The new Argentine mining framework

Resources Policy. Vol. 23, No. 1/2, pp. 3 3 4 3 . 1997

Pergamon

PII: S0301-4207(97)00013-5

© 1997 Elsevier Science Ltd All rights reserved. Printed in Great Britain 0301-4207/97 $17.00 + 0.00

The new Argentine mining framework Santiago F Albarracin MetroGas SA, A v Montes de Oca 1120, 4th Floor (1271), Federal Capital, Argentina

The purpose of this paper is to study whether Argentina has, after implementing a whole new investment policy including new laws and revisions to the old Mining Code, created a favorable environment for mineral-sector investment. © 1997 Elsevier Science Ltd.

Considering its huge geologic potential, Argentina had not been successful, at least until the 1990s, in attracting enough investment to develop its infant mining industry. The production of the mining sector in the Argentine Republic is deemed to be below the possibilities of the mining potential. Even though only 20% of the country has been surveyed, the existence of great mineral resources has been verified. The Argentine mining sector today represents only 0.2% of the GNP. The reason could be found in political, marketing, regulatory, fiscal, monetary, environmental or operational factors. However, a radical change occurred in the 1990s. The present administration introduced significant policy changes affecting most of the above mentioned factors without altering the fundamentals contained in the original Mining Code (hereinafter the 'MC'). The purpose of this paper is to study whether Argentina has, after the recent introduction of several Laws and regulations to the old MC, created a favorable environment for mineral-sector investment. This paper will specifically refer to the basic principles of the original MC and the impact of the new regulatory and tax framework on the mining industry.

except by reason of a Court decision sustained in the Law'. Section 20 sets forth that foreigners within the territory of Argentina enjoy the same civil rights as a citizen; they may carry out their industry, business or profession, hold real estate, purchase or transfer same. The Constitution also grants the National Congress power to enact, between others, the MC (Section 67). Therefore, Argentine mining law is summed up in a sole Code which is applicable to the whole country without any distinction of jurisdiction. This principle is confirmed by Section 108 when it establishes that 'the Provinces do not exercise the power delegated to the Nation and are not able to enact the Civil, Commercial, Criminal or Mining Codes after Congress has sanctioned them.' However, the Provinces retain all the power that is not delegated by the Constitution to the federal Government. Therefore, the Provinces establish within their respective jurisdictions the administrative procedures for the concession of mining titles and exercise the police power. As a consequence of the constitutional mandate, in 1886 the National Congress passed Law 1919 that became known as the Mining Code:

The Argentine Mining Code

O w n e r s h i p o f the m i n e s

The first national mining legislation, passed by Argentine authorities back in 1813, was the creation of the Mining Courts of Potosf. However, this Court was still ruled by the Ordinances of New Mexico. The roots of mining property in Argentina can be found in its National Constitution (1853). Section 17 establishes that 'property is inviolable and that no citizen of the Nation may be deprived of this right,

The mines of stones or soil material and in general all material used for building and ornament belong to a category of mines that according to the Code belong to the owner of the surface (Section 2). The general principle governing the other categories is that the concession of the mining property presumes that its discovery has been demonstrated, a fact that may or may not result from the use of an exclus-

