Focus on Argentina Mining by The Northern Miner Group

FOCUS ON

Argentina mining

Giatiae. Ferio del eatem. Ut opti ut ut lantibusti omnihilia velique ehendel mos sim et vel mi, volorecte a nobis dollibus, By Chris EaglEs

— An investors’ guide —

A History • Key PlAyers • investors’ need to Know • ArgentinA insigHt

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ARGENTINA

Production • 49% interest in Minera Santa Cruz SA, owner of the San José silver-gold mine located near Goldcorp’s Cerro Negro project in Argentina

• El Gallo produces 55,000 ounces gold equivalent per year

Development

San José Silver-Gold

MEXICO

• El Gallo Silver is permitted and located only 5km from our current operations. • Gold Bar project in Nevada • Los Azules copper deposit in San Juan, Argentina.

Exploration • Large portfolio of exploration properties in Santa Cruz province Argentina • Significant land packages in Nevada adjoining Barrick’s Cortez mine • Significant land packages surrounding our El Gallo complex in Mexico Our Chief Owner Rob McEwen, is aligned with shareholders owning 25% of the outstanding shares and takes an annual salary of $1. Our treasury is growing and we have no debt!

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Contents 6

Introduction

Features 8

Welcome

Man on a Mission: The fast pace of Macri’s market-friendly reforms is grabbing attention

With the election of Mauricio Macri’s pro-business government in late 2015, mining investors are wondering if the time is finally right to invest in Argentina — an underexplored country with exceptional mineral potential. In response, Trish Saywell, a senior staff writer with The Northern Miner, and Elena Mayer of PwC visited the country earlier this year to investigate. Based on hundreds of hours of research and first-hand interviews with key players, this in-depth special report details the key players, projects and everything else you need to know about the new investment climate in Argentina.

‘ Confidence must be earned’

Communication tops priority list for Mines Secretary Meilan

Insights 18 20 26

Key Projects Roundtable Need to Know

80 Valleybrook Drive, Toronto, ON M3B 2S9 Phone: (416) 510-6768 Fax: (416) 510-5138 E-mail: ahiyate@northernminer.com

Publisher: Anthony Vaccaro

editor: Alisha Hiyate

Advertising sAles: Joe Crofts Michael Winter

Art director: Melissa Crook Production MAnAger: Jessica Jubb

contributing Writers: Trish Saywell & Elena Mayer

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FOCUS on ARGENTINA Thank You to Our Valued Event Sponsors GOLD SPONSORS

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FOCUS SPONSORS

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IntroductIon

A little context...

Argentina’s tumultuous history

t’s never been in doubt that Argentina, like its Andean neighbour Chile, has the mineral potential to become a mining powerhouse. But that potential has never been fully explored. Federal and provincial policies have — more often than not — actively discouraged mineral investment in the country. And the country’s record debt default in 2001, continued high inflation

1955 Populist and pro-labour president Juan Domingo Peron is overthrown by a military coup after a decade in power

1973-4 Peron returns from exile and is re-elected president. He dies in office leaving his widow, vicepresident Isabel Martinez de Peron, in charge

and wild exchange rate fluctuations have understandably left investors wary. With the election of pro-business president Mauricio Macri in November 2015, investors are wondering if Argentina — a country with so much promise but also a history of instability, will finally get back on track and prove a worthy home for international capital. Mining companies have already been tempted into Argentina during recent periods of opportunity. Spurred by

1976-1983

1983

1993-2001

After overthrowing Peron, a military dictatorship conducts a “Dirty War” against leftist guerillas that also targets non-violent dissent

Democracy is reestablished in Argentina after decades of political instability

Argentina passes a set of modern mining investment laws to attract foreign capital

mining-friendly policies instituted from 1993 to 2001, mining investment began to rise in the 1990s, leading to a heyday for mining in Argentina. Following Argentina’s financial crisis of 1998-2002 and its debt default in 2001, gold mining investment remained strong, fed by increasing metals prices and Argentina’s underexplored yet promising geology. In recent years, the pendulum swung the other way. In 2011, during her

December 2001 Argentina defaults on record $100 billion in debt, leading to 2001-2002 economic crisis

October 2011 Cristina Fernández de Kirchner’s government decrees that companies must repatriate all export revenue and convert it into Argentinean pesos before the earnings can be accessed

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IntroductIon

Austral Gold and Troy Resources’ Casposo mine in San Juan. Credit: Austral Gold

At Goldcorp’s Cerro Negro project, in Santa Cruz, in 2011. Credit: Goldcorp

second term, Macri’s predecessor Cristina Fernández de Kirchner hiked export taxes and enacted currency restrictions that hurt foreign companies and deterred investment. The 2012 expropriation of 51% of the country’s largest oil producer, YPF, fuelled fears of further nationalizations. Since taking office, Macri has tried to undo much of the damage the previous administration inflicted — reversing currency restrictions and lifting export taxes, for example. Most importantly, his

April 2012

July 2014

Kirchner expropriates a majority stake in YPF, Argentina’s largest oil producer, from Spain’s Repsol

Argentina falls back into default after Kirchner refuses to negotiate better terms with creditors than those offered just after the country’s original default

government quickly hammered out an agreement with holdout creditors from Argentina’s 2001 default — setting the stage for the country’s return to international debt markets in April. However, Macri faces a steep climb to persuade investors that Argentina won’t backslide — especially in light of recent protests by Argentines over the rising cost of living due to reduced state subsidies on utilities. There are also legitimate questions

November 2015 Mauricio Macri, leader of the Republican Proposal Party and a former mayor of Buenos Aires, is elected

December 2015 The Macri government creates a new energy and mining ministry, taking responsibility for mining away from the Ministry of Production

about how much he can achieve with a minority in both houses of Congress and given the pervasive anti-mining sentiment in many provinces. Furthering the divide, Macri is the first centre-right president to lead the country since its return to democracy in 1983. To delve more deeply into Argentina’s promise, please explore our special report detailing Macri’s plans for Argentina and what miners say is needed for the country to thrive as a mining nation.

December 2015 through early 2016 In the hopes of reassuring investors, Macri moves quickly to reverse Kirchner’s restrictions on foreign currency and repatriation of earnings; he also lets currency float, and removes export tax on metals

March 2016 Argentina settles with group of holdout creditors from 2001 default

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Key players

A man on a mission The fast pace of Macri’s market-friendly reforms is grabbing attention

Mauricio Macri FacTS

By Trish saywell & elena Mayer

UENOS AIRES, ARGENTINA — Since taking the helm of Argentina last December, President Mauricio Macri has moved quickly to reverse the interventionist course that previous Argentine governments had pursued for more than a decade. Macri has removed almost all restrictions imposed by the previous administration of Cristina Fernández de Kirchner on the purchase of foreign currency, expatriation and repatriation of funds and compulsory deposit of foreign investments. The former mayor of Buenos Aires has unified the exchange market and floated the peso, allowing foreign companies to send money to Argentina at the unified exchange rate, and abrogated restrictions on the repayment of foreign debt (principal or interest).

