By Shane Romig
MAR DEL PLATA, Argentina--Santa Cruz Province has unsettled
investors with legislation that would hike mining taxes and force
mining companies to cede a stake in their projects to the
provincial government, according to the president of Argentina's
mining chamber.
"The laws need to be coherent and foreseeable...They can't be
changed in such an absurd way," Martin Dedeu said in an
interview.
The bill currently before the Santa Cruz legislature 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 output.
While it's not clear if the bill will be passed, 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.
Companies with Santa Cruz operations include AngloGold Ashanti
Ltd. (AU, ANG.JO), 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).
"Investment will go to other provinces, other countries or other
parts of the world," Mr. Dedeu 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 mining industry has proposed alternative legislation that
would tax operating income and provide for higher taxes when
surging metals prices lead to windfall profits for miners.
"We're thinking about ways to get out of this uncomfortable
situation," Mr. Dedeu said.
Argentina's miners are already wary after the Supreme Court in
July reversed a lower-court ruling that suspended the
implementation of a glacier-protection law in mining-friendly San
Juan Province. The law threatens to derail several
multibillion-dollar mining projects there.
The high court still hasn't ruled on the constitutionality of
the law, which limits economic activity in the areas surrounding
glaciers.
The mining industry expects the law to be declared
unconstitutional as it infringes on the rights of the provinces to
manage their environment and natural resources, Mr. Dedeu said.
The government has started the long-delayed nationwide inventory
of glacial ice to determine which areas will be made off limits to
mining.
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.
Currency controls that led some mining companies to suspend
mineral shipments earlier this year have been loosened and exports
are flowing again, Mr. Dedeu said.
In June, mining exports virtually ground to a halt after the
government imposed new rules making mining companies exchange their
export revenues for Argentine pesos on the local foreign exchange
market within 15 days of an export sale. Many companies said it was
impossible to comply, as they often don't receive payment until
months after shipping the minerals.
The administration of President Cristina Kirchner has tried to
bolster the country's international reserves by blocking imports
and speeding up the repatriation of export sales.
However, the government relented when it became clear that
exports were plunging and extended the repatriation period for many
companies to about 120 days.
-Write to Shane Romig at shane.romig@dowjones.com
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