Diverse industry leaders shared their insights on Argentina’s renewed ties with the mining industry during a panel discussion, moderated by Trish Saywell, The Northern Miner’s senior staff writer, at the publication’s “Focus on Argentina” event. The exclusive one-day affair took place in the offices of PwC Canada in Toronto in late September.
Saywell visited Argentina earlier this year with Elena Mayer, PwC’s relationship senior manager, to investigate the country’s changing investment climate following last November’s presidential election won by pro-business candidate and former Buenos Aires mayor Mauricio Macri.
“When U.S. president Obama met president Macri in March he described him as a ‘man in hurry’— which is exactly what he seems to be,” Saywell said. Since stepping into office, Macri has eliminated currency restrictions, devalued the peso and reached a deal with holdout creditors on Argentina’s sovereign debt. He has lifted export taxes on metals and a number of agricultural and industrial goods, and is trying to tame inflation and extinguish subsidies on electricity and transportation, putting an end to more than a decade of populist rule by his predecessor Cristina Kirchner and her late husband Nestor.
Argentina’s President Mauricio Macri. Credit: The presidency of Argentina.
Macri has assembled a financially savvy cabinet. His finance minister Alfonso Prat-Gray, previously led J.P. Morgan Chase & Co.’s currency research unit, while the mines and energy minister Juan Jose Aranguren is the former CEO of Shell Argentina, Saywell said.
To build investor confidence, the new Argentine government sponsored an investment forum in Buenos Aires in mid-September, attracting 2,000 executives from a dozen of countries.
U.S. industrial conglomerate General Electric plans to invest US$10 billion over the next decade, making it the latest foreign company to invest in Argentina under the Macri government, she added.
“Argentina is back on investors’ radar screens. That is the first step,” Scotiabank’s vice-president and head of international economics Pablo Breard commented. “Not along ago, Argentina was isolated from those radar screens.”
The country is working to attract long-term equity investments more so than short-term capital. In the banking sector, there is also a need to attract more local direct investments, which rests abroad back into the country.
The global economist emphasized the new administration is “a sign of change,” not only in leadership, but also for the country’s political regime. “That creates an outstanding, unique opportunity that probably will transcend this administration.”
While Breard says there is a “fiscal emergency” in the country, he applauded the new government’s early successes of returning the country to international debt markets and consolidating the foreign exchange rate.
The country, he noted, still needs time to remove subsidies, control inflation and rebuild its credibility. “I am cautiously optimistic about where Argentina is going,” he revealed. “But I’m also pragmatic.”
(Breard forecasts the country’s inflation will end 2016 at 38% to 40%, before dropping between 20% and 22% next year.)
Turning to the mining legislation in Argentina, Saywell recalled that when she recently spoke to Ross Beaty, Pan American Silver’s founder and chairman, he was confident the provincial government of Chubut — where Pan American has its large Navidad silver project — would reverse its ban on open-pit mining.
The Navidad high-grade silver property in southern Argentina’s Chubut province in 2003. Credit: The Northern Miner.
“Mining is not 100% provincial itself. The authority over mining properties is in the provinces. A reform of our constitution in ’94 grants them the original ownership of the natural resources,” lawyer and partner-in-charge of the Natural Resources Group at Quevedo Abogado Ignacio Celorrio explained. The provinces, however, have delegated authority to the federal government to enact and amend the Argentine Mining Code.
While the national code applies to all provinces, there have been some “misinterpretations” between the provinces and federal government on what the mining policy should be, Celorrio said. The discrepancy usually arises from the “dual capabilities” the provinces and federal government have over environmental law. In turn, each province could pass environmental restrictions that could affect mining activity.
Despite that, he forecasts mining companies in unison with the new administration will apply “political pressure” to reverse such restrictions and open the doors in the so-called “anti-mining” provinces such as Chubut and Mendoza.
For Chubut, the limitations include restricting mining in a specific area of the province and suspending open-pit activity and the use of cyanide, Celorrio said, noting the Navidad project is “one of the best examples for turning around these restrictions.”
The project is far from the “epicentre of the disturbance around mining development” in an arid setting, where there is minimal development and people. “So in the end, it really doesn’t take a lot of legal resources to ease up and move the project forward,” Celorrio reckoned. “The country has a one-way ticket to promoting investments, and they have to show evidence of that.”
Andrew Cheatle, the executive director of the Prospectors & Developers Association of Canada, pointed out exploration expenses in Argentina fell from $600 million in 2012 to $130 million in 2015, due to the country’s currency and import restrictions.
With those limitations now removed, he remains “cautiously optimistic” about Argentina’s direction forward, noting some of his colleagues look to return to the more investment-friendly country.
Cheatle compares Argentina to Ecuador, which went from a “no-go zone” a few years ago to more recently a pro-mining place. “I can see Argentina taking that path.”
“[Argentines] do have a good legislation. It’s attractive, it’s competitive,” Mariano Ortego, a partner at PwC Canada, added.
While Macri has a role to play in the legislation, Ortego said he would like see the justice power and system hold individuals who stray from the legislation accountable, leading to promising changes in behaviour.
According to Celorrio, the country faces a “crisis of development from the mining perspective.” Argentina has traditionally been an agricultural country. Its economics and population are in the Pampas, which includes the provinces of Buenos Aires, Santa Fe, Cordoba and La Pampa. The Pampas is far from the mining projects, which are generally in provinces with less political sway.
Celorrio says Argentina’s mining industry has to build a foundation to better participate in the national dialogue and communicate its needs, which he believes under the current government will improve.
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