Building confidence in Argentina will take time: Charles Koppel

For the last twenty-five years, Charles Koppel, a law student turned businessman born in South Africa and based in London, has evaluated and invested in business opportunities around the world. He set up his first company—a media concern—in China in 1992. His other interests have spanned telecoms, sports (he was a co-owner of The Wimbledon Football Club until 2004), entertainment, gaming, oil and gas, and mining (his family has been involved in South Africa’s mining industry since the 1970s).

Ten years ago, an acquaintance invited Koppel to Argentina to take a look at an oil project. It was Koppel’s first trip to the South American country. He didn’t think the oil project was a good fit and decided to look for mineral projects instead. He brought over a South African team that he knew and trusted to evaluate opportunities and set up Samco Resources in 2006. A year later, he crossed into northern Chile, acquiring properties in the Antofagasta region and near Copiapó in partnership with Manuel Feliú—a successful Chilean businessman and a former minister of mines in that country. It was a good partnership. Feliú introduced opportunities and Koppel arranged financing. In 2008, Koppel started looking at mining opportunities in Peru. Assets from all three countries were combined into the privately held Samco Resources.   

Koppel was about to take Samco Resources and its Chilean properties public on the London Stock Exchange in the summer of 2008, but the financial crisis got in the way. In 2009, Samco Resources sold its Chilean assets to a wealthy Chilean family looking to diversify their assets and Samco Resources officially exited Chile. Koppel retained Samco Resources’s assets in Peru and spun off the Argentinean assets into a new company called Samco Gold Limited. In early 2011, Koppel acquired what is today considered the company’s primary asset in Argentina, the 8,000-hectare El Dorado-Monserrat epithermal gold project in the Deseado Massif region of Santa Cruz province, about 10 km west of AngloGold Ashanti’s (NYSE: AU) Cerro Vanguardia mine. Samco Gold also owns a portfolio of other exploration properties in Argentina’s Deseado Massif, including the 5,000 hectare Corina project on the northern boundary of Yamana Gold’s (TSX: YRI; NYSE: AUY; LSE: YAU) Cerro Moro property and the 11,000 hectare 2G’s project, comprising two proximal concessions situated in the belt of mineralization in the western region of the Deseado Massif proximal to Mirasol Resources’ (TSXV: MRZ) Joaquin and Virginia/Santa Rita projects. 

The Northern Miner’s Trish Saywell, and special advisor to The Northern Miner in Argentina, Elena Mayer, caught up with Koppel on the sidelines of the Prospectors & Developer’s Association of Canada convention, to ask him about his thoughts on Argentina’s new centrist government under president-elect President Mauricio Macri.

The Northern Miner: Samco owned assets in Peru at the time left-wing politician Ollanta Humala won the 2011 presidential election campaign. Were there any similarities between Peru at that time and the November 2015 election in Argentina that brought former Buenos Aires mayor Mauricio Macris to power?

Koppel:  We were quite heavily invested in Peru at the time of the election, and there was a lot of concern about what would happen if Humala got elected. He was seen as bad for business and when the election result came in, the market dropped 13%.  Almost immediately Humala calmed the market by reinforcing that he was pro-mining and pro-foreign investment. Obviously these were just words at the time of an election but what he did in the months and years that followed gave real confidence and stability to the sector and for foreign investors across all sectors of industry. What you saw in Peru is that there was political change that was initially seen as negative, but which was effectively managed by Humala turning it into a real positive for the country and which has brought about very significant economic benefits. The same kind of change is happening now in Argentina except in the reverse. The election result has been seen as a positive, rather than Peru’s negative; the early noise from Macris government has been positive, similar to that for Humala; but now it’s about the follow through. Humala has proven himself, whilst the jury is out on Macri and Argentina. They have a big job ahead of them. It’s very, very difficult to implement change. Even with the pro-business but socialist policies of Humala’s government, where he was very vocal about the benefits of industry, particularly mining, having to flow through to the local communities. Despite these policies, Humala faced significant opposition and local community distrust and protest about change. With the best will in the world, any change, even change for the better, is difficult to implement.

The Northern Miner: Macri has implemented a number of changes in the first few months since his inauguration in December, including eliminating export taxes on metals, devaluing the currency, striking a deal with bond holders and creating a new ministry responsible for mining—The Ministry of Energy and Mines. Are you optimistic that these changes will enhance confidence among the foreign investment community?

Koppel: In Argentina, you’ve got a political party who don’t have a majority, you have provinces which run quite independently of central government, so any change will take time to filter through. It’s all well and good to make changes at a federal level, and say ‘we’re going to change that policy, we’re going to unwind this policy, we’re going to free up the economy’. I think a lot of the positive responses you’ve seen to what has happened in Argentina, at PDAC and over the last month let’s say, is more a sigh of relief than a suddenly attractive investment opportunity.

