ARGENTINA: An Introduction to Energy & Natural Resources: Mining

Argentina’s Economic Situation 

The first issue to be addressed in any overview of the status of the Argentine mining industry – and the mining-related legal sector – is the current economic conditions affecting clients. Argentina has seen extensive legal activity related to mining during recent years, with firms engaging actively in numerous M&As and providing legal support to the development of new projects, whether in exploration or production stages. This situation provided a crucial role for attorneys advising clients navigating the current Argentine landscape.

Argentina’ estimated level of economic activity (measured monthly) ended 2022 with annual growth of 5.2%. The economy has therefore consolidated two straight years of expansion for the first time since 2010 and 2011, over a decade ago.

However, according to a report by the National Institute of Statistics and Census (INDEC), the deseasonalised indicator showed a 1.2% annual drop in December and a 1% reduction against November – in month-to-month comparison, the country accumulated four consecutive negative months.

Experts foresee that the cooling in activity in late 2022 will continue during 2023. They believe that various factors may lead to economic stagnation –something several private reports have already observed during the first months of this year.

An unstable economy like Argentina’s demands lawyers who can follow the myriad of short-lived regulations to adapt contracts to new situations. This represents a challenge for the legal profession but at the same time a surge in the demand for legal services. Legal risk analysis has become more relevant. To anticipate regulatory changes has become a key exercise for lawyers and their clients. Law firms organise monthly meetings with clients to review their activities and explain any new legislation and potential hurdles or difficulties that may have an effect on their companies. How to anticipate these changes becomes the main objective.

Lithium Mining Boom 

Argentina’s mining exports hit historic levels last year, powered by surging lithium income as the South American agricultural powerhouse targets profits from the metal key to meeting booming electric vehicle (EV) demand.

Argentina boasts one of the largest lithium reserves worldwide and, along with Chile and Bolivia, is part of the “Lithium Triangle”. As a federally organised country, Argentina grants each of its provinces the ownership of its natural resources, thus the so called “lithium provinces” such as Jujuy, Salta and Catamarca, following the terms and conditions of the Argentine Mining Code and its own mining procedural codes, are entitled to grant permanent concessions for mining properties to private mining companies and entrepreneurs.

The last two years (2022 and 2023) have seen increasing mining activities, especially in the above-mentioned provinces where the lithium sector has experienced numerous foreign investments aimed at fostering the lithium mining industry. Furthermore, uncertainty towards the regulation of lithium as a critical mineral by its neighbouring countries, Chile and Bolivia, has fostered the arrival of important investments in the country from a wide range of countries (eg, the USA, China, Australia, India, and the EU). Copper projects are also part of the mining agenda, where companies such as Lundin Mining, BHP of First Quantum are developing world class copper projects.

But even as Latin America’s third-largest economy suffers triple-digit inflation and the fallout of a devastating drought afflicting top farmland, lithium exports helped push up the country’s mining exports to USD3.86 billion last year – the highest in a decade, according to economy ministry data.

New Legislation 

In relation to new legislation that will have an effect on clients, it is clear that the constant growth of the Argentine mining market poses several challenges to all stakeholders and the legal sector is not an exception to this. Lawyers will need to be prepared to support the sustainable growth of the mining industry while helping its clients to deal with challenging times and achieve best results for the sector in the country. Lawyers will need to be flexible, creative and stay abreast of the constant changes in the industry, where social licences, local communities’ development, the sustainable use of water resources, and the development of renewable resources are crucial. Lawyers will have a critical role in this and may even lead among mining stakeholders. New regulations such as those relating to the closure of mining projects, and the role of wetlands and their proper use, are being constantly considered and assessed as new rules which may have a big impact on the industry.

Argentina is on course to become one of the biggest suppliers of lithium needed for the move to cleaner energy and transportation. The country has been working on legislation, pushed by its President to protect its wetlands, amid sprawling fires often blamed on farmers. But such a law could grind lithium exploration to a halt.

Potential Difficulties Faced by Mining Clients 

With respect to the potential hurdles or difficulties faced by clients and how these can be overcome, it should be noted that despite the potential of mining in Argentina and its openness to foreign investment, today the industry faces a very complex scenario. Inflation is out of control, reaching 60.2% in July 2023. The recent devaluation decided by the government after the primary election determined that the annual rate may reach 155/170% this year. Added to the above is a slowdown in imports of basic inputs for production, which has generated obstacles for miners.

The scenario brings several concerns to sector associations, such as the Argentine Chamber of Mining Entrepreneurs and the Federal Mining Council. These entities have warned of a possible decrease in mining exports, in addition to delays to the start of new mining operations in the country.

The investment projections that the mining sector forecasts for this year, are today affected by a set of variables. On the one hand, the sustained drop in metal prices (even though there have been signs of recovery in the case of gold recently) means prices are still low compared to the last three years. On the other hand, inflation and the rise in production costs (producer prices in Argentina increased 106.60% in June of 2023 over the same month in the previous year), are added to the dollar restrictions for the purchase of critical inputs.

Except for lithium projects in the provinces of northwestern Argentina, which are seeing growing global demand driven by manufacturing of electric vehicles, which in turn pushes up the price of this input, the rest of the initiatives for the construction of new mines in the country do not have specific start dates at the moment.

National elections to be held during next October will probably have an important effect on the progress of the mining sector; however, it is certain that the industry will continue to grow and produce opportunities for the country.