Most importantly, in late February, Macri’s team and a group of holdout creditors agreed in principle to bring an end to their 15-year legal dispute over defaulted debt. In April, the government paid a total of $9.3 billion to holdout creditors. The same month, it sold $16.5 billion in bonds to international investors, marking a strong return for the country to international credit markets. Macri has removed export taxes on all metals as well as industrial and agricultural products, and taken steps to eliminate restrictions on imports, slashing the list of items requiring import approval permits to 1,000 from 19,000. At a press conference in Buenos Aires in March, U.S. President Barack Obama called Macri “a man in a hurry,” while Time recently included a tribute to him from hedge fund manager Paul E. Singer in the magazine’s list of the world’s most influential people.

Age: 57 OccupAtiOn: President of Argentina trAining: Civil Engineer resume: Mayor of Buenos Aires from 2007-2015; former chairman of the Boca Juniors, Argentina’s most popular soccer team QuOte: “We cannot tolerate that in a country like ours, with so much wealth, that children still die of hunger.”

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“The changes that we have seen in the last two months in terms of making changes to the economy and putting the economy back on track have really been impressive,” Canada’s ambassador to Argentina Robert Fry told The Northern Miner in April. “My sense of the new government is that they are straight shooters, they’re frank, they’re much more transparent.” Fry has met Macri several times since his diplomatic posting to Buenos Aires in April 2015, including once in February, when the president-elect hosted the diplomatic corps at the Casa Rosada (Pink House), Argentina’s equivalent to the White House. “It was a sign of change,” Fry says. “That is the first time that has happened in a long time. The previous administration did not engage a lot with the diplomatic corps, shall we say.” Two days after he was sworn in, Macri invited the governors of each province to his home — an event, Fry says he was told privately by some in attendance, that hadn’t happened in many years. Macri has reached out to politicians from rival parties, too, taking Sergio Massa, a Peronist politician from the opposition party, with him to the Economic Forum in Davos, Switzerland.

Of course, as his coalition government has a minority in both houses of Congress, wider support is crucial to achieving his aims. While he extends a hand across the political aisle, Macri champions consensus-building and teamwork in his own party, local pundits claim. “It’s not all about him, he is a team builder and a team player, and he’s appointing people who know how to work with others,” says independent consultant on business development and corporate affairs Alberto Mario Carlocchia, who spent 17 years working for major mining companies, including AngloGold Ashanti (NYSE: AU; JSE: ANG), Goldcorp (TSX: G; NYSE: GG) and Yamana Gold (TSX: YRI; NYSE: AUY). The new president has surrounded himself with ministers who have experience in the business world. Alfonso Prat-Gay, Macri’s finance minister, used to lead J.P. Morgan Chase & Co.’s currency research unit, while the Minister of Mines and Energy Juan José Aranguren is a former CEO of Shell Argentina. “They’ve put together the best cabinet I think Argentina has ever had, and it’s a huge opportunity to really turn the country around,” says Miguel Morley, Agrium’s (TSE: AGU) managing

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Key players

McEwen Mining’s Los azules copper project, in San Juan province. Credit: McEwen Mining

Mining is a strategic resource for Argentina. There are countries that were able to move forward thanks to mining. What we need is absolute transparency when it comes to granting licences, closely reviewing the projects so they don’t harm the environment. Mining must be sustainable. – Mauricio Macri Source: Buenos Aires Herald

director for South America and the president of the Argentine Chamber of Commerce. Martin Dedeu, a lawyer, president of the Union Industrial Argentina, and past president of Argentina’s Mining Chamber, points out that Aranguren is one of the few businessmen in the country who wasn’t afraid of taking the former Peronist government to task for policies he thought were ill-advised, like keeping oil prices artificially low. “Not many other people had the courage to stand up to the previous government,” Dedeu says. “Aranguren was an exception.” Carlos Saravia Frías, a Buenos Aires-based lawyer with his

own firm, who also spent several years of his career as Secretary of Mining and was involved in drafting certain amendments to Argentina’s 1993 Mining Investment Law, shares Dedeu’s view. “We spent 15 years in a nightmare in political terms,” he says. “If you tried to say something against the government, or something that was not in line with what the government was trying to do, it was a problem. . . Aranguren was saying what he wanted. He has really committed to this government and those are the guys that we need to make the changes.” On the mining file, Macri has created an entirely new ministry called the Ministry of Energy and Mines (previously, responsibility for mining was lumped together under the Ministry of Production) and appointed Daniel Meilan as its Secretary. Meilan, a geologist, served as the former Secretary of Mines during part of the heyday of mineral exploration in the country during the 1990s. The government has also elevated the importance of mining by creating two new posts: the Undersecretary of Mining Development, who is in charge of international relations and liaison with mining companies (Mario Cappello), and Undersecretary of Mining Policy, who is responsible for local issues (Santiago Dondo). In addition, Argentina’s Mining Investment Law is viewed by most people in the industry as quite competitive, as it guarantees fiscal stability to mining companies for 30 years. “Argentina has maintained the legal framework of the

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1990s,” says Ignacio Celorrio, a partner at Quevedo Law Firm. “To its credit, the previous government didn’t change the mining laws. It might not have respected the rules, but it never changed them. So now, with a new administration, they can sit down and say: ‘We have one of the most attractive mining frameworks in the world,’ and it would be true.’” Celorrio also points out that like Chile, Argentina has incredible geology, but it doesn’t share its neighbour’s water problems. “Water permits are all straightforward here,” he says.

Financing coSTS Jose Bordogna, chief financial officer at Austral Gold (TSX: AAM; ASX: AGD), which has projects in Argentina and Chile, says Macri’s efforts to strike a deal with international holdout creditors, his elimination of export taxes, and the liberalization of foreign exchange controls, are crucial steps in fostering a better investment climate and lowering the cost of debt. He noted that the agreement with the holdouts would help reduce the cost of equity and debt financing for both Argentina and foreign companies, bring new sources of funds and help

change the sentiment about the country. ¨All these expected outcomes will consequently improve the valuations and the NPV of mining projects, a key metric that is relevant for any analyst or investor looking at a company,” Bordogna says. The expected upgrade of Argentina to emerging market from frontier market may also trigger a surge of capital inflows, he says. In the meantime, the Argentine mining sector needs to catch up with new global ways of financing, he argues, and secure long-term financing in both local and foreign currencies. “Local financing is important, as Argentine investors can also play a key role to boost the sector.”

invESTor opTiMiSM Paola Rojas, director of business development at Synergy Resource Capital, an investment and corporate advisory firm that connects Latin American resource projects with investors worldwide, says that within days of Macri’s election and his removal of currency controls, people contacted her office from Brazil, Canada, the U.S. and Australia. “I instantly got calls from investors asking me whether

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KEY PLAYERS

at Lithium americas’ cauchari-olaroz joint venture with SQM, in Jujuy province.

