Argentina Mining Report 2009

The year 2008-2009 saw the ramping up of five major mines in Argentina, suggesting that the sector will continue to form an important, if small, part of the country's economy and should still attract foreign investment despite various disincentives. While sector growth will likely suffer in the short-term due to the nosedive in commodity prices and the effects of the global economic downturn, BMI expects recovery and continued growth in the medium-term.

The sector was given a particular boost when global mining giant Barrick Gold finally gave a green light to the much discussed and equally delayed Pascua-Lama project on the Argentine-Chilean border in May 2009. A long-running tax dispute between the two countries had stalled plans, but the bilateral resolution of the dispute was welcomed as a successful application of the 1997 Mining Integration Treaty.

Development of the gold and silver deposit - one of the last known mega-gold finds in the world - is expected to cost between US$2.8bn and US$3.0bn, and is believed to contain some 17.8mn ounces (oz) of gold, with annual production in the first full five years forecast to reach some 800,000oz of gold and 35mn oz of silver. Barrick said that commissioning would begin in 2012, with production launched soon after in 2013.

In addition, several other mines have gone live or are in the process of ramping up, bringing the number of world-class mines in production to 14, reportedly the highest yet. In early 2009, the first silver was poured at both Silver Standard's Piriquitas mine in Jujuy province, and Pan American Silver's Manantial Espejo mine in Santa Cruz. Mining at Yamana Gold's Gualcamayo property in San Juan province began in 2008, while the processing of ore began in early 2009. The mine is projected to begin production at commercial levels in mid-2009, with an annual forecast of some 200,000oz of gold.

Companies have also been attracted to Argentina's potential for both potash and uranium mining. In February 2009, Brazil-based mining giant Vale acquired debt-burdened Rio Tinto's potash assets in Argentina for US$850mn. While the assets are still at the feasibility stage, the yield of the Rio Colorado project is reportedly expected to propel the country up into the top five potash producers in the world. A number of juniors have been exploring for uranium mineralisation and reporting satisfactory results.

Argentina is one of the world's leading producers of lithium and boron. However, in a global context, it is a fairly insignificant player in the markets for gold, silver, copper, base metals, iron/steel and aluminium.

Argentina's national investment agency estimates that over 60 foreign companies operate in the sector, while others put this figure at closer to 80. Almost all of the large projects are controlled by the local subsidiaries of multinationals. However, some smaller, listed, foreign companies (typically from Canada or Australia) are active in exploration and development.

Argentina's mining/minerals sector is not important relative to exports, GDP or total employment. Nevertheless, and despite displeasure over the earlier removal of tax exemptions for mining companies, the administration of President Cristina Kirchner has appeared broadly pro-mining. Discussions with various mining companies over the reintroduced export tariffs have attempted to reach a consensus, but the results are as yet unclear. Provincial governments have a significant role to play in the awarding of mining concessions and in the regulation of environmental matters. In relation to particular projects, companies have had to contend with significant opposition from local residents and/or provincial governments who have not been convinced of the benefits of local mining operations and/or have been concerned, rightly or wrongly, about mining issues. On balance, though, the business environment in Argentina is less challenging than those of many developing countries where major mining companies are active.

BMI Forecast

We expect the mining sector to grow at an annual average rate of 2.76% across the 2009-2013 period, reaching ahead of the economy as a whole, which will grow at 0.82%.