I look at it and I say to myself: ‘Well thank god we don’t have to write down our Argentinean assets any further as a result of politics.’ Now as far as I’m concerned there is a chance. Would I go out today and invest ‘new’ money into Argentina? Absolutely not. I would want to see how they follow through with what they’re saying and what they’re doing. I don’t think this is an opportunity at all for Argentina yet, from a new investors perspective.

I think there’s a huge way for them to go and a lot of work for them to do. They have to show how they take decisions at a federal level and how they will then filter successfully to the provincial governments because companies like us have to interact a great deal with the province. Yes there are a lot of issues that one has to deal with at a national level, but day to day, it’s provincial. And until one sees that fundamental change is filtering through to the grassroots, which, with the best will in the world will take years, until that happens, are you really going to go and put new money into a country that has gone through the seesaw of politics; which has been great one day and then five years later a disaster, and then another five years later great again? You need that continuity and Argentina hasn’t had it. They haven’t had meaningful long-term economic and political stability for decades and decades.

The Northern Miner: The people we talked to in Argentina earlier this month emphasized that not only does Argentina’s new government need to encourage foreign investment to enter the mining sector again, but it also has to increase confidence among local investors, pension funds, venture capitalists and so forth, so that they will start to invest in the mining sector.  

Koppel: It’s very easy for someone in the local investment community to say that they [local investors] just don’t understand our business and therefore won’t invest in it. The reality is that it’s more than that. It’s across the board, it’s any industry. Local investors are holding back from investing locally, and perhaps more importantly their offshore funds, back into the country—and this applies across all sectors of the economy, not just mining.

The Northern Miner: You’re suggesting there has to be a thorough cleaning of the house before local investors are interested in investing in any sector in the country?

Koppel: What I am saying is that until local investors are prepared to invest in a country, foreign investors should be wary. When I came to Argentina in 2006 we weren’t just looking at the mining industry, we looked at oil, gaming, sports and financial products such as prepay credit cards. You evaluate the environments in which these businesses operate, the level of local investment and the extent of government regulation or interference.  Suddenly you realize no, I can’t do this, I can’t do that. It’s about having the confidence to invest in these types of businesses. Believe it or not, mining turned out to be the most attractive sector for investment opportunity, primarily because of the country’s mining Investment Code at the time.  

If you have got the confidence to invest in a country you’re going to look at all the opportunities, particularly those that are underexploited, like mining. So it should be one of the first ports of call. People should say, you know what, this is emerging, it’s booming, there are opportunities here.  There is huge opportunity in Argentina because it’s one of the richest countries in the world from a natural resource perspective, and it’s completely under-exploited. If you’re a businessman, and you’re an entrepreneur, you’re looking for investment opportunities that have potential for significant returns, then you should be looking at mining in Argentina.  And the fact that they’re not looking at mining says more about the political and economic climate than it does about the asset class.

The Northern Miner: Do you have any idea how long it’s going to take before you’ll feel more confident in developing your existing properties in Argentina?   

Koppel: Probably a good couple of years. And I’m talking about as a company that has assets in the country. I’m not talking about as a new person coming in and saying I now want to start investing here. I would want to see that the companies that have assets are being treated the right way. Then I’m going to say, ‘Well, that’s incentivized me.’

And it’s little things as well. You take a small company like ours, and we are a small company compared to the bigger operators. So now we’re in a position where we have a bunch of concessions, it’s not a huge number of concessions, but some of them are in a much earlier stage of development than others. Now, suddenly, we’ve got pressure from the province telling us, ‘If you don’t spend a certain minimum amount on the property, you could face sanction’. This is not a new problem to mining in general but it doesn’t help when there is a global financial crisis which is decimating the industry. It also doesn’t help that the policies of the previous administration made it difficult to bring money in and to get people to invest. You need greater political support in these times, not threats of sanction.

The Northern Miner: Is that what they’re doing to Samco Gold?   

Koppel: This always happens in this industry, not just in Argentina, and we are not alone.

The Northern Miner: Are they doing that now? 

Koppel: Yes, there is always pressure from the authorities to invest more and it doesn’t help. If we give up a property, it’s going to go back to the province, and then they’ll try to give it to someone else. At a time of crisis, there is no-one queueing up to take over. They should rather support the companies that have been there, that have already invested, through these harder times. It’s the balance of these things; what happens in the provinces at a local level, versus what the government says at the national level.