Minister of Mines and Energy Juan José aranguren.

Credit: Lithium Americas

Credit: Government of Argentina

it was time to go back, asking, ‘Can we look at projects?’” she said from her office in Sydney, Australia. Rojas says she received inquiries from 15 different groups in February and March compared with one or two in all of 2015. “I was surprised. I expected the attitude towards the country would change, but I didn’t expect it to happen so quickly.” Rojas, whose family has for decades owned a private company providing exploration, management and other consulting services to the mining sector in Argentina, Chile and Colombia, notes that Macri is familiar with the sector because at one time his father was connected with an exploration company, Minera Geometales, which had tenements in the country. “I’m not sure if they’re active now, but they used to explore maybe 10 years ago, so he knows the mining sector and he knows it needs foreign investment,” she says, adding that Macri is well aware that projects like Glencore’s (LSE: GLEN) feasibility-stage El Pachon, and other huge copper porphyries, require billions of investment dollars that simply aren’t available locally. “I’m not going to say it’s one of his biggest priorities, but within his priorities, it’s high,” she says. According to Saravia Frías, Macri believes mining should become one of the pillars of Argentina’s economy, particularly for have-not provinces that lack the country’s other traditional sources of income, such as cows, soybeans and wheat. “He really knows what the mining sector means for the economy,” Saravia Frías argues. “The diversification of the economy

is just common sense. . . and he’s convinced that an alternative for the Andean mountain range provinces is mining, that’s it.” Still, the magnitude of Macri’s task should not be underestimated. Charles Koppel, who has a decade of experience in Argentina as a founder of Samco Gold (TSXV: SGA), is more skeptical about the pace of change that’s possible, given the country’s history. “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?” he says. “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.” Predictably, pushback against some of Macri’s reforms has already begun. The government’s reduction of power and natural gas subsidies have hit consumers hard — prompting both a court challenge and street protests. If the backlash continues, Macri could lose ground in mid-term elections next October. Of course, no one believes that Macri and his team can overhaul the economy overnight. Still, many are hopeful that the government is laying the groundwork for sustainable improvements that can last longer than his term in office. “Argentina has to make up for lost time,” says Dedeu. “And I’m really confident that it will.”

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Corporate profile

McEwen Mining gets a boost from Macri’s reforms

The San José mine, in Santa Cruz. Credit: McEwen Mining

A need for more reserves (the mine has only five

Having first invested in Argentina about a decade ago, Rob McEwen has always been a big believer in the country’s

years of reserves because of lower metals prices in

mining potential.

recent years) and positive signals from the new Macri

Since the election of President Mauricio Macri in late 2015,

government have prompted the San Jose partners to raise their 2016 exploration budget to $6.5 million from

however, more investors are seeing the potential.

$4.5 million.

“Argentina is now being viewed as much more attractive

“The year before, there was really no incentive to put any

opportunity compared to recent years,” says Rob McEwen, citing Macri’s tax and other reforms, including the devaluation

additional money into any of the mines down there — it was

of the Argentinean Peso.

just so uncertain,” McEwen explains. “Here at least you have a very pro-business, pro-mining government that recognizes

“By addressing the exchange rate, it made it easier to do business down there. That, combined with higher metal

the value of the mining industry to the economy and they

prices, have improved the situation.”

want to enhance that.”

McEwen Mining (TSX: MUX; NYSE: MUX) — of which Rob McEwen is chairman and “Chief Owner” (he owns a 25% stake

Los Azules

in the company and collects a yearly salary of only $1) owns

At Los Azules, McEwen Mining is aiming to attract either

two significant assets in Argentina. The first is a 49% stake

a joint-venture partner or buyer. The porphyry deposit holds a total resource of 19.7 billion

in the San José gold-silver mine in Santa Cruz and the second

pounds of copper at 0.55%.

is 100% owned Los Azules copper project in San Juan.

The resource is so large that if you expressed it in

At San José, which is operated by 51%-owner Hochschild Mining, costs have declined because of the change in the

gold-equivalent, it would be worth about 35 million oz.

exchange rate.

of gold equivalent, McEwen says. The company believes it can improve the deposit’s

Moreover, the repeal of taxes on doré and concentrate exports and on foreign distributions of dividends have

economics over a 2013 preliminary economic assessment

improved cash flow for the joint-venture partners.

that pegged capital costs at US$3.9 billion. It’s currently

(For example, while McEwen Mining received $500,000

working on a revised PEA that will take into account the

in dividends from its stake in San José last year, it received

elimination of export taxes, the devaluation of the peso

$5.4 million in the first half of 2016.)

and the lifting of certain import restrictions on equipment,

The company’s share of production from the mine this year is

among other factors. McEwen Mining has budgeted $1 million in 2016 towards

expected to be around 45,000 oz. gold and 3.3 million oz. silver with gold-equivalent cash costs ringing in at US$780 per oz.

advancing Los Azules and plans to complete a drill program

and all-in sustaining costs at US$990 per oz. gold-equivalent.

in 2017.

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KEY PLAYERS

Daniel Meilan, Secretary of Mining.

‘Confidence must be earned’

Credit: Argentina’s Ministry of Energy and Mines

Communication tops priority list for Mines Secretary Meilan

BY TRiSh SAYwELL & ELEnA MAYER

UENOS AIRES, ARGENTINA — Argentina’s Secretary of Mining Daniel Meilan — a geologist and a former Secretary of Mines during the 1990s — met with Trish Saywell and Elena Mayer, at his office in Buenos Aires in February.

The Northern Miner: President Macri hopes to take Argentina in a new direction after 12 years of populist government under Cristina Fernandez de Kirchner and her husband Nestor Kirchner. You have a great deal to do to rebuild confidence in the mining sector.

Barrick Gold’s Veladero mine in San Juan Credit: Barrick Gold

Daniel Meilan: The first part of Nestor Kirchner’s government was more capitalist, but it gradually became more and more populist. Policies became more drastic: there were retentions, different exchange rates, no dividends were allowed abroad and all that economic craziness halted the mining industry. Argentina isolated itself and tried to keep a policy of internal consumption, which made us live in an unrealistic environment that did not end well. Now we have to come back to reality.

TNM: What is the reality?

DM: The political discussion here is whether Argentina requires surgery or whether it can just take a pill to get better. I believe we require surgery. Our new government is realistic and is trying to solve the problems quickly so that we can return to the international markets. Not to compete yet, but to get into the world again. To be at the global mining table again.

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TNM: What are your priorities?

