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Focus: Argentina

development at Argentine mining consultants Rojas & Asociados, tells Mining Journal.

But if those projects seeking funding or awaiting further approvals get the go-ahead, it could mean an extra US$12 billion in new investment over the next three to five years, Rojas adds.

At the beginning of the decade, Argentina had just 18 exploration and mining projects. Now, some 120 international and local companies own mineral properties and of those, around 50 remain active. There are 26 advanced projects in different stages of development.

“They [Argentina] have worked hard to attract people and they have been successful. Now they have poured a bucket of cold water on anyone coming,” says McEwan.

The Group of Exploring Mining Companies from Argentina (GEMERA) estimates that there are some 400 known projects and prospects, whereas the National Mining Secretariat estimates there are over 600, so there is a huge pipeline for investing in projects of varying sizes and minerals, according to Rojas.

Although projects are scaling back investment, some continue to forge ahead. Over the past year, Australia’s ADY Resources Ltd (locally known as Rincon Lithium) started producing lithium con-tained in brines at the Rincon Salar in Salta prov-ince, northwest Argentina.

The venture is backed by Australian private equity investment firm The Sentient Group. Mean-while, Patagonia Gold plc began operations at its Lomada de Leiva epithermal gold silver deposit, located in Santa Cruz province.

These new projects join 17 existing gold, silver, copper, lithium, zinc, coal and borates operations. In addition, four projects are under construction.

Two of these are lithium plays in Jujuy province: Australia-based Orocobre Ltd’s flagship Olaroz lithium project, which has a combined measured and indicated resource of 6.4Mt of lithium carbon-

Promising prospectsBright spots flicker among the gloom and doom of Argentina’s mining industry

Camila Reed Special correspondent

Mining investment in Argentina is stalling after the boom years between 2002 and 2012.

This key South American country that straddles the Andean range is rich in mineral resources, but investor appetite has been soured by the more radical policies of President Cristina Fernández de Kirchner’s government and by the perception that this may not be a good place for mining companies to operate. Lower commodity prices have only compounded the situation, as political risk soars.

This impression has not been helped by Brazilian mining giant Vale SA’s decision to cancel its multi-billion dollar potash venture over problems in sourcing parts and equipment locally under a ‘buy Argentina’ law, and rigid capital controls.

“It’s too early to say there won’t be any more surprises. There’s ample room for further deter-ioration,” Rob McEwan, chief executive (CEO) of McEwan Mining Inc, tells Mining Journal.

The threat of nationalisation, which hung over mining companies in 2012 after the government seized assets owned by Spain’s Repsol SA, has diminished. However, there is a worry that inves-tors may take their cue from Vale and start exiting the country.

Vale suspended work on its US$6 billion plus Rio Colorado potash project in the province of Men-doza in March. This was Argentina’s largest ever foreign investment, employing around 4,000 work-ers. The mine, due to start operations in 2014 and be productive for more than 50 years, is now in search of a new owner.

Despite this setback, there are some sweet spots in the mining sector such as uranium and lithium. Argentina’s advanced nuclear expansion pro-gramme and its desire to shift from importing all of its uranium to sourcing it locally is benefitting ura-nium explorers.

Likewise, a focus on lithium has led to significant investment. Almost US$1 billion will be pumped into new lithium operations – something that was completely unthinkable more than four years ago.

Stalling investmentSince 2002 investment has ballooned to a record US$3.9 billion in 2012, according to national mining department data, which forecasts foreign invest-ment of around US$4 billion in 2013.

“We believe by the end of the year we will wit-ness a decrease in the amount of investment in comparison to 2012, due to the delay of Pascua Lama (the giant gold mine controlled by Barrick Gold Corp), suspension of Potasio Rio Colorado and the reduction of exploration budgets throughout the country,” Paola Rojas, vice president, corporate

Fast facts

Capital: Buenos Aires Population: 41.1 million Real GDP growth: 1.9% (2012 est)

Currency: Argentine peso

Argentina

Chile

Parguay

Map of Argentina

Barrick Gold’s Veladero mine

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Focus: Argentina

ate and 19.3Mt of potash; and Lithium Americas Corp’s Cauchari resource.

