New Argentine government making right moves, Rob McEwen says

After more than a decade of leftist government, voters in Argentina elected Mauricio Macri, a wealthy businessman and Buenos Aires mayor, as their new president on Nov. 22, 2015. The centre-right politician has promised more pro-business and free market policies that he says will tackle some of the country’s biggest problems, which include record-low foreign reserves, a vast budget deficit and an inflation rate running at an annual pace of more than 20%. In his first weeks in office, he made good on a campaign promise to dismantle capital controls and has also cut taxes on agricultural exports, including beef, wheat, corn and soybeans. He has also sent members of his government to meet with the mediator in Argentina’s conflict with foreign bondholders in an effort to end the South American country’s isolation from international credit markets. In addition, Macri has raised interest rates on short-term fixed deposits to help keep a lid on inflation. Other campaign promises include plans to raise tariffs on electricity and natural gas. The Northern Miner asked Rob McEwen, founder of McEwen Mining (TSX: MUX; NYSE: MUX), which has several assets in the country, for his take on the new government.

The Northern Miner: There seems to be a growing sense of hope around Argentina, and the new president is off to a quick start.

Rob McEwen: Yes, it’s a breath of fresh air that is most welcome, particularly for the mining industry.

TNM: The Financial Times noted in a commentary published on Jan. 4 under the headline: “Argentina, Brazil, change places” that a “role reversal” of sorts seems to be taking place between the two South American countries. The article said that “Argentina, long the region’s financial pariah, is coming in from the cold following the election of a new president who has pledged to revive the economy, make amends with holdout creditors and regain investors’ trust,” while Brazil, by contrast, “the once high-flying darling among emerging market investors, has seen its fortunes come crashing down.” Would you agree with that?

RM: They’re both well-endowed with mineral resources, and Brazil has been more forward with their thinking and the development of their natural resources sector, as has Chile. But it’s encouraging to see Argentina letting the peso go to its one rate, natural state, and lifting the capital controls … getting rid of the export taxes in the mining industry would probably have to wait a little bit longer, as the government is dealing with its domestic sectors first, but … somewhere along the line this year they’re going to deal with mining. They are also talking about passing legislation that will set clear rules on public protests to avoid the blocking of main roads. Hopefully this legislation will extend to illegal actions by unions to block traffic in and out of mines.

TNM: What other policy changes should be on Macri’s to-do list as he settles into his job?

RM: Lifting the rules on the import of goods, particularly capital goods needed at mines, would make building mines faster and less onerous. That’s what has really contributed to a lot of budgets getting blown out of the water in terms of time and costs. Some of the notions that Kirchner had for trying to develop second and tertiary industry were unproductive and terribly expensive.

TNM: Macri was elected with a slim majority and will certainly face opposition. The last time Argentina devalued its currency, in 2001, there was enormous unrest, a near collapse of the country’s financial system and the largest sovereign default in its history. Given all the policy changes Macri has made since coming to office, is there a danger that he is moving too quickly on eliminating his predecessor’s protectionist policies? At the same time, the country seems to have taken the devaluation of the peso in stride, perhaps because Argentines realize that it is part of a broader plan to overhaul the economy. After the initial 30% devaluation of the currency, for instance, (from 9.8 pesos to the U.S. dollar to 15 pesos to the U.S. dollar), it has held up pretty well, strengthening to 13.3 pesos to the U.S. dollar more recently. 

RM: Most items in the country are already priced at the black market rate rather than the official rate, and inflation is running quite high. The corrective action President Macri and his ministers have discussed and enacted will be uncomfortable, but necessary for Argentina to get back on the right economic track. Will he get tossed out? I don’t know. But for Argentina’s sake, I hope not. 

TNM: On Dec. 10, the Federal Executive Branch appointed the new authorities of the Ministry of Energy and Mining and the Ministry of Environment and Sustainable Development — headed by Juan Jose Aranguren and Sergio Bergman. Aranguren recently made public the list of officers that will be part of his team at the Energy and Mining Ministry, including Daniel Meilan as the new mining secretary. Is that encouraging news?

RM: Absolutely. Daniel Meilan was the sub-secretary of mining in the 1990s, and so he’s quite attuned with the mining industry and what it needs to work efficiently and profitably. 

TNM: Are you optimistic about the new government and the likelihood of change in the mining sector?  

RM: It’s going to take a while to change, but if they can come to terms with the U.S. bondholders — which will open up capital markets to the country — and if they can keep making steps to show they’re serious about treating foreign investors fairly, and holding to the laws they put in place that attracted miners to the country in the first place, rather than arbitrarily changing them, then it has a great chance to become a destination for mining capital investment.

TNM: There were rumours two or three years ago that McEwen Mining was so fed up with trying to operate in Argentina that it considered selling its assets there. Is that true?

RM: We have our San Jose mine and large Los Azules copper project. We did market Los Azules two years ago, with the objective of raising funds to finance our gold projects. Unfortunately, falling metal prices and terrible government policies killed that effort. The offers we saw were unimpressive, and our balance sheet improved to the point that there was no pressure or need to sell. Today, I see Argentina becoming one of the best turnaround stories in 2016. Companies with assets down there, such as ours, will likely see their share price appreciate, as the new president enacts more legislation that is foreign-investor friendly. I understand that Argentina plans to send a large delegation of senior officials to the PDAC this year to highlight how serious they are about protecting the rights of foreign investors.