DM: To be competitive, we have to lower inflation, maintain legislation, show that we can be trusted and work out the problems with the provinces that are against mining — and that’s the work I will be doing this year. We have time because prices in the international market are low. My objective this year is to cope with all these issues and start next year with confidence.

TNM: How do you think you can encourage the so-called “anti-mining” provinces to look at mining in a fresh light?

The former government, instead of having a federal A DM: policy, had a unilateral one — when you work alone and you don’t reach consensus.... Instead of working as a team with a common policy in a proper manner, the central government left the provinces adrift, and there was no dialogue. All this generated conflicts, which the federal government ignored. So these conflicts became bigger in a country without a mining culture, because we do not have big metalliferous national companies. So as mining is not the leading industry, and does not bring votes, governors started ignoring mining and supported the local people who are anti-mining. On one hand, you had conflicts and on the other you didn’t have support. In that way, provincial anti-mining policies and regulations that have no legal support (because we have a mining code which is above all this) were passed. What really matters is not only the legal issue, but to have a good relationship between the provinces and the mining industry. We met with all the provinces in the Federal Mining Council (COFEMIN) to discuss and try to reverse this situation. All of them recognize that happened because the national government turned its back and didn’t defend mining when we needed their support.

DM: In part it could be a financial problem, but it is mostly a community problem. When we talk about community, we talk about the part of the society that is affected by the project. It is not only about money but also a problem of coexistence of the people living in the area and the industry. The lack of knowledge and information that the people have about mining makes them believe that environmental contamination is possible and sometimes it is difficult to give them an answer because of the silence and weakness of the government in responding to them in special cases when answers are requested. That makes society susceptible to anti-mining sentiment.

TNM: Yes, and of course there was the spill at Barrick Gold’s Veladero project last fall, which probably didn’t help.

DM: Accidents in mining do happen. The important thing is to give an answer and prove that it was really an accident and that there is no contamination. This requires a

TNM: Did any of the provinces become anti-mining because they didn’t think they received enough funds from the federal government and couldn’t see the benefits of the mining industry?

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Key players

Yamana Gold’s Gualcamayo mine, in San Juan. Credit: Yamana Gold

serious government that can cope with it and fix the situation. Confidence must be earned, and like a plant you have to water it with truth every day, and with audits from the state, otherwise mining would be impossible.

TNM: How do you propose to do that?

DM: We propose collaboration between two organizations united by a mutual objective. One is the COFEMIN, the mining group composed of federal and now provincial representatives, of which I am part. The other organization is the Consejo Federal de Medio Ambiente (COFEMA), which is the federal entity responsible for protection of environment.

TNM: We understand that Macri has established two ministries that are connected with mining.

DM: There are two ministries: the Energy and Mining Ministry where we are, and the Environmental Ministry, which is separate. Both are new and both will work together applying common federal policies in the provinces.

TNM: Under Argentina’s 1993 Mining Investment Law, which has not been altered, companies have fiscal stability for 30 years, which seems quite competitive. Do you think Argentina needs to make any changes to the mining code or introduce incentives to encourage foreign mining companies to invest here?

DM: No, the legal framework is good, the only thing we have to do is eliminate all the distortions or the extraneous regulations that were piled on top of it by the previous government. What the industry should do is engage in a dialogue and provide communities with a full spectrum of information about what mining is all about, so that they can make decisions. Communication is the number-one priority. Our strategy should be to prevent problems, not mitigate them. The environmental liabilities in Argentina have been small. We must look at the mature countries to learn from their mistakes and successes.

TNM: Can you discuss energy costs?

DM: I’m in charge of mining and the Minister of Energy and Mines Juan Jose Aranguren is involved with energy issues. If we don’t have energy we don’t have any chance of doing business. Today, the reality is that the energy system is really poor. The minister is constantly deciding and communicating when the energy is going to be cut off, especially when the temperatures are high. We expect this problem will be solved progressively in the next two years to make the cost competitive. It is not competitive today.

TNM: Do you anticipate a time when a Ministry of Mines is created, separate from the Ministry of Mines and Energy?

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DM: It is more reasonable for Argentina to have mining inside the Ministry of Energy, because we have much to do with the characteristics of oil and gas in regards to concessions and land access, and the relationship between the land and the landowner. We have to be modest. We are known because of our cows, steaks and agriculture. We are a country with mining, not a mining country. That’s a big difference.

TNM: Is your objective to become a mining country?

DM: If we divide our country in two, we have on one hand agriculture and cattle raising, and on the other hand a small part that is mining. All the population and infrastructure is in this first big part. We have to encourage mining to make it more balanced. If we accomplish this, the result would be to balance our country internally and grow the mining industry to bring foreign investment to our country. In the next 20 years we will find out whether Argentina is going to be a country that has mining or a mining country.

TNM: What percentage of the gross domestic product does mining make up now and what would you like that number to be 20 years from now?

DM: It’s 1% now. In 20 years, we expect it will be not as much as Chile (20%) or Peru (15%) but 5% would be ideal.

TNM: When you were the Secretary of Mines during the 1990s, it was in the golden years of mining in Argentina. Was it a hard decision to become Secretary of Mining again?

DM: Yes, it was difficult. I left in the best moment so my question was: Why come back with all this mess? What I have ahead is a lot of work and much risk, so I talked to my wife and I said: ‘It is a challenge. People believe in me, they are on my side and I cannot let them down.’

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KEY PROJECTS

Six essential projects We profile six of the leading companies in Argentina and their flagship projects CHINCHILLAS (1) Last October, Golden Arrow Resources (TSXV: GRG) struck a deal with Silver Standard Resources with the major paying up US$12.6 million toward a feasibility study at the junior’s Chinchillas silver-lead-zinc project, in Jujuy province. Looking for ore to extend the life of its Pirquitas mine, only 30 km away, Silver Standard is studying the possibility of combining the two operations in a 75%-25% owned joint venture. It has 18 months to complete its studies. A resource update in April pegged measured and indicated resources at 34.2 million tonnes grading 142 grams silverequivalent for 155 million silver-equivalent oz.

CASPOSO (4) Austral Gold (TSXV:AAM; ASX: AGD) struck a deal with Troy Resources to acquire an initial 51% stake in the Casposo gold-silver mine in March. Austral has the option to purchase up to 100% of the operation, in San Juan province. In 2015, the mine produced 99,700 gold-equivalent oz. Austral will invest up to US$10 million to develop and implement a plan to achieve profitable production at the mine within 12 months. The company has already commissioned an updated resource and prefeasibility study for Casposo that will look at geology, mine design and ore processing.

TACA TACA Copper miner First Quantum Minerals (TSX: FM; LSE: FQM) acquired Taca Taca through a takeover of Lumina Copper in 2014. Located in the Puna region of Salta province, Taca Taca has an indicated resource of 21.2 billion lbs. copper in 2.2 billion tonnes grading 0.44% copper, 0.08 gram gold per tonne and 0.013% molybdenum (0.57% copper equivalent).