Elsewhere, work has begun at Gold Corp’s Cerro Negro gold and silver resource and at Barrick’s multi-billion dollar Pascua Lama development, although the latter has been repeatedly subject to delays. Once complete, Pascua Lama is expected to produce an average of 800,000-850,000oz/y of gold in its first full five years of production.

Politics… in search of stabilityPolicy, politics and political risk dog mining, scaring off many new entrants and curtailing investment by others already in Argentina. Over the past two years there has been an erosion of trust between the government and private companies. This has mainly been fuelled by the state’s attempts to increase its role in the sector – new capital controls, which include an import substitution law; and over-riding fears that changes will be made to the 1993 mining investments law.

This law provides companies with 30-year tax stability contracts. The government has already breached these terms by creating an export tax on products, and miners feel exposed to the threat of higher royalties – which currently stand at 3% – and export taxes.

Many sectors, including mining, are struggling in the face of increasingly stringent controls on imports of equipment and supplies.

Argentina’s economic growth has slowed sharply this year and businesses are being pinched by an increasingly overvalued official currency and infla-tion.

“Argentina needs to reverse currency controls to keep the momentum going and that is what the Argentinean mining community is hoping for,” said Rojas.

The demand for hard currency is such that Argen-tines pay a premium of 60% above the official exchange rate to buy dollars on the black market, according to a Reuters report.

The government expects the mining sector to provide substitutes for up to US$200 million of imports, according to consultancy Control Risks. The borders have been closed to an increasingly large range of products and it is a struggle to find some raw materials.

Capital flight slowed from US$21.5 billion in 2011 to US$3.4 billion in 2012, with a slight net inflow in 2013’s March quarter, according to central bank data.

Mining companies were previously immune to some of the government’s more radical policies, but since Kirchner’s re-election in October 2011 things have changed and the sector is no longer isolated from problematic issues.

“The tide has changed for the worse,” Thomaz Favaro, Control Risks analyst for the Americas, tells Mining Journal.

This view is shared by McEwan. “Falling metals prices and a government that appears no longer supportive of foreign investment and mining,” he says. “It is a void and it’s difficult to get your hands on the size of that void.”

Complicating the issue still further is the fact that each province in Argentina determines its own mining regulations, leading to a patchwork of dif-ferent rules across the country. This has resulted in some states being pro-mining, while others have banned open-pit mining altogether.

Favio Casarin, Silver Standard Resources’ head of institutional relations in Argentina, says it is impor-tant to keep regulations clear, since investment in mining projects is generally long-term and high-capital investments require a reasonable level of certainty.

“Some provinces are adopting laws and taking measures that go against national legislation, which creates an unstable regulatory environ-ment,” he tells Mining Journal.

“The concerns are due to the increase of internal prices and labour costs, coupled with a fixed exchange rate. These factors affect all export indus-tries, not just mining. The mining industry is also suffering from the downturn in international mar-kets.”

Meanwhile, mid-term legislative elections are due in October. However, victory for the governing

Above, left and right: Underground at Gold Corp’s Cerro Negro mine

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“Now a question mark hangs over whether major investors may take their cue from Vale and start exiting the country”

Below: Argentina’s president Cristina Fernández de Kirchner

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Focus: Argentina

party may not be as strong as before, says Control Risks’ Favaro. He refers to the mood on the street, growing popular protests and a 24-hour general strike that paralysed the country in November – the first of its kind to hit the country in a decade.

Notwithstanding the growing discontent, Favaro says he believes that we are unlikely to see any policy U-turns.

Lithium chargeArgentina is one of the world’s top lithium produc-ers and over the past few years there has been a huge push to expand production. Several compa-nies are exploring and thriving.

