Energy and Natural Resources

Recently implemented and proposed regulatory and legislative changes

MINING

The booming of the Argentine mining industry, at the beginning of the 90’s, was the result of a wide political arrangement reached by the Federal government and each of the twenty-three Argentine Provincial governments and sealed by the first Federal Mining Agreement of May 1993.


This first Federal Mining Agreement came along with a solid promotional regime embraced by the Mining Investment Act of April 1993. The most relevant fiscal benefits and tax breaks of such act being: (i) a 30-year tax, foreign exchange and customs duties stability[1]; and (ii) a cap on the royalties received by the Provincial governments which may not exceed 3% of the pithead value of mineral obtained.

The foregoing political arrangement and promotional regime has been of paramount importance to develop the Argentine mining industry that we enjoy today, and particularly for those large-scale projects that have been in production for many years now (namely, Alumbrera, Cerro Vanguardia, Fenix and Veladero), as well as for those world class projects that are about to start (e.g. Agua Rica, Pascua-Lama, El Pachon, PRC, Cerro Negro and Cerro Moro).

On the eve of the 20th anniversary of the Mining Investment Act we must say that, except for certain scattered clawbacks affecting the customs duties and foreign exchange stabilities[2], the promotional regime has been fairly applied by the Federal and Provincial governments and courts (even by the Supreme Court in a landmark case involving Cerro Vanguardia project) and it is still the prominent Argentine mining legislation, aside from our long-standing Mining Code.

However, nowadays, a new mining political arrangement has emerged, mainly encouraged by the fact that we have now a more matured local mining industry, with a significant potential achieved during the past 20 years, and also driven by the increase of commodities prices, particularly gold.

Like in the early 90’s, this new political arrangement is also pursuing a boost of the mining industry as a whole, working strongly to improve the public opinion acceptance towards mining as a sustainable business, and to position mining within the Argentine strategic industries vis-à-vis the international business community.

Now, on the other hand, it comes with a different view as to the promotional regime established back in the 90’s and the level of involvement that Provincial Governments have had so far in the execution and development of mining projects in Argentina.

The first significant milestone of this new political arrangement has been the creation in February 2012 of the Federal Association of Mining Provinces, known as “OFEMI”. This is an association formed by the ten Argentine provinces with significant mining potential and in which territories the main mining projects of Argentina are located[3].

The OFEMI basically embraced the main issues of the mining political agenda that were being discussed at the time of its creation and outlined them in the so called “New Federal Mining Agreement” of March 2012.

This 2012 Federal Mining Agreement was neither conceived as a new piece of legislation, enacted to create new rights or obligations directly affecting the mining companies and their activities, nor works as an amendment to, or substitution of, the existing mining legal framework (i.e. the Mining Investment Act).

Nonetheless, it is still very relevant as it proposes a set of basic objectives that are inspiring potential regulatory and legislative changes[4] to the current mining legal frameworks in each of the Provinces belonging to the OFEMI.

Among the different objectives laid out in the new Federal Mining Agreement, the most significant one for the private sector is the political decision of each of the OFEMI’s Provinces to enhance their involvement in the mining projects located within their territories and increase their stake in the revenues that the private mining companies generate.

To achieve the foregoing, the new Federal Mining Agreement promotes two different schemes.

One scheme consists in the formation of Provincial mining companies which are private corporations wholly owned by a Provincial government and designed to explore and mine themselves or in joint venture with private mining companies.

The other scheme consists in setting up fideicomisos mineros (for its term in Spanish),which are a sort of “mining trusts” where the mining company contributes cash, derived from a particular mining project, and the Provincial government, acting as trustee, applies such cash exclusively to finance infrastructure works covering basic needs (e.g. health, education, power supply, roads, etc.), for the communities within the zone of influence of the mining project at stake.

These two schemes are not new in Argentina.  The joint ventures between Provincial mining companies and private companies exist since the very beginning of the mining booming back in the 90´s[5]. On its part, the mining trusts scheme has been peacefully applied by the Province of San Juan since 2009[6].

However, the relevant news is that these two schemes were being applied so far for specific cases or under specific circumstances or just by some Provinces, and now, driven by the new Mining Federal Agreement, all of the OFEMI Provinces are tending to adopt or re-launch (for those ones which already use this tools) one or both of these schemes as a general rule[7].

Thus, if this trend continues to expand and if it solidifies in the years to come, the mining business in Argentina, and as consequence its legal framework, will necessarily have some changes due to the fact that our mining industry will swing from an industry basically dominated by the private sector, as it is today, to an industry where the public sector is significantly involved.