SAN JOSÉ (5) McEwen Mining (TSX: MUX; NYSE: MUX) has a 49% stake in the San José gold-silver mine operated by its jointventure partner Hochschild Mining. The 1,650-tonne-per-day underground operation is located in the northwest corner of the prospective Deseado Massif region of Santa Cruz province. McEwen Mining’s share of San José’s 2015 production was 47,400 oz. gold and 3.3 million oz. silver at cash costs of US$865 per gold-equivalent oz.

GUALCAMAYO (3) Yamana Gold (TSX: YRI; NYSE: AUY) brought its Gualcamayo gold mine, in San Juan, into production in 2009. The open-pit and underground heap-leach operation produced 180,700 oz. gold in 2015, with 2016 production estimated at 150,000 to 165,000 oz. gold at cash costs of US$875. At the end of 2015, the mine hosted proven and probable reserves of 967,000 oz. gold in 25.7 million tonnes grading 1.17 grams gold. The discovery of new oxide mineralization is expected to boost resources at Gualcamayo. Yamana also has a 12.5% stake in the Alumbrera mine in Catamarca, and expects to bring its Cerro Moro gold-silver project in Santa Cruz into production in 2018.

MARTHA MINE (6) Hunt Mining (TSXV: HMX) bought the past-producing Martha silver-gold mine from Coeur Mining in May and hopes to recommission the mill and restart production before year-end. The company plans to process remaining mineralization at Martha, as well as mineralization from its La Josefina and La Valenciana properties, 110 km away. The mill includes a 240tonne-per-pay flotation plant, which includes a crushing circuit and additional million capacity for up to 480 tonnes per day. Martha, which was closed in 2012, produced more than 25 million oz. silver and 25,000 oz. gold. The mine has a historic (2012) indicated resource of 52,000 tonnes grading 465 grams silver per tonne and 0.58 gram gold, plus historic inferred resources of 185,000 tonnes grading 163 grams silver 0.17 gram gold.

(2)

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Chinchillas

JUJUY

Taca Taca

Antofalla

selected mines & projects

SAltA

Alumbrera Agua Rica cAtAMARcA

Gualcamayo Los Azules 4

Casposo

SAn JUAn

Buenos Aires

Legend Mines

Gualcamayo (Au) – Yamana Gold Alumbrera (Au-Cu) – Glencore, Goldcorp, Yamana Gold, San José (Au-Ag) – McEwen Mining, Hochschild Mining

Rio nEGRo Anit

Past Producers Casposo (Au-Ag) – Austral Gold Martha (Ag-Au) – Hunt Mining develoPMent Projects Cerro Moro (Au-Ag) – Yamana Gold

Agua Rica (Cu-Au-Ag-Mo) – Yamana Gold

La Josefina

San José

Chinchillas (Ag-Pb-Zn) – Golden Arrow Resources

Pingüino

La Valenciana

Cerro Moro

advanced exPloration/ exPloration Taca Taca (Cu-Ag-Mo) – First Quantum Minerals

Cerro Vanguardia SAntA cRUz

Los Azules (Cu)– McEwen Mining

Martha

La Josefina (Au-Ag) – Hunt Mining La Valenciana (Au-Ag) – Hunt Mining Pingüino (Ag-Pb-Zn) – Austral Gold Anit (U) – Blue Sky Uranium Antofalla (Ag-Pb-Zn) – Golden Arrow Res.

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Investor InsIght

Our panel cOnsists Of: Ignacio Celorrio, partner, Quevedo Abogados Alberto Carlocchia, Mining Leader, Argentine-Canadian Chamber of Commerce (CCAC )

Roundtable Photography Courtesy of PwC

Alfredo Vitaller, President, NGEx Resources

An insiders’ view of

Gustavo Burgwardt, Director, Burgwardt & Cia SA Ricardo Martínez, President, Group of Mining Exploration Companies (GEMERA) Andrés Edelstein, partner, PwC Argentina Carlos Saravia Frías, partner, Saravia Frías Abogados

Argentina

Jose Bordogna, CFO, Austral Gold Julián Rooney, independent consultant

ather nine of the most knowledgeable and connected people in Argentina’s mining sector in one room, and you’re guaranteed to have a revealing discussion about the staggering potential of Argentina’s mineral wealth — and why it remains largely untapped. That’s exactly what happened in February this year, when Trish Saywell and Elena Mayer mediated a Roundtable discussion in Buenos Aires. Members of the country’s mining brain trust, including mining executives, legal and tax experts,

and representatives from the country’s mining organizations candidly shared their views, experiences and opinions on where Argentina stands now and what needs to happen next to entice mining investment into the country. Several themes emerged from the discussion, including praise for what President Macri has accomplished in a short time; acknowledgement of the obstacles that remain; and optimism about the future. What follows is a selection of insights from the conversation.

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praise for the Macrii government:i > carlos sarravia frías: If you compare our mining code with other countries with whom we are competing for investments, it is really competitive. The problem was that during the last ten or twelve years, the legislation was limited or distorted in some way. So what the current government has done so far is to come back to the original set of laws — which are really competitive with Chile and Peru. In fact, they are quite similar. > ignacio celorrio: Large-scale mining

in Argentina is basically a consequence of the Mining Investment Law passed in the 1990s. For a long time, mining was

at the cerro Vanguardia gold-silver mine, in santa cruz. Credit: Anglogold Ashanti

booming and the legal framework was probably one of the most competitive in the world. . . The most important thing now is to start going back to that framework. The government’s first actions like the repeal of the export tax,

and the announcement that it is going to encourage the provinces to take more benefits from the projects located in their land, are a very good indication that we are back on the right track for attracting investment. It’s very probable that we are going to have a pro-business administration for awhile. . . Argentina is opening up to the markets again due to the changes this administration has made and the acceptance from much of the population that we cannot continue with the populist [Peronist] economic policies that we’ve had in the past. > Jose Bordogna: An agreement with the holdouts (see Page 8 for details on the agreement with holdout investors from Argentina’s 2001 default) will definitely help to reduce the cost of

You may see machinery. We see gold and silver. Argentina’s next silver and gold producer TSX-V: HMX.V huntmining.com 403.617.7609

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Investor InsIght

Left to right: roundtable participants gather in Buenos aires; carlos sarravia frías and Jose Bordogna

financing and bring new sources of funds from the upgrading of Argentina from frontier to emerging market. . . It will trigger more financial flexibility for the country that will of course

> carlos sarravia frías: So far this administration has made a big effort to generate the conditions for foreign investment, especially in the mining sector. Now it’s a question of trust. We have to be able to show that this is sustainable. I imagine that probably the companies that are already in Argentina will start investing strongly again, and new ones will as well, in hand with local companies. This second wave of investment is a new opportunity for Argentina and the mining sector as well.

