Tuesday, May 29, 2012
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MINING WORLD: Canadian miners rethinks Argentine projects as President Cristina Fernandez continues to be seen making aggressive policy changes
As President Cristina Fernandez continues to make aggressive policy changes, Canadian companies are joining a growing number of firms changing their investment plans
Fernandez government’s economic moves and capital restrictions put crimp on development plans
Efforts by Argentina to fine-tune its economy are forcing miners to reassess investment plans in the Andean country that is home to massive gold, copper and other resource deposits.
Argentina, Latin America’s third-largest economy, has moved aggressively in recent months to stem capital outflows and bolster the market with measures including forced repatriation of export revenue on local markets and requirements for companies to source equipment locally.
The measures could hinder access to cash flow in one of the world’s most capital-intensive industries, and cause delays in terms of getting equipment to remote sites in a timely manner.
Mid-tier gold and silver miner Mcewen Mining Inc. cautioned investors Tuesday that measures taken by Argentina in recent months to control capital flight could end up threatening its cash flow and have forced it to re-think how to fund ambitious growth plans, including the development of the El Gallo project in Mexico.
“I just thought it was prudent to alert all of our shareholders to the fact that what we had projected and felt very good about in terms of the ability to internally fund was now in question,” said company chairman and chief executive officer Rob Mcewen.
Mcewen Mining listed in Toronto and New York earlier this year, the culmination of a plan to combine two other Mcewen-led companies, one that was focused on Mexico and the United States, and another focused on Argentina. The latter included a 49-per-cent stake in an Argentine mine, already generating cash.
“To develop El Gallo and build the company without Argentina, we would have to go back to the market and look for about $150million. I don’t think that’s going to be the case, but that is a worst case and you need to know that,” Mr. Mcewen said, adding that he was surprised by Argentina’s stance.
He said the company would also intensify efforts to find a buyer or partner for the Los Azules copper project in Argentina.
Pan American Silver, the Vancouver-based silver company targeting massive growth in coming years, said last week it would stagger investments in Argentina until the investment climate clears. Chief executive officer Geoff Burns said he was confident that would happen with time.
“I am confident the environment will improve, I don’t know when, but I know it will improve,” Mr. Burns said.
Argentine President Cristina Fernandez has been tweaking the country’s economy since she came to office, and pledged to deepen those efforts when she won a second term in a landslide in October.
Since then she has ordered a series of measures, shocking investors in April with the expropriation of partially state-owned energy company YPF SA from Spain’s Repsol YPF.
Few in the market expect miners to suffer the same fate as Repsol.
“I think the YPF is a reminder to everybody else that your assets are not 100-per-cent safe,” said Alberto Ramos, co-head of Latin America research for Goldman Sachs in New York, who has fielded a lot of calls in recent weeks on the Argentine policy moves.
“Other companies now have a strong incentive to follow the lead presented by the government or their assets may be at risk,” he said.
Argentine policies will affect miners to varying degrees, with the smaller, earlier-stage companies in the country most exposed because they cannot mitigate effects through operations in other geographies.
Larger miners like Barrick Gold Corp., which owns the Veladero gold mine in northern Argentina as well as Pascua-lama, the neighbouring gold project that straddles the Andes mountains with Chile, are at less risk because they can negotiate better terms with government and because of their long histories in the country.
“We’ve had a local supplier development program in place for over a decade, with more than 900 Argentine companies supplying goods and services to Veladero and Pascua-lama,” said Barrick spokesman Andy Lloyd. “More recently, the company has also initiated a program to substitute imports with locally available alternatives, with good results to date.”
ARGENTINA MINING 2012:
The mining sector in Argentina is becoming highly dynamic, providing genuine and sustainable development. The significant geological potential started to awaken over 15 years ago, and seems to advance relentlessly.
During the 1990’s, the establishment of a trustworthy legal framework facilitated investments of over US 4,000 M in a series of new mines and exploration. At that time, an unprecedented increase in production and exports took place, as world-class deposits went into operation: Bajo de la Alumbrera (copper, gold); Cerro Vanguardia (gold, silver), Martha Mine (silver) and Salar del Hombre Muerto (lithium) joined existing operations of Farallon Negro (gold, silver), Andacollo (gold), borates deposits (such as Tincalayu) and Aguilar Mine (silver, lead, zinc), the latter having entered in production in 1936. In 2005, Veladero (gold) also started production in the prolific province of San Juan, and in 2007, San Jose (gold, silver, copper) in Santa Cruz province.
More recently, during 2008 and 2009, Pirquitas (silver, tin), Manantial Espejo (silver, gold), Gualcamayo (gold, silver) and Sierra Grande (iron) went into production, with a combined investment of over US 550 M and hundreds of jobs created. Pascua Lama (gold), the first bi-national project, started its construction in September 2009, with an investment of US 2,800 – 3,000 M, and at the same time Casposo (gold, silver), with an investment of US 115 M. Agua Rica (gold, copper, molybdenum) with US 2,000 M and Pachon (copper), with US 1,500 M are both in the financial feasibility stage and expecting decisions from their operators, but continue to develop. Rio Tinto sold its Potasio Rio Colorado project to Brazilian giant Vale to soften the burden of their debt. This project will imply over US 2,000 M in investments for the processing plant and infrastructure needed to transport the potash. At present, the company continues with the process of approvals in Mendoza.
Cerro Negro, from Andean Gold, recently announced the favourable results of its feasibility studies. San Jorge, from Canadian Coro, received definition for its public hearing. Navidad (silver) was acquired by Pan American Silver and continues advancing its feasibility studies. Diablillos (gold, silver), Rio Grande and Lindero are advancing its exploration, better defining its resources and economics. At the same time, exploration continues at several parts of the country, from Jujuy to Santa Cruz, with deposits such as El Altar, Los Azules, Pinguino and Tendal, as well as several lithium and uranium projects. The current level of exploration showed a peak during 2008: over 660,000m were drilled across the country.
For the development and exploration of these and other advanced projects, potential investments of over US 9,000 M are estimated for the next five years. Of these, 30% are confirmed.
Today, with the slow recovery after the financial crisis, Argentina is privileged: at this point, 17 mines are producing -12 of which are metalliferous-, 2 are being built and the country is increasing production of gold, silver, copper and lithium, as well as a relevant exploration activity. Over 150 companies are active in Argentina, including major players as Anglogold, Vale, Rio Tinto, Barrick, BHP Billiton, Xstrata, and Teck; intermediate companies like Pan American Silver and Silver Standard, and juniors like Minera Andes, Exeter, TNR Solitario, Mansfield and Hochschild, to name a few. Investment comes mainly from Canada, Argentina (from state owned companies, mainly), the US and Australia. Countries such as Switzerland and South Africa have a growing presence, and China, Brazil, Peru and Japan are increasing their participation.
The international mining community is witnessing the growth of investments in the search, evaluation and mining of deposits in the country. The activity is quickly becoming a development axis, and subsequently, requires an increased offer of products, equipment, machinery, services, human resources and new project generation.
Argentina is gradually becoming a mining country.
By Rojas & Asociados, Mining Consultants
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