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RUEHLP/AMEMBASSY LA PAZ FEB MONTEVIDEO 5346
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RUEHRI/AMCONSUL RIO DE JANEIRO 1891
RUEHSO/AMCONSUL SAO PAULO 2785

UNCLAS BUENOS AIRES 000442 
 
SIPDIS 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: EMIN EINV ECON AR
SUBJECT: ARGENTINA'S 2005 MINING REPORT 
 
REF: A. (04) BUENOS AIRES 2161 
     ¶B. (05) BUENOS AIRES 1557 
 
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Summary 
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¶1.  Secretary of Mining Jorge Mayoral paid a courtesy call on 
the Ambassador to present an overview of mining activity in 
Argentina from the onset of the economic crisis of 2002 to 
the present.  Mayoral highlighted the growth in the number of 
exploration projects and drew attention to investment 
opportunities around the country.  He discussed the general 
interest among developing countries, notably China, in 
acquiring existing mining investments in Argentina to meet 
their growing demands for metals.  Mayoral noted that 
provincial governments have considerable latitude in 
establishing local mining governance that complies with 
national legislation and the national Mining Plan.  He also 
emphasized that communities surrounding mining sites remain 
interested in the benefits that mining activity can provide, 
despite the publicity related to environmental concerns that 
have affected one company's operations in Patagonia.  End 
Summary. 
 
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2005 Mining Overview 
-------------------- 
 
¶2.  The Ambassador received Secretary of Mining Jorge Mayoral 
on Feburary 15 to discuss Argentina's mining sector 
activities during the last four years as well as the sector's 
potential.  Mayoral noted that the sector has been a 
beneficiary of increased commodities prices.  These rising 
prices have helped boost exploration activity, expand 
existing investments, and increase export values since 2002. 
The country boasted more than 220 prospecting, exploration, 
and production sites at the end of 2005, compared to 31 
production and exploration projects underway in 2002. 
Exploratory drilling totaled more than 300,000 meters by the 
end of 2005, more than doubling the 135,000 meters of 
drilling in 2002.  Investment for 2005 surpassed ARP 2.5 
billion (USD 830 million), compared to approximately ARP 486 
million (USD 162 million) in 2002.  Exported production in 
2005 reached ARP 4.7 billion (USD 1.56 billion), almost 
doubling 2002 exports of ARP 2.4 billion (USD 800 million). 
Employment in the sector also grew during 2005 to 32,000 
direct employees and an estimated 120,000 indirect employees. 
 
¶3.  The Ambassador observed that U.S. firms, notably FMC in 
Salta and Coeur d'Alene in Santa Cruz, have been active 
participants in the mining sector during the period of 
recovery since 2002.  Mayoral noted that U.S. firms have 
developed a strong reputation in providing a wide range of 
services within the sector.  He added that the growth in 
exploration activity indicated the strength of the sector's 
potential.  He said he would like to see an increased 
presence of U.S. firms in the higher-risk activities of 
prospecting and exploration. 
 
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Mining Business Model 
--------------------- 
 
¶4.  CommercialOffs observed that U.S. firms tend to join a 
mining project when those firms determine they have a 
competitive advantage, whether in providing services, 
technology, or financing.  In the current model, a "junior" 
firm, typically from Canada, conducts the initial topographic 
analysis and digging to begin the prospecting phase of a 
mine's existence.  The junior firm reports its findings of 
commercially viable deposits after three or four years of 
prospecting and begins searching for partners to amass the 
necessary resources for the final stages of exploration and 
the design and construction of a mine.  The exploration phase 
refines the initial analysis to develop a probable area of 
marketable ore which is needed to enter the production phase. 
 
¶5.  Mayoral said that developing countries with high demands 
for mineral resources were changing the prevailing business 
development model in Argentina.  (Comment: Although Mayoral 
referred to "developing countries," the examples he cited all 
related to Chinese firms' efforts to acquire mining assets in 
Argentina.  End comment.)  He cited Shanghai-based A Grade 
Trading's purchase of HIPARSA's (Rio Negro Patagonian Iron 
Corporation) iron deposits at Sierra Grande in Rio Negro 
Province.  He also noted China MinMetals' 2005 bid to acquire 
Canadian mining firm Noranda with rights to an estimated 720 
million tons of copper deposits at El Pachon in San Juan 
Province.  According to Mayoral, Noranda accepted the offer 
but the Canadian government blocked the deal.  Mayoral 
continued that China and other developing countries had 
expressed interest in acquiring production rights to the 
country's "next megaproject" at Navidad in Chubut Province. 
Vancouver-based IMA Exploration estimates the site contains 
300 million ounces of silver and 1.2 million tons of lead. 
(See Reftel B on Chinese investments in Argentina.) 
 
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Provincial Laws 
--------------- 
 
¶6.  Secretary Mayoral addressed regional differences which 
promote investment in some provinces, such as Santa Cruz, San 
Juan, and Catamarca and discourage investment in other 
provinces, such as Chubut.  Mayoral said that "Argentina is 
not a mining country, but is a country that has mining."  He 
stated the country has an overarching mining framework, but 
the provinces must establish their own rules to promote and 
regulate activity in the sector.  Mayoral explained that the 
same principle applied to governance on protecting the 
environment.  He acknowledged that environmental concerns 
were a key part of the public relations difficulties that the 
Meridian Gold project had faced at Esquel in Chubut Province 
(See Reftel A for additional background on the Meridian Gold 
project.).  The company's management did not, according to 
Mayoral, respond adequately to the community's concerns about 
the company's use of cyanide in its ore-processing 
operations.  He said that officials in Chubut and residents 
around Esquel have shown interest in developing the mine but 
that any company leading the project would need to take 
measures to avoid repeating Meridian's example. 
 
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Comment 
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¶7.  Mining is another part of Argentina's economic recovery 
that has been a beneficiary of rising commodities prices and 
a competitive exchange rate.  Gold, silver, and copper prices 
have provided incentives for new exploration projects as well 
as for expansion of existing production projects in the 
provinces of Santa Cruz, San Juan, Catamarca, and Jujuy. 
Environmental concerns, however, could impede development of 
megaprojects on the horizon.  Communities and environmental 
defense organizations have warned, for example, that the lead 
deposits at Navidad could affect groundwater in the area. 
Similarly, the proposal for removing part of a glacier to 
mine the gold-silver-copper deposits at Pascua Lama has 
raised questions about the project's effect on the water 
supply as well as pollution in northern San Juan Province. 
 
¶8.  To see more Buenos Aires reporting, visit our classified 
website at: http://www.state.sgov.gov/p/wha/buenosaires.< /a> 
GUTIERREZ