The federal/provinciali divide:i the salar de Olaroz lithium JV in Jujuy province. Credit: Orocobre

generate wider sources of financing for companies and the direct consequence will be lower cost of equity. That will also help to change the sentiment about the country. In terms of mining in particular, all these changes — the reduction of export duties, improving the cost of finance and cost of capital — will improve the NPV of projects, which are key for any analyst analyzing a company.

> andreas edelstein: The distribution

of taxes between the provinces and the federal government has been a problem for years. I mean there is a sharing agreement, in order to distribute the tax collection among the provinces that should have been modified twenty years ago. Now the government is starting discussions with the governors in order to modify it, so that’s a very good sign. I didn’t think this was going to happen so fast. So that may be a way of getting better treatment, and the provinces getting a fair share of the national tax

collection. It’s going to take longer than expected because we’re running a fiscal deficit — a huge one. But again, the provinces have nothing to lose, because they are getting a very unfair share of the collection, so that should be greatly increased. > alberto carlocchia: The previous central government made several distortions to the legal framework at the time and started to affect the distribution of taxes among the provinces. As a result, each of the provinces started generating their own laws to find a way to get a share of the monies that the mining companies were producing in their territory. At this stage, this has started to reach an end and the changes under the new administration are starting to get us back on track again. > Julián rooney: I was asked whether the benefits from the Alumbrera mine went to the provinces and yes, they did, but I think we have a lot of space for improvement in the use of funds by the provinces and the distribution of the national government benefits in relation with the projects. . . The Macri government has proposed a 1% tax on mining for social responsibility efforts and some

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kind of arrangement of this kind might be something to be analyzed, The problem is we can increase the funds allocated to the local governments but they need the capacity to plan for the long term and to allocate that money to create a sustainable environment for the population in that area.

Argentina’s potential:i > alfred Vitaller: Argentina shares the

Cordillera with Chile, and in Chile, you have 400 or 500 mines. In Argentina, we have a lot of space and resources, and a lot of exploration potential in those areas. From a geological point of view, it is not only copper resources, it is other types of deposits, like the

low-sulphidation systems that you can find in Patagonia, the gold deposits and porphyry systems you can find in northern Argentina. The next thing that Argentina should do is try to bring back investment for exploration. There wasn’t much exploration in the last couple of years, but based on the geological potential, we need to revive it. > ricardo Martínez: NGEx Resources

recently announced the impact of Macri’s tax reforms on its integrated Los Helados and Josemaria projects, and it’s had nearly a 3% impact on the internal rate of return (IRR) — just from the elimination of export taxes. It’s incredible. This is a long-life, 48-year project. And that’s what the industry is looking for. And as I said to investors in the

early exploration days at Veladero [Martínez helped discover the deposit, now owned by Barrick Gold, in the 1990s], ‘We are looking for monsters.’ And monsters keep coming up. There are not many places on earth where you can find projects of this size.

What mining companiesi need to do to strengtheni the industry:i > ignacio celorrio: As an industry, we have to show that the projects are going to benefit the community. > ricardo Martínez: Over the last 20 years companies involved in exploration or mining have always focused on

Targeting Production at the Chinchillas Silver Deposit • Large new silver resource in mining-friendly Jujuy Province, Argentina

• Innovative joint-venture with Silver Standard’s Pirquitas Mine under evaluation > Potential low-risk, fast-track to production and earnings > GRG accruing cash-flow from Pirquitas since Oct 2015 plus US$2M > US$12.6M program underway to pre-feasibilty level with no dilution > Option decision expected Q4 2016

goldenarrowresources.com TSX-V:GRG FSE:GAC OTC: GARWF

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Investor InsIght

spending the money in the right way and publishing the results of that spending. They have written sustainability reports. Have you ever seen a sustainability report written by a provincial government or the Secretary of Mines at the federal level? Social responsibility is the first issue we have to address in this new era because if we don’t, we will continue to neglect possibilities for development. > alfredo Vitaller: The people who say

they don’t like mining mention issues like contamination, or the fact that they believe that international mining companies come to Argentina, take all the reserves, and then leave nothing. That is part of the communication that we need to change. And that’s our mistake as

an industry — we never communicated in the right way about what mining companies are really doing. > Gustavo Burgwardt: The public doesn’t know all the things that mining provides. They don’t realize that for better energy they need batteries and for that you need mining. Or to make planes you need mining. . . We need to explain to everybody that mining is much more than metals and it is good for many people. It isn’t bad if you do it well. > Julián rooney: Many companies investing in mining in Argentina should consider issuing a tranche of their net worth as local shares on the local stock exchange. That would improve the view

nGex resources’ Josemaria copper-gold project in san Juan. Credit: NGEx Resources

that mining is a local industry, rather than seeing it as something for foreign mining companies only. . . And they would also see how these benefits flow.

CORPORATE PROFILE

First Quantum: From humble beginnings to heavyweight In the span of only 20 years, First the country in recent times, the Quantum Minerals (TSX: FM) Sentinel project includes statehas grown from a company with of-the-art mining and processing a single, small asset in Zambia operations, a new town, school, to a global producer of copper, airport and clinic. First Quantum’s gold, nickel and zinc. in-house project development The company’s first operation, team has established an excellent Bwana Mkubwa in Zambia, was record of bringing new world-class The Kansanshi mine. a SX/EW tailings retreatment operations onstream efficiently Credit: First Quantum Minerals and cost-effectively. In fact, the project that operated from 19972001. While small in comparison to First Quantum’s current company has delivered projects at an average of 40% of the mines, the project generated enough cash flow to fund industry’s average capital per tonne of capacity. exploration and the company’s first modest acquisitions. In 2015, First Quantum produced 428,229 tonnes of Today, First Quantum has seven operations, including copper, 223,914 oz. gold, 35,472 tonnes of nickel, 41,139 the Kansanshi copper mine and smelter (80%) in Zambia; tonnes of zinc, and 57,095 oz. of platinum-group elements. the Guelb Moghrein copper-gold mine (100%) in Mauritania; Its current advanced development projects are the the Las Cruces copper mine (100%) in Spain; the Pyhäsalmi US$5.48-billion Cobre Panama copper project in Panama copper-zinc mine (100%) in Finland; the Ravensthorpe nickel and the Enterprise nickel project in Zambia. In 2015, First mine (100%) in Australia; and the Çayeli copper-zinc mine Quantum began an environmental assessment for its (100%) in Turkey. It is also currently commissioning the Sentinel 100%-owned Taca Taca copper-gold-molybdenum project mine (100%) in Zambia. As the largest single investment in in Salta province, Argentina.