To conclude, without disregarding the landmark achievements that OFEMI and its new Federal Mining Agreement are seeking for the mining community as a whole, it must be said that the current Argentine mining legal framework, which is mainly based on the policies developed back in the 90’s, will probably be celebrating its 20th anniversary next year under the view -at least from the Federal and Provincial governments stand point- that the core objectives of such legal framework have been now accomplished, and a new phase is to start where such legal framework, mainly the Mining Investment Act, will most surely remain on its feet, but tarnished by a whole set of new rules driven by the new political view embodied in the 2012 Federal Mining Agreement.

In the meanwhile, mining investors will have to look closely to the reasonableness of any new developments to identify which provincial jurisdiction, particularly which OFEMI Province, better suits their investments.


ENVIRONMENTAL

The most relevant recently implemented environmental legislation affecting the mining sector is the Federal Glaciers Protection Law No. 26,639.

This law was enacted by the Federal Government on October 28, 2010, with the purpose of establishing the minimum requirements for the protection of glaciers and peri-glacier areas in Argentina to preserve them as strategic reserves.

Shortly after the enactment of the Glaciers Law, certain mining companies, associations and labor unions, mainly located in the Province of San Juan, initiated legal actions before the federal courts at such Province requesting the declaration of unconstitutionality of the Glaciers Law and, in the meanwhile, an injunction to prevent the enforcement of certain provisions of such law. The Government of San Juan joined such claims, and injunctions were obtained by the claimants from the local San Juan court.

The main challenged provisions of the Glaciers Law: (i) provide for the definitions of “glaciers” and “peri-glacier areas”[8]; (ii) provide for the preparation of a Federal Glaciers Inventory and appoints a federal body, known as “IANIGLA”[9], to carry out such inventory[10]; (iii) prohibit exploration and mining in glaciers and peri-glacier areas[11]; and (iv) provide that inventory tasks are to begin in those areas where mining activities already exist, granting a 180-day term to finalize such tasks, and further provides that mining activities on glaciers or peri-glacier areas existing at the time of enactment of the law shall, within a 180-day term, be subject to an environmental audit to identify and quantify the potential and existing environmental impacts and, in the event of verifying significant impact on glaciers or peri-glacier areas, the authorities shall implement relevant measures to ensure compliance with the law, being able to order the cease or relocation of activities as well as protective and restoration measures[12].

The injunctions obtained from the federal court in the Province of San Juan suspended the application of the Glaciers Law in such jurisdiction, particularly the immediate actions sought by the law which were the confection of the Federal Glacier Inventory by IANIGLA on those areas which already had mining projects and the carry out of environmental audits to determine the environmental impact of such projects in glaciers and peri-glaciers areas.

The injunctions were appealed by the National Government, and on July 3, 2012, the Argentine Supreme Court overruled the injunction granted by the federal court located at the Province of San Juan in its entirety. Decision as to the unconstitutionality of the challenged provisions of the Glaciers Law is still pending and it is uncertain when the Supreme Court will issue a ruling in such respect.

The Argentine Supreme Court, by overruling such injunctions, has reactivated the effects of the Glaciers Law.

The Supreme Court found that the San Juan court’s resolution that granted the injunctions was self-contradictory, as it was based on the argument that the Glaciers Law created uncertainty due to the broad definitions of glacier and peri-glacier areas, but at the same time it neutralized the procedures established by the law to bring certainty as to the extent of such definitions, i.e., the completion of the Federal Glacier Inventory. The Supreme Court, stressed the need to allow the preparation of the Federal Glaciers Inventory and the environmental audits on the existing mining projects, so as to understand which are the precise areas protected by the law and to which extent the rights of the relevant claimants are affected. 

The Supreme Court has not indicated, however, whether the IANIGLA is the appropriate body to carry out the glacier inventory, when some provinces, such as the Province of San Juan, are conducting their own glaciers inventory through their local technical government bodies; and  whether the environmental audit to determine the environmental impact of existing mining projects in glaciers and peri-glaciers areas is to be conducted by the relevant mining companies or by the environmental authorities, and in the latter case, whether federal or provincial environmental authorities should be involved.

Therefore, as long as the Supreme Court does not rule on the constitutionality of the law, it will remain uncertain to which extent mining projects which are located in altitudes of Andes mountains where glaciers exist, will be affected by the Glaciers Law.

Now, the Federal Glaciers Inventory is to be made, starting with those areas where existing mining projects are located, and once this task is finalized such mining projects will have more certainty as to which extent their projects fall within the boundaries of the Glaciers Law. Although the law provides for a 180-day term to perform the foregoing initial inventory, such term may or may not be met and there may be a material delay depending on the political willingness to complete it sooner or later.

