Argentina’s miners hit the ground running

Plans by Rio Tinto to invest about $700m in a potassium salt extraction plant in Mendoza province in Argentina, provide further evidence of the rapid expansion in the country’s mining sector in recent years.

Although many businesses are still wary of investing in Argentina after the upheavals of the 2001 economic crisis, its undeveloped mining sector seems to be too good an opportunity to miss.

Unlike neighbouring Chile, the industry in Argentina has only recently begun to be developed by big business. Exports – which were virtually non-existent until the 1990s – now account for about 90 per cent of production, and have even overtaken beef exports, Argentina’s most emblematic commodity.

Ricardo Furfaro, Rio Tinto’s spokesman in Argentina, says the mine is expected to generate exports worth $400m a year, although it will not be operational until 2009. With little demand in Argentina, Brazil will be the prime destination of the potash, for use in fertilizers, as well as India and China.

The Anglo-Australian company’s plant – which will make Argentina the fifth-largest producer of potash in the world – will add to four other major mines in operation in Argentina, run by international mining companies Xstrata, Barrick Gold Corporation, AngloGold Ashanti and FMC. They account for the vast bulk of Argentina’s production – most of which is gold, silver, copper and lithium – but at least another six major projects are due to start in the short term.

With three-quarters of potential mining land still unexplored, this is just the beginning.

A spurt of foreign investment in the mid-1990s was interrupted by the economic turmoil that culminated in the crisis of 2001-02, but the industry has picked up impressively since.

Exports recovered briskly, reaching a record level of $1.63bn in 2005, compared with $260m in 1995. Industry projections say exports will double over the next five years.

“Argentina offers enormous opportunities both in its geological potential and the very low level of exploration, which explains the large number of ‘juniors’ carrying out all kinds of exploration projects all over the country,” says Alberto Mario Carlocchia, the president of AngloGold Argentina, which operates one of the biggest mines in the country, Cerro Vanguardia.

“The mining industry in Argentina is only just getting off the ground.”

Despite the uncertain investment climate that has pervaded Argentina under the government of President Nestor Kirchner, investment in exploration in 2005, at $159m, tripled 2004 levels. There were 50 mining projects under way in 2003; there are expected to be as many as 250 by the end of this year.

“In general the investment climate in Argentina is not good at the moment, but in the mining sector investment has not been letting up,” says Victor Di Meglio of the Argentine Chamber of Commerce for Mining.

He calculates that, even when only including projects already under way or near approval, accumulated new investment in exploration and production between 2005 and 2010 should reach $6bn.

Says Rio Tinto’s Mr Furfaro: “Export duties are something that affect the economy of the project considerably.”

A further issue for mining companies is the importance of guaranteeing a secure energy supply. “The energy issue is critical for this project. We need to be assured of an electricity and gas supply in the long term,” he adds.

Meanwhile, environmental concerns and legal issues have hindered the progress of other projects. Canada’s Meridian Gold, for example, was prevented from carrying out a gold and silver project in the province of Chubut because of locals’ worries of environmental damage.

Oscar Lacher, president of FMC Argentina, which runs Argentina’s fourth-largest mine, says: “The rules of the game are clear and in place, although it will be important to maintain them. The problem is that an antagonism has arisen between mining and sustainable development that really doesn’t exist.”

Others agree that there needs to be legal stability.

“It’s obvious that there are problems in certain provinces like Chubut and Rio Negro where laws have been passed against mining,” says Jorge Patricio Jones, of Desarrollo de Prospectos Mineros, who helped develop two of the biggest projects in Argentina – Bajo de la Alumbrera and Veladero.

“There’s a lot of potential, but to identify and develop that potential you have to invest. So what we all want is absolute legal stability,” says Mr Jones.

This is the first in an occasional series on the mining industry in Latin America.

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