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NEED TO KNOW

Investing Essentials

ince assuming power last December, President Mauricio Macri has set Argentina on a more market-oriented path. In April, investors signalled their approval with a healthy appetite for the country’s first debt issue in 15 years. The government raised US$16.5 billion in its return to international capital markets — a record for an emerging nation bond issue. But it’s still early in Macri’s term, and after years of populist rule and economic policies that have discouraged investment, it will take time to establish economic and political stability. With the long timelines and fixed nature of their enterprises, mining investors need to be particularly cautious. Here’s a look at Argentina’s current mining investing landscape.

JuJuY

sALtA

cAtAMARcA

LA RioJA sAn JuAn

MendozA

EnvIronmEntI In 2010, the Kirchner government passed a law to protect Argentina’s glaciers that bans mining and oil drilling on and near glaciers. While the act was challenged by a group of mining organizations and companies, it was upheld by the Supreme Court in 2012. The law hasn’t yet stalled any mining projects, but it’s feared that it could quash activity in prospective areas, such as in mining-friendly San Juan. Macri has tried to walk the line by acknowledging the economic benefits of mining and encouraging it, and by insisting his government will ensure mining is carried out in an environmentally responsible way. It’s not clear yet where it will lead, but the federal government has arranged meetings between joint federalprovincial organizations that are responsible for advising on mining policy on one hand (COFEMIN), and the environment on the other (COFEMA). The meetings may lead to more co-ordination on areas of overlapping responsibility. The government has also talked about setting a Social Responsibility Trust Fund by instituting a 1% tax on mining exports. Details are sparse, but Mines Secretary Daniel Meilan has said that an external auditor would be involved in monitoring environmental impacts of mines, which he believes would generate trust between communities and companies.

Buenos Aires

neuquen

Rio negRo

chuBut

The Provinces

sAntA cRuz

Legend Most mining-friendly somewhat mining-friendly Least mining-friendly

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ArgEntInA’s ProvIncEsi In the Fraser Institute’s most recent annual Survey of Mining Companies (2015), Argentina was ranked the least attractive region in the world for mining investment — a steep decline from previous years.While Argentina’s scores are likely to improve under Macri, there are limits to what he can achieve in Argentina’s federal political system in which provinces have considerable power over natural resource development. So while recent reforms at the federal level are promising, provincial governments will also have to demonstrate a commitment to mining for the sector to flourish. “In Argentina, you’ve got a political party who don’t have a majority, and you have provinces which run quite independently of central government, so any change will take time to filter through,” says Charles Koppel, who has been involved as an investor in Argentina for the past 10 years and is CEO of Samco Gold (TSXV: SGA). “There are a lot of issues that one has to deal with at a national level, but day to day, it’s provincial.” There is some optimism that the new government will be

able to get the provinces on board. Independent consultant Julián Rooney says that Macri’s early initiatives have received fairly widespread support. “Some of the changes will need to go through Congress, so the fact that they’ve been seen positively by other political parties is a very good signal,” he notes. While about 10 of Argentina’s 23 provinces could be considered mining provinces, not all of them host operating mines. Santa Cruz, San Juan, Catamarca, Jujuy and Rio Negro host operations owned by foreign companies. In addition, the Neuquén government has opened bidding to operate the Andacollo gold mine (now on care and maintenance). The list of provinces that have passed restrictions on open-pit mining and/or the use of cyanide, mercury or sulphuric acid, includes: Mendoza, Chubut, Cordoba, Tierra del Fuego, La Rioja, La Pampa and Tucuman. The development of several promising mining projects has been held up by such laws, including Pan American Silver’s (TSX: PAA; NASDAQ: PAAS) Navidad project in Chubut.

Corporate profile

Austral eyes near-term production at Casposo South America-focused Austral Gold (TSXV: AAM; ASX: AGD) has been busy lately growing its portfolio in Argentina. Using cash flow from its Guanaco gold-silver mine in Chile, the company has acquired both near-term production and The Casposo mine. earlier-stage projects in Argentina. Credit: Austral Gold In March, the company announced a deal to acquire an initial 51% in Troy Resources’ Casposo gold-silver mine, in San Juan, for US$1 million. Austral can increase its stake to 70% for another $1 million, and then potentially to 100%. Casposo began production in late 2010 and was placed the mine on care and maintenance in the first quarter of 2016. While it has been profitable in the past, a combination of lower commodity prices, inflationary pressures and high dilution rates were likely behind the decision to place the mine on care and maintenance. But Austral’s management believes it can turn the mine

around within 12 months. Under its agreement with Troy, Austral will invest up to US$10 million in re-engineering the project to do so. “One of Austral’s core competencies is operating underground on smaller veins with grades on the lower scale, where operating cost is critical in maintaining profitability with variable gold prices,” explains Austral CEO Stabro Kasaneva. Austral plans to transition the mine to smaller-scale mining, reducing stope heights and drift sizes while minimizing the impact on production rates. It will also address the mine’s historically high dilution rates. A prefeasibility study is under way. In August, Austral acquired Argentex Resource and its Pingüino silver-gold-lead-zinc project in Santa Cruz. With the all-share deal came a TSXV listing for Austral in August, as well as access to Argentex’s high-calibre exploration team. Pingüino hosts 6.3 million tonnes at 132.3 grams silver equivalent per tonne (indicated).

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NEED TO KNOW

Argentina’s geology

Argentina is rich in copper, gold, silver, zinc, lead, molybdenum, iron ore, lithium and more. Ricardo Martínez, president of exploration association GEMERA, believes that despite their big price tags, Argentina’s copper and copper-gold porphyries will attract more investment over the next few years. He also believes the Northwest and Patagonia regions will be popular areas to look for silver. Some of the country’s prospective regions include: Northwest Argentina: Jujuy, Salta, Catamarca, La Rioja and Tucuman provinces Mineral districts in this area include the lithium triangle, which extends into Chile and Bolivia, and hosts Orocobre’s Salar de Olaroz JV and FMC Corp.’s Salar del Hombre Muerto. In Jujuy province, the Bolivian silver-tin-zinc belt hosts Silver Standard Resources’ Pirquitas and Golden Arrow Resources’ Chinchillas. Central-West Argentina: San Juan, San Luis, Mendoza and Neuquen provinces The region includes the mountainous Cordilleran region that hosts Barrick Gold’s Pascua Lama and Veladero, Glencore’s El Pachon, Yamana Gold’s Gualcamayo, and Austral Gold’s Casposo. Patagonia: Rio Negro, Chubut and Santa Cruz provinces This southern region includes the Deseado Massif volcanic plateau in Santa Cruz, which hosts high-grade precious metals mines such as Cerro Vanguardia, Hunt Mining’s Martha, Hochschild Mining and McEwen Mining’s San José, and Yamana Gold’s Cerro Moro.

Credit: Steffen Hagemann, Fogliata, A.S. and Hagemann, S.G., 2010, Gold Systems in Argentina, SGA News, No. 28.

