Argentina Province Eyes Mining Royalties to Plug Budget Gap.
Published September 05, 2012 Dow Jones Newswires
Argentina's Santa Cruz Province is considering legislation that would hike mineral royalties and force investors to cede a stake in mining projects to the provincial government in a development that could further undermine confidence in an industry that is dealing with new environmental regulations.
The bill would see provincial mining company Fomicruz take a 10% equity stake in current and future mines without compensation and increase royalties to 8% of the value of mineral production.
The cash-strapped province's repeated attempts to secure more tax revenue out of the mining industry threaten a decade-long investment boom that has made Santa Cruz home to the bulk of Argentina's gold mines.
"It's not good news...These changes only work to scare away foreign investment," said Jorge Palmes, general manager of South African mining company AngloGold Ashanti Ltd.'s (AU, ANG.JO) Cerro Vanguardia mine in Santa Cruz.
Fomicruz holds a 7.5% stake in Cerro Vanguardia, and the provincial government collects a royalty of 6.6% of the company's unrefined mineral output.
Mr. Palmes expects the bill to be voted down, but "just the fact that they have presented a law like this is worrying...It's totally unconstitutional," he said.
Critics say the legislation, known as "Fomicruz to 10%", clashes with the 30 years of fiscal stability that Argentina's constitution grants mining projects. It also signals to investors that provincial governments won't shy away from changing the rules to plug budget deficits.
"The bill tramples on the federal mining code and law of mining investments...Anywhere in the world this is called 'expropriation,' plain and simple," said Daniel Bosque, director of industry news site Mining Press.
Companies with Santa Cruz operations, including McEwen Mining Inc. (MUX, MUX.T), Hochschild Mining PLC (HOC.LN), Mirasol Resources Ltd. (MRZLF, MRZ.V), Minera IRL Ltd. (MIRL.LN, IRL.T) and Pan American Silver Corp. (PAAS, PAA.T), either declined to comment or didn't respond to messages.
Santa Cruz Congressman and bill sponsor Leonardo Alvarez--who is a member of President Cristina Kirchner's faction of the populist Peronist Party--didn't respond to messages seeking comment.
Santa Cruz Governor Daniel Peralta likely will oppose the bill but hasn't made a decision yet, a provincial government spokesman said. The bill is set for committee debate when the province's lower house reconvenes later this month. Mr. Peralta, who is also a member of the ruling party, clashed with Peronist legislators earlier this year when he tried to push through unpopular austerity measures.
"Fomicruz to 10%" is the province's latest attempt to solve its fiscal woes by tapping the mining industry. In July, Mr. Peralta unsuccessfully tried to push through legislation that would have levied a new 10% tax on the sale of mining properties in the province. That came just weeks ahead of Extorre Gold Mines Ltd.'s sale of it Cerro Moro mine in the province to Yamana Gold Inc. (AUY, YRI.T). The $400 million deal was completed in August.
Earlier in the year, Mr. Peralta asked mining companies to voluntarily contribute 15 million pesos ($3 million) a month as a "gesture" so his government could pay its employees, a request the miners declined.
Santa Cruz is bust and is desperately looking for money anywhere it can, Mr. Bosque said.
Argentina's mining industry has attracted significant investment in recent years, thanks to high global metals prices and the country's largely untapped mineral wealth. In 2011 alone, the sector received investments of 11.1 billion pesos ($2.55 billion), according to the government.
But exploration companies already are struggling to raise financing on international capital markets for projects in Argentina as the country's uncertain regulations and worries about the global economy trump its mineral potential.
Mrs. Kirchner's decision in April to seize a controlling stake in oil company YPF SA (YPF, YPFD.BA) from Spain's Repsol SA (REPYY, REP.MC) unsettled foreign investors. The Kirchner administration has signaled that Repsol might receive little if any compensation for its YPF shares.
More recently in July, Argentina's Supreme Court reversed a lower-court ruling that suspended the implementation of a glacier-protection law in mining-friendly San Juan Province, threatening to derail several multibillion-dollar mining projects there.
The high court still hasn't ruled on a constitutional challenge to the law, which limits economic activity in the areas surrounding glaciers.
The government has started a nationwide inventory of glacial ice to determine which areas will be made off limits to mining, but the process has been slow. Just one area in Mendoza Province has been inventoried so far.
The Supreme Court ruling means that projects such as Barrick Gold Corp.'s (ABX, ABX.T) $5 billion Pascua-Lama mine will have to conduct an inventory of nearby glacial ice before proceeding with construction.
(20min delay)