The things that the new government are saying are fantastic from an international perspective, it makes it look like they’re doing the right thing. They’ve said they’re going to settle the bond crisis, the disputes. ‘We’re going to resolve this, change that, stop all these import duties on all these products, make it easier to do business, to invest’— fantastic! But now how does that affect business at a local level? What does it mean for us? Well, at the moment changes haven’t filtered through to the provincial level for us.

The Northern Miner: There was a suggestion by one of the CEO’s of a Canadian mining company in Toronto at PDAC that Argentina’s new government should consider posting a bond or some version of a trust fund that could compensate foreign investors if the next government doesn’t comply with the investment laws. What do you make of that suggestion?  

Koppel: I think he’s absolutely right.

The Northern Miner: But is it a realistic solution for raising confidence?

Koppel: No, of course not.  But what you often have to do is say something that gets peoples’ attention and he knows that. No government is going to offer that type of security as in all likelihood they will default on their commitments, that’s the reality. And it is not a problem unique to South American politics. But you have to look and say that in most cases, in the countries we’re talking about, the likelihood is that a new government often looks to change the rules, in an attempt to appear fundamentally different to what was before. Sometimes better, sometimes worse. There is a cycle of change that is almost every four or five or eight or ten years, depending on the political cycle. Change is constant. And what he says is correct. The message to those in the political arena is: ‘How will you deal with this? What are you going to do to make us feel more comfortable?’ He knows that real fundamental change is unlikely but the fact that people are prepared to shout him down for expressing real investor concern, is telling. What Argentina should do is say: ‘We recognize there’s a problem, we recognize that we should work our way around incentivizing people to invest long term in the country,’ and with mining you can be in for twenty or thirty years. This is the thing, it’s not like we’re in for five years, we make a quick buck and we’re gone. You are creating jobs and an infrastructure in an industry that requires a long-term commitment, and they have to recognize that. If you’re going to make that commitment then they have to give the investor community a stable environment in which to operate, and often they don’t.

The Northern Miner: So in your opinion the initial changes Macri has made aren’t enough to instil confidence and in your view nothing has really changed for the better?

Koppel: A good start, but no, nothing has changed as far as I’m concerned, at the moment.

The Northern Miner: One of the things that we were told is that the country has an excellent mining code or investment law. Their point was that under the previous government it was not altered, it just wasn’t enforced. So it’s still there and this will make things easier to kick-start investment in mining again.

Koppel: ‘The mining code remains unchanged’ is a meaningless statement. In the latter years of the Kirchner administration they ran rough-shod over the Code. What is the value of an investment code to the investment community if the government of the day can just choose to ignore their obligations because they don’t agree with them anymore?  People and companies have invested in Argentinean mining based on commitments made by the governments and set out within a certain legal infrastructure, which guaranteed them certain rights. You then don’t change it but just alter the environment in which it operates and is interpreted. Surely this is the same as repealing the code. You’re taking away the guarantees you gave—whichever way you couch it–you’re taking it away. They’re saying, ‘Yes it stays, yes it exists, but you can’t utilize those steps anymore.’ It’s a smokescreen and the fact that the rules and regulation are still in place is meaningless, there are no safeguards. The last administration proved the fact that having the code is meaningless because they can sidestep it if they want to.

Investors want to see that the new government’s plans are working, that their policies are  right, that the investment environment is being supported by the administration at both the national level, and at the provincial level. There were so many fundamental problems in Argentina which you can’t gloss over by making a few high-profile rule changes overnight. You can’t.

The Northern Miner: There also has to be a shift in mentality perhaps, away from the country’s populist past?

Koppel: Yes there does but if you’re looking for real change to the political and social environment in a country then it’s a change to the mind-set of a generation. It takes thirty years before it filters through. It’s primarily about education but I think political and social growth also requires a much greater contribution and commitment from the private sector, working with government through public private partnerships, educating generations to the benefits of corporate social responsibility. The real impact and benefit is down the road, it’s when these young kids are out of university, they’re into the community, they’re contributing to the economy and involved in policy making, and that’s when you get real change.

A new government changing headline policy doesn’t do it. You can’t underestimate the task of real change. Everyone at PDAC is saying to me: ‘Argentina, Argentina, Argentina,’ and I’m sitting there thinking, really? Ask some of these same people to put their own money into the country today and watch their reaction. 

The Northern Miner: So you’re going to sit on your concessions until you feel more confident that the changes are there to stay?   

Koppel: The markets are not favourable at the moment and we are not in a position to go and follow up with spending a lot of money on any project. In Argentina, we need to see that they are committed to real change. The indications are good. The early indications, what they’ve said, and what they’ve done, it’s a positive step. But it has to filter all the way through the system, and only then can one confidently say that Argentina is a great investment destination; and that’s not going to happen overnight.