MAY 15, 2020

Argentina’s mining potential after coronavirus.

ARTICLES

Argentina’s mining potential after coronavirus [1]

The purpose of this article is to review the situation of the Argentine mining industry, its growth potential, and briefly comment on certain issues in its current legal-regulatory system, which could be improved to accelerate its post-quarantine development.

1. Argentina’s economic and mining situation prior to COVID-19

In Argentina, the epidemic has motivated the issuance of regulations regarding social, preventive, and compulsory isolation (the “quarantine”). These new regulations, taken in most western countries, will have significant economic consequences.

Some statements have been heard, regarding the similarities between the devastating effect that the virus can have in people with health conditions prior to the infection, and the devastating effect that the quarantine can have in countries with economic troubles prior to compulsory isolation.

In this sense, 2019 was not a good year for the Argentine economy. Inflation ranked it among the worst in the world (53.8% INDEC), poverty was 37.5% (ODSA, UCA), and unemployment was 8.9% (INDEC) with informal employment of 50% (IDESA). Country risk ranked Argentina in relation to South America in second place after Venezuela, and with more than double the third (Ecuador), and 10 times more than Brazil (JPMorgan EMBI).

Other indicators prior to the Pandemic place Argentina in 147th place out of 169 for economic freedoms (Fraser 2019), and Chubut, Mendoza and La Rioja among the worst 10 jurisdictions in the world to invest in mining, along with Zambia, the Congo, and Mali (Fraser 2020).

Quarantine and prevention measures are currently estimated to cause in Argentina a loss in the economy of USD 427M per day of quarantine and a 0.5% drop in GDP for each week of quarantine. For all of 2020, a drop of between 6 and 8.5% of GDP is expected, an increase in unemployment to 13%, and poverty to 45%.

To summarize, Argentina was already on a losing streak, and then the pandemic appeared as a new curse, causing a higher devaluation of the peso exchange rate, and pessimistic comments regarding Argentina’s default to international creditors and increasing inflation in local prices in pesos.

As for the new regulation, Decree No. 297/20 exempted from quarantine certain activities considered essential, and Administrative Decision No. 450/20 included all mining stages in the list of exempted activities.

The main reason is based on the fact that the mining industry is crucial for the employment and local economies of many corners of Argentina. Additionally, this industry is less exposed to the spread of the virus, due to geographical distance. This exemption from quarantine can also be interpreted as a greater relevance that the potential of this industry is gaining in the country.

In relation to Argentina before COVID-19, the Argentine mining results are very low compared with the indicators of other neighboring countries, such as Chile, and Peru, or with other more developed countries such as Canada and Australia. These countries have in common that they have been working seriously for a long time to prioritize the development of the potential of their mining industry:


 

 

 

 

 

 

2. The mining potential as a source of economic growth

This chart actually shows that the potential for Argentine mining growth is huge. If we look at Chile, the differences in the number of employees, investment and increased exports are massive. Improving the mining industry in Argentina would have a direct impact on more jobs, and higher tax revenues.

Those tax revenues could well be used for health and education, two fundamental aspects – especially- for the regions where the mining industry is located.

There are provinces in Argentina, such as Mendoza and Chubut where the mining potential is impressive. The fact that mining is prohibited there [22], on the basis of federalism [23], the ownership of natural resources [24] and the right to the environment [25], shows a striking indifference regarding the sad indicators of these provinces (Mendoza: poverty 42.1%, indigence 6.4%, unemployment 8.6% [26], and Chubut: poverty 35.4%, indigence 7.7% [27] unemployment 12.3%).

It is clear that Argentina’s mining potential cannot materialize in the short term. Even assuming that Argentina could make all the structural reforms to accelerate the development of the sector, the growth of this industry will take time.

Economic stability is only shown over the years, as does the rule of law and the protection of individual rights. For an industry whose times may well exceed 20 years per project, rudder bumps can be deterrents.

Nevertheless, mining investment could grow significantly in a few years, for example, if the exchange rate is unified, the transfer of foreign currencies abroad is relaxed, and the withholding on exports is removed (which would be positive measures for all competitive industries).

It is also fair to say that, although such growth could be significant for current Argentine mining standards, this would not be significant compared to mining in other countries in the region, which are years ahead.

