A cadre of high profile mining companies, including Lundin Mining Corp (TSX: LON), Glencore Plc (LSE: GLEN), and First Quantum Minerals Ltd (TSX: FM), are responding to calls for foreign investment in Argentina’s copper rich Andes mountains.
The change of government will put Argentina in contention with Chile for foreign investment in copper, said Marcelo Awad, the former chief executive for Antofagasta Plc (LON: ANTO) from 2004 to 2012, on Thursday.
Presently, there is a massive supply crunch for copper, which is considered an important metal in the flight to slow climate change.
President Javier Milei needs to convince companies based in Toronto, Melbourne, and London that their projects in Argentina are safe from the country’s notoriously volatile politics and complex business regulations. Additionally, these companies must persuade Argentines that the economic benefits of their projects outweigh the environmental risks. Currently, Argentina produces almost no copper despite having similar geology to its neighbour Chile, the world’s top exporter.
If he accomplishes this task and manages to draw some of the copper projects presently being considered, the nation could transform into a top supplier by 2035, pushing out over a million metric tons per year. According to the Chamber of Mining Entrepreneurs (CAEM), this could mean annual exports topping USD$8 billion.
Milei and the country need to fix the economy first. Strict capital controls, nearly 300 per cent inflation, and high tax rates have stalled most big copper projects.
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Milei’s reform package offers capital control reduction
Milei doesn’t have his work cut out for him.
Milei is pushing a major reform package in Congress, aiming to boost investment for large projects by offering tax benefits and easing access to foreign currency for investments over USD$200 million. According to Ernesto Cussianovich, associate director at local consultancy Poliarquia, economic instability in recent years has stalled progress with copper. If passed, the reform bill could provide some short-term relief.
Chief among his proposed reforms includes the reduction of government influence and freeing businesses from a slew of controls to — at least in theory — pave the way for private-led growth. Former President Mauricio Macri attempted a similar strategy from 2015 to 2019, but his efforts failed to make significant progress, leading to his swift ousting.
To avoid a repeat scenario, Milei needs to generate a surge in economic activity. Mining is one of the few sectors capable of stimulating business across Argentina and therefore presents an obvious opportunity.
Thus far, Milei has made a sweeping package of tax, currency, and customs benefits for major investors a cornerstone of his proposed reforms.
Milei is vague about the timeline for these reforms, however.
He has pledged to undo capital controls “very soon” but needs to restore economic stability and rebuild depleted central bank reserves first.
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Lithium is an example of what copper could be
Copper prices have surged in recent months, driven partly by concerns that demand from clean power, military equipment, and data centers will outstrip supply. Miners need to spend about $130 billion over the next decade to avoid a projected annual shortfall of 7.7 million tons by 2034, according to the CRU Group, a research firm focused on mining and commodities.
Although there is plenty of copper still in the ground, developing deposits is becoming pricier and more challenging, especially with increased scrutiny of social and environmental issues. In Argentina, these issues have posed a bigger hurdle than in other places. However, record prices and Milei’s shift to a more business-friendly climate are suddenly making it more feasible to unearth the nation’s resources.
The company’s experiences with lithium, which is used for making batteries in electric cars, could be a sneak peak into the country’s future with copper if its successes could be repeated.
Argentina has successfully drawn the attention of multiple high value multinational companies and even a bumper crop of promising juniors to mine the battery metal.
Arcadium Lithium plc (NYSE: ALTM) (ASX: LTM), a recent merger between Allkem Corporation (ticker) and Livent Corporation, leads the pack with operations in the Catamarca and Sales de Jujuy in Jujuy province. A few other companies operating in the country include Argentina Lithium & Energy Corp. (TSXV: LIT) (FSE: OAY3) (OTCQX: LILIF) with its Antofalla North project, and South Korean chemicals-giant POSCO Holdings (NYSE: PKX).
POSCO recently forged a mutual development deal with Canadian lithium-junior, Lithium South Development Corporation (TSXV: LIS) (OTCQB: LISMF) (Frankfurt: OGPQ) to share the developmental costs on the Hombre Muerto North Lithium Project.
Lithium South Development Corporation is a sponsor of Mugglehead news coverage
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