McEwen Mining CEO Rob McEwen on Thursday cautioned shareholders that recent energy-industry expropriation and Argentina government policy decrees augured negatively for its San José silver/gold mine and other development projects.
At its general meeting, McEwen said there is uncertainty with regard to repatriating funds from the San José, which could impair the company's ability to internally finance its projects.
“If these uncertainties persist, the company would need to seek external financing alternatives for the development of El Gallo Phase 2,” he said in a statement.
Colombian based boutique investment analyst Caiman Valores said that since President Christina Kirchner won a landslide victory in the October 2011 elections, she had demanded that all oil and gas companies operating in Argentina, including foreign companies, repatriate all future export earnings to Argentina.
This also included demanding that Argentine companies not pay dividends and reinvest those funds in Argentina.
This may also be applied to the mining industry.
Valores said in conjunction with this demand the government has also introduced regulations that significantly increase the amount of capital a bank must hold before being legally able to pay a dividend.
As a result of this pressure combined with the regulatory changes many Argentine companies such Spanish oil and gas company Repsol subsidiary YPF, Banco Macro, BBVA Banco Frances and Telecom Argentina agree to either not pay dividends or be unable to do so due to changed regulation.
McEwen Mining said the expropriation of YPF was not entirely unexpected in Argentina, but what surprised everyone was the abrupt way that the government announced the expropriation.
Further, McEwen Mining’s Jenya Meshcheryakova said that in it is not known whether Repsol would be compensated for the expropriation for an asset that it valued at between $10-million and $14-million.
“Although we don’t agree with the expropriation, Argentina has some legitimate justification, for example, owing to the lack of investment in exploration and development by Repsol. The government’s motives were both economic and political, and the complete story is very complex,” she said in an email to Mining Weekly Online.
Hydrocarbon companies are seen as an obvious target for expropriation because it was previously controlled by the State, but it was privatised under President Carlos Saúl Menem.
“In my experience, such companies are an irresistible target for expropriation by populist or leftist governments,” she said.
In contrast, the mining industry in Argentina had never been a State enterprise, with the exception of the State coal company.
“Throughout the mercurial history of Argentina, no mining operations have ever been nationalised – even during the Juan Peron era. We interpret President Kirschner’s recent strong support of the mining industry as a signal that the government does not intend to expropriate mining projects,” Meshcheryakova said.
McEwen told investors the corporation remained on schedule and on budget with the Mexico-based El Gallo Phase 1 project, with the first gold pour during scheduled for the third quarter.
The San José mine also remained on track to meet the full-year production guidance of 85 000 oz of gold and 5.7-million ounces of silver.
Meanwhile, despite the current weakness in precious metals prices, gold bull McEwen also reaffirmed his view that gold may touch $5 000/oz by the end of this cycle.