Australian firms Orocobre, ADY Resources and Galaxy Resources Ltd are forging ahead with pro-jects. Lithium Americas, Rodinia Lithium Inc and International Lithium Corp are also very active in northern Argentina’s ‘Lithium Triangle’.

Orocobre says it is building the first large-scale, de-novo brine-based lithium project in 20 years at its flagship Salar de Olaroz resource. This will ena-ble it to join the three existing low-cost brine pro-ducers, with 17,500t/y of phase one production of battery grade lithium carbonate. This production is expected to come on stream in April 2014.

Toyota Tsusho Corp is the company’s strategic partner at Olaroz and has provided the capital required to build the operation through a combina-tion of its 25% purchase of the project equity and the provision of debt financing.

Orocobre says it is well positioned for substantial growth owing to the expansion of Olaroz, the likeli-

hood of tapping potential at its Salar de Cauchari property and through the future development of its pipeline of lithium, potash and borate in the Puna region of northern Argentina in Jujuy prov-ince.

The company says it has a strong Jujuy-based team, uses an Argentine construction management company and has a “Jujuy first” strategy to ensure it works closely with local suppliers and contractors.

“Managing and partnering with local companies reduces our risk exposure and gives us greater con-fidence in achieving our goal of delivering the Olaroz project on time and within budget,” says Richard Seville, managing director of Orocobre.

Another lithium miner, Galaxy Resources, says reserves at its Sal de Vida project support annual output of around 25,000t of lithium carbonate and 94,000t of potash over a 40-year life of mine.

Meanwhile, ADY Resources produces lithium chemicals at an integrated facility at Salar del Rincon in Salta Province. Potash is a significant by-product of producing lithium.

The operation is self-sufficient in process water, which is supplied from a nearby borefield on tene-ments that are controlled by ADY. Key process rea-gents are sourced locally.

Lithium Americas is also developing what it says is the world’s third-largest lithium brine resource. Mitsubishi Corp and Magna International are share-holders in the company and have off-take arrange-ments in place.

Lithium Americas’ main property is located in the heart of the Puna Plateau, the area in which more than 80% of the world’s lithium brine reserves are located. The property spans approximately 83,000ha and comprises a significant portion of two adjacent salt lakes, Cauchari and Olaroz, in Jujuy province.

The property is about 200km east of the largest lithium producing salt lake in the world, the Salar de Atacama in Chile, where lithium producers Chile’s SQM and Rockwood Lithium Inc have opera-tions.

It is located 200km north of the second-largest lithium producing salt lake in the world, the Salar del Hombre Muerto in Argentina, where FMC Lith-ium Corp has operations.

The project is 50km away from a natural gas pipeline. “As energy is one of the largest cost ele-ments in lithium carbonate production, access to this inexpensive energy source is a significant ben-efit to [Lithium Americas],” says the company on its website.

Meanwhile, International Lithium Corp has recently reinforced its relationship with strategic partner China’s Jiangxi Ganfeng Lithium Co Ltd, through an increased equity stake of 14.7% to fur-ther advance its core projects.

The company’s primary focus is the Mariana lith-ium-potash brine in Salta province.

Also exploring in Salta province is Canadian miner Rodinia. Its Salar de Diablillos lithium-brine project contains a recoverable inferred brine resource of 2.8Mt of lithium carbonate and a recov-erable inferred brine resource of 11.2Mt of potas-sium chloride equivalent.