3. Certain measures that could help improve the sector

It is impossible to list all the measures that could be taken to accelerate the development of the mining sector, just as it is tough to imagine that regulatory improvements could cause immediate economic results. This industry is already exposed to unpredictable variations in the price of minerals, which is why it values dearly the years of economic and regulatory stability of a jurisdiction.

Therefore, results are likely to improve over the years, similarly to what has happened with other countries that long ago made reforms and are now positioned worldwide.

Be it as it may, there are some issues that could be addressed with greater urgency, for example, the prohibitions of the restrictive provinces, the glacier regulation, the regulations regarding fiscal stability, or interprovincial cadastral problems, among many others that should be dealt with as soon as the quarantine is over.

To begin with, restrictive provinces must remove their prohibitions. In this sense, the provinces of Río Negro and La Rioja have already relaxed their regulations, allowing greater mining activity in their provincial territories.

In the case of Chubut and Mendoza, efforts have been made in this direction, but the results have not yet materialized. In the case of Mendoza, law 7722 of 06/22/2007, which prohibits mining, was relaxed by law 9,209 of 12/23/2019, but law 9,209 was revoked days later on 12/30/2019.

In the case of Chubut, zoning bills have been presented, precisely to make law 5001 of 05/08/03 (current Law No. XVII – No. 68) more flexible in the sense of allowing mining in certain sectors. In both provinces, these efforts have not yet achieved results.
There are strong discussions around this issue, and even conflicting positions between the inhabitants of the capitals of these provinces and rural communities. In this sense, it would be very positive to be able to coordinate greater awareness regarding the mining process, and the real impact of this process on the environment, providing more and better information to the public, in a comparative way and with mention of the prevention and mitigation measures that this industry applies in dealing with the environment.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

It is striking that, while the price of minerals between 2003 and 2008 rose 805%, these provinces, instead of focusing on developing this industry, decided to ban it, missing a historic opportunity. All this, while neighboring countries benefited from this “mining supercycle” like never before. Even if it was due to environmental reasons, this matter could be regulated in a different way, as most developed countries do, which do not resort to a broad ban, but to the hard work of case by case analysis. Argentina has world-class engineers and environmental experts, who could do a magnificent task in this regard, but given the nature of this prohibition, they cannot participate either.

It is also worth mentioning the poor regulations regarding the protection of glaciers. Undoubtedly Argentina has been blessed with extraordinary natural resources that must be protected and preserved from all industrial processes, the issue is how to do it fairly, that is, without the regulations being a threat to the environment or a threat to the development of mining projects. To this end, it is necessary to determine clear and specific guidelines, escaping from vague and ambiguous terms that harm legal security, both with respect to the protection of the magnificent natural resources of this country, as well as to the right of exercising a lawful and fundamental industry for the progress of the Argentines.

In this sense, federal Law No. 26,639 of 2010 (almost identical to the one vetoed in 2008) focuses on glaciers and the environment or periglacial geoforms. This regulation has been criticized -among other things- for the lack of specific delimitations [28], especially regarding the “periglacial” concept (in its section 6.c. this law specifically prohibits mining in periglacial environments). It is also complex to understand how federal law can regulate the natural resources of the provinces, with that level of detail, without being in conflict with the constitutional provisions – mentioned above- which state that the provinces are the owners of all their natural resources and that the Federal Congress can only regulate over minimum standards.

This controversial federal law was subject to unconstitutionality claims[29]. The matter finally reached the Federal Supreme Court (“CSJN”), which did not rule on the constitutionality or not of this law, but rather tangentially on the lack of concrete damages of those who filed the claim[30]. Additionally, the CSJN expressed itself regarding the prevailing change from an “anthropocentric model”[31], towards that of a “climate justice” where water resources should be protected as “collective incidence rights”.

While these concepts are welcome, it would be significant to be able to move forward with clearer and more specific guidelines for a capital intensive industry that depends – much more than other industries – on forecast, projection, clarity, and legal certainty, and that it often has to deal with judicial attacks and precautionary measures aimed at suspending or stopping its activities.

In addition, the lack of coordination between federal and provincial glacier regulations, add another complication to this matter, which would undoubtedly require greater specificity to achieve better harmony between the protection of fundamental natural resources, and the development of a key industry that needs to clarify the boundaries to avoid risks to its predictability and development[32].

