--Santa Cruz Province mulls mining royalty and an expropriation
bill
--Governor is undecided on legislation as the province struggles
to close a budget deficit
--The bill is another blow to shaky investor confidence
By Shane Romig
BUENOS AIRES--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.
Write to Shane Romig at shane.romig@dowjones.com
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