Above left: Barrick Gold’s Pascua Lama project, which has been

subject to delays Above, right: Yamana Gold Inc’s

Gualcamayo gold mine

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“Many sectors, including mining,

are struggling in the face of increasingly

stringent controls on imports of

equipment and supplies”

Company Project Commodity ProvinceADY Resources Ltd Rincon Salar Lithium Salta

AngloGold Ashanti Ltd Cerro Vanguardia Gold-silver Santa Cruz

Barrick Gold Corp Pascua Lama Gold-silver San Juan

Blue Sky Uranium Anit/Santa Barbara Uranium Rio Negro

FMC Lithium Corp Fenix Lithium Catamarca

Galaxy Resources Ltd Sal de Vida Lithium Catamarca

Glencore Xstrata plc El Páchon Copper San Juan

Goldcorp Inc Cerro Negro Gold-silver Santa Cruz

Golden Arrow Resources Corp Chinchillas Silver-zinc-lead Jujuy

Lithium Americas Corp Cauchari Lithium Jujuy

Orocobre Ltd Olaroz Lithium Jujuy

Patagonia Gold plc Lomada de Leiva Gold-silver Santa Cruz

Rodinia Salar de Diablillos Lithium Salta

Silver Standard Resources Inc Pirquitas Silver-zinc Jujuy

U308 Corp Laguna Salada Uranium-vanadium Chubut

Vale SA Rio Colorado Potash Mendoza

Notable projects in Argentina

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The uranium sweet spotAside from lithium, the other bright spot in the Argentine mining landscape is uranium. The coun-try’s National Commission of Atomic Energy (CNEA), the state company that explores for uranium, esti-mates there is 55,000t of uranium as “exploration targets” in several different geological environ-ments.

Exploration and mining of uranium took place between the mid-1950s and 1997 before the Sierra Pintada was closed due to economic reasons. Then Argentina saw a uranium craze in 2005-2006 when some 20 companies were exploring while uranium prices were at record highs.

When the price dropped, most of these firms left the country, many changed their focus to other commodities and only a handful remained.

The CNEA had very ambitious plans and was poised to benefit hugely from collaboration with private companies, but not much came of it. Now Canadian uranium explorers such as U308 Corp and Blue Sky Uranium Corp, hope to step into the breach.

U308 is busy with a preliminary economic assess-ment (PEA) that is due out in 2013’s September quarter. With the support of the Argentine govern-ment, its project could be in operation within two to four years.

“We’re taking a contrarian approach in Argen-tina,” Richard Spencer, U308’s president and CEO tells Mining Journal.

He describes the project in Chubut province as simple, since it is made up of loose gravel lying at the surface. He expects the project to be relatively low cost, possibly around US$100 million or a little more, but this will depend on the PEA.

Spencer adds that the country is taking a phe-nomenal leadership role in the Latin American nuclear sector and is stress-testing its third nuclear reactor, even though all of its uranium is imported.

Argentina is working with Brazil and China on the nuclear front and the central government is trying to get uranium production going again internally. Regional authorities are also focused on permit-ting.

“Uranium fits in with the government ideology. It is a niche… a sweet spot,” stresses Spencer.

U308 says that most of the reagents are sourced locally, protecting the company from inflation.

“The more we can isolate ourselves into a closed loop the better,” says Spencer, adding that the impact of inflation is counterbalanced by the deval-uation of the local currency.

The importance of partnerships with regional governments cannot be underplayed and a num-ber of firms are following this model to advance projects.

“We will probably end up with some sort of JV kind of relationship with the provincial govern-ments. That’s the practical way to go in Argentina… That works well for both sides,” adds Spencer.

For U308 this is important, since Chubut province has banned open-pit mining.

“It is a show stopper,” says Spencer, who adds that the firm has argued that the project is not an open-pit mine as they would be scraping off the

3.9 in US$ billion, total investment in Argentina’s mining industry 2002-12

120 number of international and local mining companies that own mineral properties in Argentina

80 percentage of world’s lithium brine reserves located in the Puna Plateau

55,000 tonnes of estimated uranium exploration targets

Key figures

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Salar del Hombre Muerto at the Sal de Vida project

“Argentina is one of the world’s top lithium producers and over the past few years there has been a huge push to expand production”

Rio ColoradoIn March, Argentina launched a broadside against Brazil’s Vale SA for suspending its US$6 billion Rio Colorado potash project and warned the company could lose its operating licence unless work is resumed.