In conclusion, the viability of those mining projects existing prior to the enactment of the Glaciers Law, that are found to be located in glaciers or peri-glacier areas, will depend on the outcome of that certain environmental impact audits provided for in the law, where the impact on the glaciers and peri-glacier areas concerned will be analyzed, and in the event of significant impact, the relevant authorities will be entitled to take the pertinent measures to enforce the Glaciers Law, including cease or relocation of activities. The foregoing would cease in case the Supreme Court ends up resolving that the Glaciers Law is unconstitutional.


[1] The respective stability certificate is obtained upon compliance with certain filings with the Mining Secretariat, mainly the filing of a feasibility study for the relevant mining project.

[2] In 2007, mining companies protected by customs duties stability were forced to start paying certain export duties created in 2002, and in 2011, all mining companies –including those protected by foreign exchange stability- were forced to repatriate all of their export proceeds and convert them to pesos through the official exchange market. Some of the affected mining companies initiated legal actions which are, in both cases, still on an early stage.

[3] The OFEMI’s Provinces are: Jujuy, Salta, Catamarca, La Rioja, San Juan, Mendoza, Neuquén, Rio Negro, Chubut and Santa Cruz.

[4] The new Federal Mining Agreement says nothing about the tax, foreign exchange and customs duties stability and the 3% royalty cap introduced by the Mining Investment Act back in 1993, and so far, there has not been any law at Federal or Provincial level revoking such stability and promotional regime of the 90’s, though several bills as to royalties, new mining legal frameworks, among other matters, are being discussed in a non-uniform manner by each of the Provinces belonging to the OFEMI, all of which are still on an initial phase or without a certain outcome. For example: The Province of Santa Cruz, immersed in profound economic distress, changed its royalty’s collection policy in October 2012 in an attempt to improve its financial position. Santa Cruz joined the Argentine Mining Investment Act of 1993 adhering to the 3% cap on royalties, but in fact, due to exemptions granted on a case by case basis to those companies mining in its jurisdiction, Santa Cruz was normally charging a 1% royalty to the mining sector. This scheme was modified in late October 2012 when the congress of Santa Cruz eliminated the ability to grant exemptions to the 3% royalty cap set forth in the Mining Investment Act of 1993.

[5] The Provincial mining companies scheme has been used by the main mining Provinces, among them the Santa Cruz Province, through the state owned company Fomicruz (formed in 1988) which for example holds a 7.5% participation interest in the Cerro Vanguardia project, operated by AngloGold Ashanti. YMAD, a mining company owned by the Province of Catamarca and the University of the Province of Tucuman, is another example, with its 20% participation interest in the long-standing world class deposit Bajo La Alumbrera, since 1997. On its part the Province of San Juan created the IPEEM, back in 1989, with the purpose of acquiring mining rights and areas for its subsequent exploration and mining in association with private companies, the most emblematic project being Veladero where IPEEM has associated with Barrick in exchange for a 5% participation interest. The Province of Salta also created REMSA in the 90’s though, so far, without relevant associations with the private sector.

[6] The mining trusts implemented lately by Province of San Juan have represented contributions by the mining companies in approximately US$ 15.5 million during the 2009-2011 time period (according to the San Juan Mining Services Chamber). These mining trusts are the result of negotiations of the San Juan government on a project by project basis, and have been seen as a way of circumventing the 3% cap on royalties set forth in the Mining Investment Act. The most relevant mining trusts are the ones related to the following projects: Pascua-Lama (Barrick), with a US$ 70 million commitment, Argenta trust (Barrick) with a US$ 5.6 million commitment, Gualcamayo trust (Yamana) with a commitment equivalent to 1% of the gross production, and Casposo trust (Troy) with a commitment equivalent to 1% of gross sales for the first two years and 1.5% thereof from the third year until closure of the mine.

[7] For instance, the Province of Jujuy has recently created JEMSE that associated with the private company Sales de Jujuy (owned by Orocobre) for the execution of the lithium project Olaroz. The Province of Catamarca launched CAMYEN and is pushing to associate with Yamana to develop the world class project Agua Rica. On their part, La Rioja Province created EMSE and Rio Negro Province has recently created EMIRSA both with the same purposes as the already existing ones. ,

[8] Section 2 of the Federal Glaciers Law.


[9] In Spanish, Instituto de Nivología, Glaciología y Ciencias Ambientales

[10] Sections 3 and 5 of the Federal Glaciers Law.

[11] Section 6 of the Federal Glaciers Law.


[12] Section 15 of the Federal Glaciers Law.


For further information on this topic please contact Juan Martín Allende