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tAx rEgImEI Argentina has had a very competitive mining law and tax regime for more than 20 years now. Passed by the Menem government in 1993, the Mining Investment Law guarantees tax stability for mining companies for 30 years from the time a feasibility study is filed. While subsequent governments have never altered the 1993 law, they have not always respected the law’s stability provision — for example the 5-10% export duty on precious and base metals imposed by the Kirchner government. With the Macri government eliminating those duties, and removing a 10% withholding tax on foreign dividend distributions, Argentina’s tax regime is moving in the right direction. That is the case even though Argentina’s corporate tax rate, at 35%, could be more competitive, says Andres Edelstein, a partner and tax expert at PwC Argentina in Buenos Aires. “Taking into account the global average, the 35% corporate income tax rate is relatively high. But in the case of mining, the accelerated depreciation system and the double deduction for exploration expenses granted by the Mining Investment Law provide some relief,” Edelstein says.

While updated studies reflecting recent tax developments in neighbouring mining jurisdictions Chile and Peru should be conducted, Edelstein says it’s clear that with its recent policy changes, Argentina now offers a competitive framework.

1993 mining Investment Law: > Guarantees tax stability for 30 years from the time a feasibility study is filed > Provincial royalties are capped at 3% of “mine head value” > Allows for accelerated depreciation of mining infrastructure > Deduction of 200% of exploration expenses > Deduction of 100% of the amount spent on determining the project’s feasibility

CORPORATE PROFILE

Hunt Mining: Santa Cruz’s next precious metals producer The path to production is a long and trying journey that requires dedication, patience and capital. Hunt Mining (TSXV: HMX) has been active in Argentina’s Santa The Martha mine. Credit: Hunt Mining Cruz province since 2004, and is poised to become the province’s next precious metals producer. Through the leadership and dedication of Chairman and CEO Tim Hunt, Hunt Mining’s Martha mine is scheduled to begin production in late 2016. In addition to Hunt’s 30 properties in Santa Cruz, the company recently acquired the Martha mine and mill from Coeur Mining. The Martha mine is historically recognized as the richest silver mine in the world, with production of ore grading greater than 5,000 grams silver per tonne. Hunt plans to use the Martha Mill to process ore from its flagship La Josefina and La Valenciana properties, 110 km north prior to treating remaining ore at the mine. With over $50 million invested through exploration and development at key

properties, Hunt is well positioned to produce for an extended period. In addition to near-term production, the company can use cash flow to continue exploration. The new government in Argentina has made changes that favour investment in mining, resulting in enhanced interest in the country as a favourable jurisdiction. Santa Cruz province is about the same size as Nevada, and is home to the Cerro Negro precious metals project. Its parent company Andean Resources was acquired by Goldcorp in 2010 for $3.6 billion after a bidding war with Eldorado Gold. Santa Cruz is home to 5 other precious metals producers and many exploration and development projects. New appointees to Hunt’s management include former Coeur Mining officers, who add seasoned experience with the Martha mine and Argentina. The combined team, including Hunt’s veteran staff, will continue to enhance the development of key assets and allow for near-term growth.

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NEED TO KNOW

InfrAstructurEI

peso float freely, which resulted in a 30% devaluation — has also added to inflation. In the long-term, Macri’s economic and monetary reforms and his attempts to trim the country’s fiscal deficit — the largest in 30 years — should help. Argentina’s Central Bank has also boosted short-term interest rates above 30%. While this year’s forecast is at 40%, Macri is targeting a more manageable inflation rate of 17% in 2016.

After years of underinvestment, Argentina has a serious infrastructure deficit. In a comparison of infrastructure, the country was ranked 104 out of 144 economies in the World Economic Forum’s 2014-2015 Global Competitiveness Index. Plugging the infrastructure gap will take massive spending. A 2014 report by Argentina consulting firm E&R estimated that the country needs to invest US$290 billion over the next 10 years in oil and gas exploration, electricity generation and distribution, and highways and roads. So far, Macri has announced plans to invest up to $26 billion in roads, rail, ports, airports and urban transport over the next four years. One of his most significant announcements has been “Plan Belgrano,” a 10-year plan to invest US$16 billion across Argentina’s northern provinces, including several with high mining potential: Salta, Jujuy, Tucuman, La Rioja and Catamarca. The plan will fund 250,000 new homes, 2,000 km of new roads, updates to the region’s airports and the Belgrano cargo line, including connections to Chilean ports on the Pacific.

EnErgyI Despite its vast shale oil and gas reserves, Argentina has become a net importer of energy. The country, a net exporter from 19892010, now relies on imports for 13% of its energy needs. While the recent drop in energy prices has also had some effect, price controls introduced in the wake of Argentina’s financial crisis in 2001 are largely responsible for the country’s decline in energy self-sufficiency and, indirectly, for more frequent power outages during high-demand times. Energy subsidies have also become an unsustainable drain on the federal treasury. In 2014, they accounted for more than 12% of federal spending. In order to lower the country’s deficit and to spur investment in the energy sector, the Macri government has partially lifted power and natural gas subsidies. But after consumers’ electricity bills climbed by up to 500%, Macri’s popularity dropped and street protests erupted. If the backlash continues, there could be repercussions for the government in mid-term elections next year. Renewable energy, which supplies less than 1% of Argentina’s energy, is seen as one way to reduce the need for costly imports. The government is hoping to boost renewable energy to 20% of total supply by 2025 and to attract up to US$20 billion for wind and solar projects over the next decade.

InfLAtIonI Argentina has long struggled with inflation. Through the 1980s, inflation was fuelled by economic mismanagement and a habit of financing deficits through printing money rather than making spending cuts. A debt crisis that decade even brought on hyperinflation, which spiked to over 5,000% in 1989. More recently, Argentina’s lack of access to international capital following its 2001 default has also fed inflation. President Macri has pledged to get inflation down to single digits (5%) by the end of his term. However, his government’s attempts to address the country’s energy crisis by lifting subsidies on utilities has had the opposite effect, at least in the short-term. The government’s decision last December to let the Argentine %

Argentina’s Inflation Rate: 1995-2015

Data: World Bank

35 30.6

30.7

25 21.2

17.7

17.2 17.8

18.7

10.5

10.6

Gowlings............................. IBC Grosso Group/ Golden Arrow Resources....23

9.9

Hunt Mining ........................ 21 McEwen Mining .................. IFC

3.2 1

EDC ..................................... OBC First Quantum .................... 11

19.7

15.2

Austral Gold ....................... 9

29.3

AD INDEX

-0.1 -0.5

-5

1996

1998

New Sense Geophysics...... 15 -1.1

-1.7 -1.8

2000

PwC ..................................... 5 2002

2004

2006

2008

2010

2012

2014

Yamana Gold ...................... 17

• 30 •

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