Regarding CSJN and legal certainty, it is also worth to mention the concept of fiscal stability; established by the Federal Mining Investments Law No. 24.196, which in section 8 guarantees this right for 30 years, and in 1.2. explains that the “total tax burden” cannot be increased[33].

In the beginning, the CSJN, in deciding that the guarantee of fiscal stability prevented new additional taxation on mining dividends, said: “…the rules that establish tax benefits should not necessarily be interpreted in the most restricted sense that its text admits, but rather, in such a way that the purpose of the law is fulfilled…”[34].

Well, as time went by, there was an increase in legal taxes (such as, withholding taxes on exports) and informal charges: the splitting of the exchange rate, and the complications to transfer foreign currency abroad (without taking into account inflation and devaluation which impacts more on the suppliers of this industry); and with time the CSJN updated its criteria to [35] “The First Source of interpretation of the law is its letter and the words must be understood used in its true sense…” and “the individuals who claim that their fiscal stability has been violated, shall have the burden of proving in each case, -with the necessary and sufficient means- that there has indeed been an increase in their total tax burden…”.

The “necessary and sufficient” means to prove the increase in the total tax burden are still a matter of debate. Although the Joint General Resolution No. 4428/2019 has been created in order to request the refund of tax amounts paid in excess, in order to be able to compensate for this situation, certain aspects distort the fiscal stability so necessary to promote and accelerate the development of this industry[36].

Undoubtedly, there is also an enormous opportunity for regulatory improvement that should be addressed as soon as the quarantine ends, in order to achieve a faster and more automatic system that not only provides for the refund of taxes already paid, but also the suspension of these increases in the future, in coordination with all governmental agencies, including customs, and export points. The technology to do so is already there, but its implementation will depend on the coordination of consensus.

Argentina’s federal system is challenging. Just as there are restrictive provinces, different provincial taxes, different mining procedure codes, and different protocols in the enforcement authorities, there have been cadastral problems at the interprovincial limits[37]. In this sense, the CSJN has applied the principle – always considering the particularities of each case-, that first come first serve.

Although this is a specific problem, mainly between regions of only two provinces (Salta-Catamarca), it is an additional example in one of the most important aspects – the mining cadaster- that should be improved, for which there are already plenty of technological resources for geolocation.

It is inconceivable that neighboring countries, and other first world countries, have this industry as a lead actor of their productive matrix, while Argentina assigns it a supporting role, despite the desperate need for greater domestic and foreign investment aimed to the real economy and creating real jobs, instead of capital dedicated solely to investing in bonds.

Possibly, as a proposal, after working more than three years in Chile’s mining industry, and having studied its mining regulations, I note as one of the main differences, the high degree of information and knowledge that Chileans have on the importance and significance of mining, as well as its peaceful and prolific coexistence with other industries. I have also noticed, a great awareness in maintaining a positive balance between the care of its extraordinary natural resources, and an effort to keep the steadiness in the development of this industry.

This has been possible in Chile, thanks to a clear governmental policy regarding allowing the transmission of the truths of this industry. In this sense, it is positive that the Argentine government, together with the relevant actors in the sector, continue to increase their efforts to guarantee impartiality in the information and knowledge on the benefits of mining and its people.

It makes sense to think that if Argentina today had twice as much mining activity it would be easier to navigate the post-quarantine economic crisis. The opportunities that Argentina has lost, and the cost that this represents, is disturbing. This year 2020 represents a new call for Argentina, and possibly a starting point to reach consensus and assertively face the economic, regulatory and social challenges that must be overcome, with a clear purpose in accelerating as much as possible the development of the potential of this industry.