Vale said the suspension was part of a cost-cutting drive and that in the current environment the project would not provide the needed returns.

It put the project under review at the start of the year, extending the Christmas break for employees, as it evaluated the economics of the operation after cost-overruns.

The Argentinian government said it regretted Vale’s decision to abandon the project “despite the efforts made by the government… to ensure the project’s continuation”.

Reuters reported that Vale could sell the operation in a bid to recoup the US$2.2 billion spent on the project.

Buenos Aries said Vale was demanding a series of concessions, including rebates of value-added tax, export-tax waivers and a reduction in investment commitments that would have cost the Argentinians US$3 billion over two years.

A statement on the Argentinian government website claimed Vale had raised the estimated cost of Rio Colorado from US$6 billion to almost US$11 billion, “affecting the competitiveness and attractiveness of the project”.

The move followed decisions by other large mining groups to cut back on projects amid higher costs and the weaker global economic climate.

Argentinian planning minister Julio De Vido said Vale had breached conditions of its contract at Rio Colorado and could lose the concession, should it not re-start work.

The Brazilians planned to spend another US$611 million on the project this year. It purchased the concession, along with other potash exploration assets in Canada, from Rio Tinto in February 2009 for US$850 million.

Rio Colorado, which has the capacity to produce 4.3Mt/y of potash products, was due to start up in the second half of 2014 and was 45% complete by the end of 2012.

“Vale will keep honouring the commitments related to the concessions and searching for alternatives that enhance the economics of the project, to then evaluate its resumption,” said the Brazilian company at the time – Mining Journal

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Focus: Argentina

gravel and replacing the soil, so the ban does not apply.

“We would leave the area in a better state than it is at the moment and it would be regenerated and contoured.”

Talks have started and the firm says it has a close relationship with the regional government. Under the terms of any future deal, the central govern-ment has the first right to any yellow cake produced. Spencer says he believes the government is keen to get resources developed with the private sector.

Fellow Canadian explorer Blue Sky Uranium also stresses the importance of developing good work-ing relationships with the regional governments. The company is a member of the Grosso resource management group, which has been in Latin Amer-ica since 1993.

“The secret to success is developing relation-ships,” says Sean Hurd, president and CEO of Blue Sky Uranium.

Blue Sky benefits from an agreement in principle for a strategic alliance with the regional govern-ment of Rio Negro province, to jointly explore com-mercial mining.

During 2012 its partner Areva SA funded C$1 mil-lion (US$1 million) worth of exploration at Ivana, in Rio Negro and at Sierra Colonia, in Chubut province, where several new discoveries have been made.

This will rise to C$2 million in 2013, with drilling likely by the December quarter. Under the terms of a deal relating to spending and project size, Blue Sky could potentially end up developing a 51%-49% mine in 2015.

Areva is only interested in 20Mlb-plus projects with a minimum mine life of 10 years, said Hurd.

Silver output to soarAside from uranium, the Grosso Group’s Golden Arrow Resources Corp has also made a silver dis-covery in what it believes could be an emerging silver district in the north of the country.

Golden Arrow is focused on advancing its Chin-chillas silver project, in Jujuy, located around 30km from Silver Standard’s Pirquitas mine. Chinchillas has an indicated resource of 7.2 Mt, grading 119g/t Ag, 0.57% Pb, 0.48% Zn and an inferred resource of 21Mt, grading 78g/t Ag, 0.69% Pb and 0.62% Zn.

Silver Standard has one operating mine in Argen-tina: Pirquitas. In the first half of the year the mine produced around 3.9Moz of silver and is on track to meet full-year guidance of 8.2Moz-8.5Moz of silver and over 20Mlb of zinc in 2013. Zinc production in 2013 is set to double year-on-year.

