Argentina’s economic rock star Milei attracts mining

Argentine President Javier Milei, who took office two years ago in a chainsaw-wielding campaign against big government, has slashed inflation by nearly two-thirds after gutting public spending and halting money printing to finance the deficit.

His Incentive Regime for Large Investments of more than $200 million (C$285 million), known by its Spanish acronym RIGI, offers 25% corporate income tax instead of 35%, plans regulatory stability for 30 years and, in a major shift, allows external arbitration over disputes.

“He’s changed the ground rules significantly,” Rob McEwen, founder and executive chairman of McEwen Mining(TSX, NYSE: MUX), which is advancing the roughly $3-billion capex Los Azules copper project in the country, said by phone. “He’s going to cut out the bureaucracy, get permitting faster, get the money invested and attract the capital.”

Not since the free-market revolutions of 1990s Eastern Europe has a leader attempted to rewrite the investment playbook so completely — and so quickly — as Milei. Already, he’s witnessed the $4.1-billion BHP (NYSE, LSE, ASX: BHP) and Lundin Mining (TSX: LUN) tie up over Filo Corp. in the country as well as Rio Tinto’s (NYSE, LSE, ASX: RIO) $6.7-billion purchase of Arcadium, which has two of its three lithium mining projects in Argentina.

RIGI draws $15B value

So far, 11 companies have applied under RIGI. Six of them are mining projects, which could hit 10 by the end of the year for a ballpark value of $15 billion, National Mining Secretary Luis Lucero said in an interview.

“The companies have expressed that this RIGI system has been very, very fundamental in their decision to select Argentina as a place where to invest,” Lucero said on March 20 by video phone. “Probably we would have seen, I wouldn’t say nothing, but certainly not the large investment we will see in copper.”

Two projects by Glencore (LSE: GLEN), El Pachón and MARA, plus First Quantum Minerals’ (TSX: FM) $3.6-billion capex Taca Taca, Lundin’s Josemaría and McEwen’s Los Azules are all due to start output by around the end of the decade. Together they could contribute some $47 billion to Argentina’s economy by 2040, according to London-based analysis firm CRU. Only Los Azules has applied under RIGI, which McEwen confirmed, while the names of the program’s other applicants are confidential, Lucero said.

 

Large investment forum

Applications for RIGI, besides details of who, what, where and how the project plans to operate, must be new projects and explain the business plan, the cash flow expected and how it’s intended to be financed. One project, for an energy initiative has been approved. Two more projects should be approved very soon, Lucero said.

“Sometimes we’re talking about projects that were well known for a long time,” the secretary said. “But as an economic investment, they’re new because before, the conditions for a large investor to commit the hundreds of millions (or billions) dollars were simply not there.”

After three years, RIGI relaxes limits on U.S. dollar buying and repatriating profit. Coupled with the other incentives, the program is a way to boost the country’s low foreign reserves of around $28 billion and to encourage investment even as capital controls remain, Thiago Amâncio, a senior consultant with Control Risks based in Sao Paulo, Brazil, said by email.

Thin on results

“However, the program has yet to yield concrete results in attracting foreign investment,” Amâncio said. “So far, only two projects have been approved: one for solar energy by YPF Luz and another for an oil pipeline in Vaca Muerta. As a result, it remains uncertain whether the country will meet the government’s optimistic projections of $22 billion in mining investments between 2026 and 2029.”

Annual inflation has dropped from around 211%, the highest in 32 years when Milei took office, to around 67% in February. The country’s peso has strengthened 47% over that period, more than any other currency, allowing Argentinians to buy imports and holiday abroad.

However, wages, services and supplies priced in pesos become more expensive when converted to U.S. dollars — making projects less competitive internationally. Mining exports bring in fewer pesos per dollar earned, squeezing revenue margins for companies that sell in dollars but pay some costs locally. That adds currency risk to long- term projects.

“Despite notable advancements, such as reducing inflation,” Amâncio said, “the continuation of capital controls for projects not benefiting from RIGI (even with Milei’s pledge to remove them in 2026), along with lingering economic uncertainties, will continue to pose significant risks for foreign companies operating in Argentina.”

 

Flexible regional player

Despite the strong peso, Lucero sees the country positioned as the most attractive option in the region.

“Bolivia has closed itself to investment. Chile has a different approach. So, if you look at the Lithium Triangle, Argentina is the place to be and we are driving to make it as business friendly as we can,” he said. “The whole energy transition and the interest for critical minerals is another factor, which, of course, goes hand in hand with the fact that we are, thanks to nature, rich in two of those, which are lithium and copper.”

Lucero, who’s been coming to the Prospectors and Developers Association of Canada conference in Toronto for 20 years, said one way to measure his country’s new stature in the mining investment space was a jammed Argentina Day during the event. The federal delegation was joined by reps from eight of the country’s 23 provinces and four governors.

Miners can expect RIGI applications to take several months for assessment. Meantime, they would be seeking provincial permits where the environmental licence is the most important. Timing would depend on project details, like the type of power proposed: build- your-own thermal power plant vs the grid; build-your-own transmission line in the province; or perhaps across two provinces.

“So, it varies project to project, and in that sense, it’s not different to the issues that mining companies face in other countries,” he said. “The good news is that we are undergoing a unique or unprecedented time in our country in which, regardless of political colours, the provinces that are rich in resources have understood the potential of mining to produce growth.”

Welcoming big partners

First Quantum is awaiting approval of its environmental impact assessment before building the Taca Taca open-pit copper, molybdenum and gold project in Salta province near the Chilean border. The mine could deliver 250,000 tonnes of copper a year and make a “significant” contribution to the country’s economy, CEO Tristan Pascall said by email.

“Argentina seems to be opening up for the right partners to also potentially come on board, as we develop the financing strategy for the project,” Pascall said. “The intent of where the government wants to take the investment climate is clear, with a reassuring focus on fiscal discipline and market access.”

Lucero’s goal is to see mining become the main source of wealth for provinces in the country’s west, northwest and Patagonia. He urges protesters to consider how mining is part of human existence, from early tools to smartphones. And economic policy critics should ponder words often ascribed incorrectly to Albert Einstein: Insanity is doing the same thing over and over again and expecting different results. (It was novelist Rita Mae Brown.)

“We have tried other policies for 100 years and we failed,” the secretary said. “It is time to realize that if we continue doing the same things we were doing before President Milei came, we will continue to fail.”