________________________________________

[1] Página del Reserve Bank of Australia respecto a cada industria: 1ra Health & Education con 13%, 2 Mining en con 10% (pero la minería constituye el 60% de las exportaciones de Australia). https://www.rba.gov.au/education/resources/snapshots/economy-composition-snapshot/; https://www.minister.industry.gov.au/ministers/frydenberg/speeches/mining-and-australian-economy-australian-governments-priorities-mining
[2] Página oficial de la Asociación Minera de Canadá (MAC). Informe annual correspondiente al año 2019: https://mining.ca/wp-content/uploads/2020/01/FF-English-Web-1.pdf
[3] Página del Gobierno de Perú. Casi 10% PBI y 61% de exportaciones del Perú en 2018 se deben a su minería: https://www.gob.pe/institucion/minem/noticias/29754-minem-casi-el-10-del-pbi-y-el-61-de-las-exportaciones-del-2018-fueron-producto-de-la-mineria
[4] Servicio Nacional de Geología y Minería de Chile: El año 2018 la participación minera en el PIB alcanzó al 9,8%, y en este el cobre fue de 8,9%. https://www.sernageomin.cl/wp-content/uploads/2019/06/Libro_Anuario_2018_.pdf
[5] Información de la Cámara Argentina de Empresarios Mineros. Informe realizado en noviembre 2019: https://www.caem.com.ar/wp-content/uploads/2019/11/Reporte_Mensual_de_datos_y_analisis_sector_minero_Nov_2019.pdf
[6] Información de Pag Gob Australia respect a empleados directos: 249,800 persons (ABS trend data), which accounts for 1.9 per cent of the total workforce http://lmip.gov.au/default.aspx?LMIP/GainInsights/IndustryInformation/Mining
[7] Información de “Natural Resources Canada” de enero 2019 respecto a empleados directos e indirectos: https://www.nrcan.gc.ca/mining-materials/publications/16739
[8] Informe de la Plataforma digital única del Estado Peruano respecto al año 2019, inforando que superaron el promedio del 2018
https://www.gob.pe/institucion/minem/noticias/66004-empleo-en-el-subsector-mineria-registro-un-incremento-interanual-del-5
[9] Página oficial del gobierno de Chile. Anuario de la Minería de Chile: https://www.sernageomin.cl/anuario-de-la-mineria-de-chile/
[10] Informe CAEM empleos vinculados a la minería a agosto 2019 https://www.caem.com.ar/wp-content/uploads/2019/10/CAEM-Hablemos-de-Mineria-N9.pdf
[11] Pagina del gob de Western Australia: Nationally, AUS$33.9 billion was invested in mining in 2019 (apx USD21.4)
https://www.dmp.wa.gov.au/About-Us-Careers/Latest-Resources-Investment-4083.aspx
[12] Página oficial de la Asociación Minera de Canadá (MAC). Informe anual correspondiente al año 2019: https://mining.ca/wp-content/uploads/2020/01/FF-English-Web-1.pdf
[13] Página oficial del Ministerio de Energía y Minas de Perú. Boletín Estadístico Minero Edición N°12-2019: https://www.minem.gob.pe/minem/archivos/file/Mineria/PUBLICACIONES/VARIABLES/2019/BEMDIC2019.pdf
[14] El monto es la diferencia de inversión entre los años 2018 y 2019 en millones de dólares, conforme la página oficial de la Comisión Chilena de Cobre del gobierno de Chile. Informe de Inversión en la minería chilena: cartera de proyectos 2019-2028: https://www.cochilco.cl/Paginas/Estudios/Listado%20Tem%C3%A1tico/Inversi%C3%B3n-en-la-Miner%C3%ADa-Chilena.aspx
[15] Respecto a exploración en 2018: https://econojournal.com.ar/2018/12/la-inversion-minera-en-exploracion-ascendio-a-us-241-millones-en-2018/
[16] Página oficial del gobierno de Australia. Informe cuatrimestral correspondiente a la industria de Recursos y Energia del mes de marzo 2020: https://publications.industry.gov.au/publications/resourcesandenergyquarterlymarch2020/documents/Resources-and-Energy-Quarterly-March-2020.pdf
[17] Página oficial de la Asociación Minera de Canadá (MAC). Informe annual correspondiente al año 2019:https://mining.ca/wp-content/uploads/2020/01/FF-English-Web-1.pdf
[18] Página oficial de la Sociedad Nacional de Minería, Petróleo y Energia de Perú. Nota de Prensa del 17 de febrero de 2020: https://www.snmpe.org.pe/prensa/sintesis-de-noticias/mineria.html
[19] Página oficial del gobierno de Chile. Informe anual de exportaciones por producto conforme las estadísticas presentadas por Aduanas: https://www.aduana.cl/exportacion-por-productos/aduana/2020-04-02/091449.html
[20] Informe ABECEB de Marzo 2020, respecto al año 2019.
[21] Información 2019 de https://es.statista.com/estadisticas/635359/paises-lideres-en-la-produccion-de-cobre-a-nivel-mundial/ y de https://www.nrcan.gc.ca/our-natural-resources/minerals-mining/minerals-metals-facts/copper-facts/20506
[22] Se aclara que las prohibiciones en estas provincias se refieren a los procesos involucrados en la producción metalífera utilizada en minerales de primera categoría (oro, plata, cobre, aluminio, molibdeno, entre otros).
[23] Const. Nac. Artículo 121. Las provincias conservan todo el poder no delegado por esta Constitución al Gobierno federal, y el que expresamente se hayan reservado por pactos especiales al tiempo de su incorporación.
[24] Const. Nac. Artículo 124. Corresponde a las provincias el dominio originario de los recursos naturales existentes en su territorio.
[25] Código Minero, Artículo 250. Serán autoridad de aplicación para lo dispuesto por la presente Sección [ambiente] las autoridades que las provincias determinen en el ámbito de su jurisdicción).
[26] Página web oficial del Gobierno de Mendoza, al 3er trimestre de 2019.
http://www.deie.mendoza.gov.ar/#!/repositorio-de-novedades/pobreza-e-indigencia-octubre-2019-279
[27] Página oficial de estadísticas del gobierno de Chubut, al 1er semestre 2019