“We are progressing the San Miguel phase two open-pit transition on schedule,” says Casarin. “Early this year, we also commenced a formal restructuring programme aimed at reducing costs and increasing production recoveries. Exploration activities continued through the first half of 2013 in an effort to increase reserves and ultimately the mine life of Pirquitas.”

At its Diablillos property it has an indicated min-eral resource of 77.1Moz of silver and 600,000oz of gold.

Silver output could soar to 81Moz/y and copper could double if the mega projects such as Glencore Xstrata plc’s El Pachón, and Minera Alumbrera Ltd’s Agua Rica, obtain the necessary corporate and gov-ernment approvals and get access to the funding they require.

El Pachón could potentially start operating in 2016 after three years of construction, with initial output estimated at 400,000t/y of copper at

“While some view Argentina

as a basket case economy, others remain buoyant

about the future of mining in the

country due to the quality of

the resources, infrastructure

and labour that is available and

point to far more unstable regimes in

the region”

Patagonia Gold’s Lomada de Leiva project

Above: Drilling at the Chinchillas deposit

Right: Salines Grandes-piletas

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mining-journal.com/reports Media

Coming up in next week’s issueHow is mining in Argentina faring

in the post-boom years?

an estimated cost of US$4.1 billion.Glencore Xstrata’s assets in Argentina also

include Alumbrera, the country’s largest copper mine, which is a joint venture, and a 50% interest in Agua Rica, which is just 35km from Alumbrera. Both are in Catamarca province.

Meanwhile, there are delays for Barrick’s massive Pascua Lama silver-gold mine, which straddles the border of Chile and Argentina. In April, a Chilean court imposed a fine on Barrick related to alleged environmental misdemeanors and ordered Barrick to stop construction at the mine.

“In light of the challenging business environ-ment we are facing today, and taking into consid-eration existing construction delays, the company is advancing the project in a prudent manner by extending the construction schedule over a longer period, which will reduce total planned capital expenditures by US$1.5-US$1.8 billion for the years 2013 and 2014,” said Barrick’s Jamie Sokalsky, presi-dent and CEO, in a recent statement.

The company has submitted a plan, which is sub-ject to review by the Chilean regulatory authorities, to construct a water management system in com-pliance with permit conditions for completion by the end of 2014. After this point Barrick expects to complete remaining construction works in Chile, including pre-stripping.

Under this scenario, ore from Chile is expected to be available for processing by mid-2016 instead of the second half of 2014. Pascua Lama has proven and probable reserves of 17.9Moz of gold and 676Moz of silver contained within reported gold resources.

Rojas believes it could be very serious if further problems arise, since the project cannot solely rely on the mineral hosted in the Argentinean Andes, which is only around 30% of the total deposit.

“So it could mean the project could be shelved, which would severely harm the local economy and projected investment figures,” she says.

Argentine advantageAs politicians worldwide look to fund their way out of the economic slowdown, mining has become a target and Argentina is no exception to this. And yet new silver, copper and gold discoveries are being made.

While some view Argentina as a basket case economy, others remain optimistic about the future of mining in the country due to the quality of the resources, infrastructure and labour that is available and point to far more unstable regimes in the region.

For Blue Sky Uranium’s Hurd, the perception of political risk “is far worse than the reality”.

And mergers and acquisitions are still happening.“There’s some appetite from strategic investors

to acquire near-term production assets which are selling for lower prices, due to a higher discount rate applied to Argentinean projects because of political risk,” says Rojas.

“Things are certainly not static. There are oppor-tunities which seasoned executives who know the region well are taking advantage of.”

Even as Argentina’s economic crisis deepens, some provinces such as Jujuy and Catamarca con-tinue to show strong support for the mining indus-try, so there are reasons to be hopeful, says Rojas.

Above: Landscape near Golden Arrow’s Chinchillas depositRight: A uranium sample

“Argentina is working with Brazil and China on the nuclear front and the central government is trying to get uranium production going again internally”

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