TORONTO (miningweekly.com) – It is likely that the new administration of Argentina, which heads to the polls later this year, will be more business friendly and market orientated, with mining and other natural resource sectors playing an increasingly significant role.

“The money will start to flow in again once Argentina gets back on a good, responsible fiscal path. The country will then have an opportunity the likes of which it hasn’t seen in a century – since the heyday,” Argentina-focused project developer U3O8 Corp president, CEO and director Richard Spencer told Mining Weekly Online in an interview.

However, with much of the world fixated on Greece and the ‘Grexit’ or China’s recent stock market wobble, Argentina’s economic problems appeared to have slipped under the global news radar. But they have remained a concern and have played a central role in the political campaigns for the country’s upcoming presidential and congressional elections.

Polling day is October 25, with a second round on November 22, if necessary. The winner would have some serious fiscal tasks ahead, most notably striking an accord with several US hedge funds, called the ‘holdouts’, in their suit relating to unpaid debt; grappling with an inflation rate of 29% and injecting vim into an economy predicted to retract by 0.3% this year.

Equally pressing, especially for those involved in Argentina’s natural resources sector, were the country’s currency and capital controls. US dollars were exchanged at a set rate much lower than the black markets, while limits imposed on the repatriation of dividends and profits abroad remained in effect.  

Still, there had been positive signs as well. For example, Argentina had boosted its reserves to $33-billion, up from $28-billion, towards the end of 2014, while the Buenos Aires Stock Exchange also performed well. “It was the best-performing exchange in the world, in US dollar terms, in 2014. It went up by 60% and it had risen 30% this year already,” Spencer outlined.

U3O8 was developing the Laguna Salada uranium project, in Chubut province.

A MINING MATTER
The pace at which the various candidates would undertake reforms was variable. For example, Daniel Scioli, the governor of Buenos Aires and frontrunner with the incumbent Front for Victory (Frente para la Victoria) party, had more of a cautious platform for change.

“Scioli’s got a lot of priorities if he wins power. However, he also has to show commitment to the current government’s policies as the candidate to succeed President [Cristina] Fernandez,” Control Risks senior analyst Americas Thomaz Favaro told Mining Weekly Online.

Mauricio Macri and Sergio Massa were the other leading candidates. Macri, a close second, was the chief of government in Buenos Aires and viewed as the most probusiness in the field. He had argued for swift fiscal reforms and a settlement with the holdouts as swiftly as possible.

On the issue of mining, the candidates had been comparatively mute so far. “We haven’t really seen a hot debate about mining,” Favaro noted. “In part, that’s because of the other, more pressing concerns.”

But things might be about to change as Scioli was scheduled to visit a mining congress in San Juan on Friday. “Going to this mining congress is an act of support for the sector,” Spencer said, adding that it was the first time Scioli had made this kind of move.

BRIGHTER LATER
Away from the heat of the elections, many of Argentina’s politicians understood that mining could bring immense value to the country if its wealth of resources were fully tapped. Indeed, the sector could form an important platform for helping Argentina return to a solid economic footing, with many highlighting the considerable benefits mining had brought to Chile and Peru by comparison.

The projects and prospects already in Argentina offered a tantalising glimpse of the future possibilities – from a raft of important lithium deposits to major precious and base metals plays. Indeed, the country already hosted several large-scale operations, including Goldcorp’s Cerro Negro mine that was expected to produce between 425 000 oz and 475 000 oz of gold in 2015.

Away from mining, to the south, was the vast Vaca Muerta shale formation. Several senior oil and gas firms, such as Chevron and BP, had already started making their presence felt in this region, which held the potential to overhaul Argentina’s energy security and its ability to export oil and gas to energy-hungry neighbours.

“The potential of the Vaca Muerta shale is almost mind-boggling: it’s the world’s second-largest gas reserve and fourth-largest oil reserve,” Spencer advised. “It’s an absolute gift for Argentina and it’s not something that’s going to happen in the next decade or two – it’s happening right now.”

AT THE LOCAL LEVEL
But for all these positives, the short- to medium-term economic outlook, as well as past economic performance, was likely to dominate the wider market’s thoughts on Argentina for some time to come. Much of this was then overlaid onto perennial concerns about the country’s risk profile.

“In surveys, Argentina is regularly in an unfavourable position with regard to corruption, even in terms of its Latin American peers,” Favaro noted, highlighting that many of the problems related to structural issues, such as the lack of judicial independence.

This had been compounded by a progressive weakening of anticorruption bodies, ones that were often staffed with government allies or those friendly towards the government. “It’s a situation made more acute at the provincial level, particularly in provinces that have had single-party rule or little alternation of power since redemocratisation [in the early 1980s],” he explained.

Provinces were important as they had a direct say on mineral policy within their jurisdictions, including regulatory and legislative changes. “[The provinces] are a key feature of the Argentinian environment and they have a proportionally stronger say over the [mining] industry than compared with many other countries in Latin America,” Favaro commented.

He also noted the differences between various provinces in terms of their appetite for mining over the past decade. Some were less keen on mining, while others had embraced the industry and had 20% or more of their gross domestic product anchored to the sector. These provinces were keen to attract further mining investment.

Given the importance of the local jurisdictions, mining companies and others in the resource sector were likely to watch the provincial side of the electoral equation almost as keenly as the national one.