Río Negro (Alberto Weretilneck) and Tierra del Fuego (Rosana Bertone).

Whichever candidate wins, there is a broadbased expectation that with the change of government will benefit mining and the legal framework within
which it is developed. What is more open for debate is what the pace of that change will be.
“We are confident that the new administration will be friendlier towards business in general than the current administration. We are more cautious on
the pace of policy change however and think there will be a gradual phasing of new policies,” said Control Risk’s Favaro.
However, as natural resource blog Inca Kola News points out, the “substance [of the message] is no different to that of the current Fernández de
Kirchner administration and we’ve seen how ineffective the national promining policies are when they hit the barrier of regional provincial issues,
politics and laws”.
“Regions will unblock Argentina’s mining sector, not the national administration.”
Provincial issues
In terms of legislative changes, CAEM’s Dedeu says that perhaps the most important initiative for all the country’s mining provinces will be the
reactivation of the federal mining agreement of 1993 which led to the first mining boom.
Mining provinces are organised under the Organización Federal de Estados Mineras (OFEMI) that includes Jujuy, Salta, Catamarca, La Rioja, San
Juan, Santa Cruz, Mendoza, Rio Negro, Chubut and Neuquén provinces.
Dedeu believes more uniform laws are required in the provinces to enable Argentina to become the mining powerhouse that it has so much promise to
be. That possibility has been harmed as governors in some provinces have passed legislation restricting mining activity.
“It is not easy to attract investors to Argentina when they have to take into account different regulations in different provinces,” said Dedeu. “In
Argentina, the constitution says that the natural resources are owned by the provinces, not the state. As a federal country, this means that the rules are
not the same in all provinces. Therefore there is a need to update this treaty so that there are similar general rules in each mining province. I am very
optimistic that whoever wins the election will take this initiative forward and develop a favourable climate for investment in the sector.”
As Inca Kola News has said, the provincial government role in mining matters cannot be underestimated. Some mining provinces that have other
important land use industries such as wineries and adventure – and ecotourism – have been successful in prohibiting open pit mining and the use of
cyanide. The power of provincial authorities means that developing good relations with them is more important than with the national government.
“Argentina is such a complex business environment that local knowledge, whilst mandatory in all markets, is much more necessary in Argentina as
companies are forced to navigate a range of regulatory burdens and restrictions on their day to day operations,” said Control Risk’s Favaro.
“There are not many other countries that present similar challenges to mining companies. We advise all companies in all jurisdictions to establish
good relations with local government but this is even more important in Argentina.”

A key reason why provincial authorities seek to create their own rules and regulations rather than relying on central government is the lack of
independence among the regulatory bodies which enforce regulation, ultimately resulting in a lack of public trust in their decisions.
“The environmental watchdogs are weak and therefore the population does not trust their approvals, which fosters social unrest to demand better
environmental standards,” said Favero. “The judiciary in Argentina has serious concerns about its independence from government which is more
acute at local level, especially in provinces where a single party has ruled for many years such as in Neuquén province.”
Mineral potential
What is in no doubt is that Argentina still has enormous mineral potential and its mining industry is relatively undeveloped compared with regional
peers Chile and Peru.
Prior to the recent economic downturn, Argentina’s mining sector had been successful in attracting significant mining investment and it has several
projects ready to go into development.
Argentina’s mining minister Jorge Mayoral clearly believes the change of president will be positive for the sector and he looks forward to better days.
Earlier this year he forecast mining investment of US$15 billion from 20162018.
There is also evidence that Argentina’s project pipeline, frozen for a number of years, is starting to unthaw. In February, Yamana Gold announced its
plans to invest $398 million in its Cerro Moro gold and silver project in Santa Cruz province. This followed Goldcorp declaring commercial
production in January at its Cerro Negro operation, also in Santa Cruz.
“This is a young orebody and we see additional reserve growth potential at Cerro Negro,” said Goldcorp’s Harvey. “Cerro Negro remains a very solid
project and will be a long term cornerstone mine for Goldcorp.”
Other development projects include Yamana’s Agua Rica project; First Quantum Minerals’s Taca Taca project; Glencore’s El Pachón project and
Goldrock Mines’s Lindero gold project.
Of course, there is also Vale’s halfbuilt Rio Colorado potash project in Mendoza province. The project is about 45% complete and has already
received some $2.2 billion investment from the company including a potash mine, 800km of new and upgraded railway and a potashloading terminal
at Bahia Blanca, southwest of Buenos Aires. With potential to produce 4.3 million tonnes per year of potash, Vale is looking for a buyer for it.
Where new projects will come from is more uncertain as exploration activity in Argentina has dried up due to the combination of government issues
and a distinct lack of exploration funding. However, the country’s incredible mineral potential means it is starting to attract new faces again. “There
are plenty of players who are now looking at opportunities,” said Rojas.
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