Click to access eph_pobreza_01_19.pdf


[28] Para una descripción más detallada ver: Sergio Arbeleche: “Argentina, Mining and Glacier Protection” 4 de Abril, 2019
https://www.lexology.com/library/detail.aspx?g=ff9f4028-e394-4a5d-a178-4d6c12efa844
[29] “AOMA y otros c. Gobierno Nacional/ acción de inconstitucionalidad.” (Expte No. 138. XLVII).
“Minera Argentina Gold S.A. c. Gobierno Nacional / acción de inconstitucionalidad” (Expte No. M 185. XLVII).
[30] Para una descripción más detallada ver: Saravia Frías, Carlos. Saravia Frías, Inés. “La “Ley de Glaciares” Llega a la Corte Suprema”. Publicado en: LA LEY 14/07/2011, 5 • LA LEY 2011-D, 210// Cita Online: AR/DOC/2287/2011.
[31] “Barrick Exploraciones Argentinas S.A. y otros c. Gobierno Nacional/ acción de inconstitucionalidad” (Exte No. B. 140. XLVII). Pag 24, seg parr.
[32] Vale la pena destacar la tarea realizada por el Instituto Argentino de Nivología, Glaciología y Ciencias Ambientales (IANIGLA) respecto a la definición de “Glaciar”, y al inventario de los Glaciares en la Argentina, lo cual es un invaluable aporte a la claridad sobre esta materia, a pesar de los embates judiciales -incluso penales- sufridos por parte de sus integrantes.
[33] Fallos relacionados: “Cerro Vanguardia SA c/ DGI” (30/06/2009); “Minera del Altiplano SA c/ Estado Nacional PEN y otra s/ amparo” (10/07/2012), Procesadora de Boratos Argentinos SA c/ DGA” (19/11/2013); “Camaronera Patagónica SA c. Min de Economía y otros s/ amparo” (15/04/2014); “Minas Argentinas SA c. Poder Ejecutivo Nacional p/ amparo” (13/11/2018); Estelar Resources Limited SA c. Poder Ejecutivo Nacional p/ amparo” (26/11/2018).
[34] Cerro Vanguardia SA c/ DGI.
[35] Minera del Altiplano SA c/ Estado Nacional PEN y otra s/ amparo.
[36] Administración Federal de Ingresos Públicos y Secretaría de Política Minera, Resolución General Conjunta 4428/2019. Ley de Inversiones Mineras. Procedimiento de reclamo por afectación de estabilidad fiscal. 26/02/2019 (Artículo 15.- A los fines de lo establecido en la presente será condición necesaria que los sujetos a que se refiere el Artículo 1° se allanen incondicionalmente o, en su caso, desistan y renuncien a toda acción y derecho, incluso el de repetición, con relación a las obligaciones susceptibles de acreditación o devolución, lo cual producirá efectos a partir de la fecha de notificación del acto que resuelve positivamente la procedencia de la respectiva solicitud).
[37] Grupo Minero Diablillos CSJN 06.08.1985; Barros, Hugo Vicente v. Boroquímica S.A.M.I.C.A.F. CSJN 24.09.1987; Catamarca c. Salta. CSJN 27.10.2015; Catamarca c. Salta. CSJN 05.05.2009