The mining challenges awaiting Argentina's next government

The mining industry in Argentina is expected to grow but it faces a scenario marked by runaway inflation, the volatility of the Argentine peso, increasing costs, difficulties in importing and declining gold and silver production.

One of the measures to support the sector was promoted by the Argentine chamber of mining companies (CAEM) and involves ensuring that products such as dolomite, lime, borate, boric acid, lithium chloride, lithium carbonate and precious or semi-precious stones, in addition to gold, silver and others were incorporated into the country's export incentive program.

The system, known as the mining dollar, allows 25% of exports to be settled at the highest spot exchange rate, without losing access to the free market.

But mining also faces restrictions due to the national import system (Sira), affecting the supply of key inputs and the construction of new projects, while a new government is set to take office in December.

To find out more, BNamericas spoke with CAEM president Roberto Cacciola. The presidential election runoff is this Sunday and a new government will take office in December.

BNamericas: What are the risks of the mining dollar?

Cacciola: We’ve been looking for a competitive dollar for some time, since in the last eight years there have been exchange control problems that affect exports and in particular mining, which has many projects available to advance. The dollar must be competitive so exploration, investment and developing projects is attractive. Currently, companies are not getting the dollars they sell, but a lower dollar. This undermines the incentive for investments and the useful life of projects. Many economic resources that were previously set at a certain exchange rate are today uneconomic because costs exceed income. A competitive dollar would allow projects to continue and stimulate new ones.

BNamericas: The Argentine mining industry also faces restrictions due to the Sira. Was the economy ministry's measure to release the sector's import permits that were blocked until September sufficient?

Cacciola: At that time we met with officials from the economy ministry, customs and others to unblock the permits. There were many individual procedures, so we centralized all import requests through CAEM to achieve greater effectiveness. This allowed the situation to be regularized, but unfortunately other needs and restrictions emerged later. The foreign exchange situation in the country is very complex and the approval procedures are also increasingly complex, linked to the government's difficulties in obtaining reserves.

BNamericas: The World Bank warned about the lack of infrastructure to serve Argentina's growing mining industry. CAEM collaborated on a study by the infrastructure policy council with suggestions on the topic. What are the main axes?

Cacciola: Our railway system has been in decline for about 30 years due to lack of investment, it needs modernizing. But issues regarding access to ports must also be resolved. Lithium and copper projects are waiting for better conditions to advance. For this reason, CAEM has revealed what the needs are so that we can work together between the public and private sectors, but first we must achieve consensus on the needs and then look at financing.

BNamericas: Gold and silver mining contributes 80% of Argentina’s mining exports. However, production has dropped. What situation is metallic mining in today?

Cacciola: Most of the gold and silver mines are quite old, starting with Cerro Vanguardia in Santa Cruz province, which has been active for almost 30 years. The others began operations in the early 2000s.

The main producer and exporter of gold and silver is Santa Cruz, but this year it closed its Manantial Espejo operation. In San Juan we have Veladero, in Salta we have Lindero and in Jujuy Pirquitas, but production at all of them is declining. Furthermore, there are no new ones in the pipeline.

We have conveyed to the government, both national and provincial, the complex situation with a lack of exploration caused by a macroeconomy with long periods of difficulties in the area of foreign trade. Without exploration there is no possibility of replacement [of reserves]. We do not have any major gold and silver project on the horizon, except Navidad, which for reasons not strictly macroeconomic, is not moving forward. If we don’t encourage gold and silver exploration, the decline will continue.

BNamericas: Regarding lithium mining, what challenges do you face?

Cacciola: The temptation to make tax or commercial changes when there is a favorable market scenario could be an obstacle to the continuity of the projects. Another threat is the possible substitution of the mineral given the technological advances. Today the liquid [brine] is valuable but tomorrow we don't know. However, this year we started with annual production capacity of 35,000t of lithium carbonate, and when the projects under construction come into operation, we would reach 265,000t in the short term, not counting those that are in advanced exploration.

BNamericas: Global mining has been called on to provide transparency and traceability in the industry to avoid cases such as the claims of under-invoicing against Minera Altiplano, a subsidiary of Livent. How can these events be avoided in Argentina’s lithium exports?

Cacciola: At CAEM we’re always available to provide information regarding any requirement or evaluation process. In this case, there are contracts that must be analyzed by the authorities, considering deadlines and particularities. If there is a long-term contract where certain prices and conditions are established, the logic is that they are respected. The fact that lithium doesn’t function as a commodity has an impact, since there’s no market and benchmark price as there is with other metals. It will be a big job to analyze if there was indeed any type of irregularity in the business relationship.

BNamericas: In Argentina, a wetlands law has been debated for years amid warnings that it would be a risk for the development of lithium projects. What is the latest with that?

Cacciola: An inappropriate wetlands law can affect any productive activity, but CAEM is not against a wetlands law, but rather a total prohibition, since apart from being a disincentive to investment, it generates insecurity. It’s necessary to define what is going to be protected, because when limitations and reservations are exceeded, situations that are not transparent are often generated.

BNamericas: What affects the competitiveness of Argentine mining?

Cacciola: The fact that mineral resources belong to the provinces with the reform of the 1994 constitution was a good decision, regardless of whether there are still provinces that prohibit mining. Before the mining investment law, we only had four or five mining projects, and two of those were metallurgical ones.

That law allowed several large projects, such as the Alumbrera copper project in Catamarca, the lithium project with FMC Corporation, which is now Livent, the Cerro Vanguardia gold and silver mine and several others. But the investment law has not been fully respected. There are cases in which the excess taxes paid by several companies have not been returned. This affects investment.

Another problem is not having a competitive dollar and the need for companies to define a percentage to export every time there is free availability of foreign currency.

All settlements of Argentine exports go through the central bank; That is, dollars are changed into pesos. This must be solved, because the investor must be clear that tomorrow he will be able to pay his loan and repatriate his profits when he obtains good economic results.

There are also problems with the import of inputs, spare parts, equipment and services that are not generated in Argentina, although for every US$100 that mining exports, imports require no more than US$8 to operate. Mining clearly has a positive effect but these are issues that must be resolved.

BNamericas: La Rioja declared lithium a strategic resource and in Jujuy the provincial company JEMSE has a share of 8.5% in each lithium project. Are public-private alliances positive for business sustainability?

Cacciola: In Jujuy it has worked correctly, because there is a clear percentage and a clear situation that has been maintained over time, demonstrating profitable businesses. In La Rioja, like the Chilean model, there are still uncertainties. It’s not enough to define lithium as strategic because that can involve percentages of 25%, 40%, 80% [for the State], so the investor doesn’t know under what conditions he’s going to invest. That doesn’t encourage investments.

BNamericas: What prospects do you see for Argentine mining in 2024 under the new government?

Cacciola: We hope that whichever of the two candidates wins, they really fulfill what they said in their campaigns about mining being one of the main sectors to help the country's economic situation. We’re not asking for legislative changes or new regulations but rather that what is generally clear be applied and that a macroeconomic framework be established that stimulates investment.

Forecasts indicate that inflation next year will remain high. We hope that a stabilization plan will come in the short term to begin to organize the economy with inflation levels compatible with that of other countries. We have a very strong challenge and we’re going to face it collectively with the understanding that mining is a determining factor for the future of our country.