33

The new Argentine mining framework: SF Albarracin

ive permit to explore specific areas for a specific period of time. According to the Code, first-class minerals are: (a) Metal-bearing substances: Gold, silver, platinum, mercury, copper, iron, lead, tin, zinc, nickel, cobalt, bismuth, manganese, antimony, wolfram, aluminum, beryl, vanadium, cadmium, tantalite, molybdenum, lithium and potassium. (b) Fuels: Coal, lignite, anthracite and solid hydrocarbons. (c) Arsenic, quartz, feldspar, mica, fluorite, calcareous phosphate, sulfur and borates. (d) Precious stones. (e) Endogenous vapors. As most civil law regimes do, the Argentine mining legislation separates the mining property from surface property. However, mining property is governed by the same principles as common property with the exceptions established in the Code (Art.11). It also establishes that mines are the private property of the Nation or of the Provinces, according to the territory where they are located (Art. 7), but it specifies that the State may not exploit them (Art. 9) and grants to private parties the authority to search for, make use of and dispose of such mines as owners (Art. 8). The right of direct vested ownership of the Nation or the Provinces of the mines located in their respective territories is a fundamental principle of Argentine mining legislation, and has its roots in the Country's constitutional history and legislation and is confirmed by the juridical tradition upheld by the Supreme Court of Justice and most of the doctrine. The other fundamental principle is that, without removing mines from that vested ownership of the Nation or of the Provinces, the MC sets up in favor of individuals proprietary rights which are different from the above and which coexist with it. The direct vested ownership of the State over mines is permanent, and exists before, during and after the concession. Therefore, if the concessionaire does not fulfill the conditions of protection or preservation of the concession which the Code imposes on him, his rights lapse and the mine reverts to the State. However, private ownership of the mines is established during the concession for an unlimited period and they may be sold or transferred in the same way as real estate. Any individual or corporation that is able to acquire and own legally real estate may acquire and own mines. This right, also called mining property, is the legal characterization of the rights of individuals over the mines and, like all property is covered by the guarantee of inviolability contained in Article 17 of the National Constitution. The mining

34

concession is irrevocable nor can it be amended. Court decisions are very clear in this aspect.l According to Section 13 of the MC, the exploitation of the mines, its exploration, concession and other consequent acts are endowed with the character of public benefit. This means that mines cannot be expropriated except if there exists a superior reason or interest than the one that protects mining and that mining works cannot be prevented or suspended in so far they do not risk public security or damage is produced into the minerals or the health of workers is put in danger (Pigretti, 1964a, p 36). The MC also prohibits the material division of the mines, both in relation to owners as also in respect of third parties. The reason behind this prohibition lies in the theory stating that any successful exploitation requires unity and combination in the work, so as to produce the most economic and lasting utilization of the seams included within the limits of the concession (Pigretti, 1964b, p 42).

Exploration Any person able to administer property may request permission to explore for mines. The awarding of such permit is essential to carry out any exploration work, otherwise the person will be subject to fines and held liable for any damages caused. Exploration permits are granted immediately after the application is recorded and published for 20 days, if no objection is entered by third parties. From the date of publication of the permit no one, including the surface owner, may undertake mining work within the boundaries covered by the permit, and the permit holder is entitled to any discovery made by a third party who undertakes exploration without his consent. The unit of measurement of exploration areas is established by the Code at 500 hectares. Each permit may consist of up to 20 units (10 000 hectares). Regular concessions consist of one unit per applicant, and two units if more than one applicant. When the exploration permit consists of a single unit, it will be granted for a term of 150 days. For each additional unit, the permit will be extended for a further 50 days. These periods begin to run 30 days after the date the permit was granted, within which time the works necessary for exploration must be installed, under penalty of loss of the permit, and a permit may likewise be revoked if the work of exploration is suspended without authorization. Once 300 days of the term have elapsed, an extension of land that is equal to half of the acreage that exceeds four units must be relinquished. After 700 days an extension of land equivalent to half of the remaining acreage should also he relinquished. Within the term granted for the survey, the explorer

~See C.S.J.N., 5-8-1942, G.F., 160-230; C.S.J.N., 3-3-1932; C.S.J.N., 31-12-1937, Fallos, t. 9, p. 160.

The new Argentine miningframework: SF Albarracin wishing to establish definite work to prove the existence or recognize the importance or constancy of a deposit may apply for and obtain up to three claims (pertenencias), of the same measurement as the exploitation units (300 meters in length, 200 meters in width and indefinite depth). These may be contiguous or separate at a point or points designated within the land assigned for exploration. Once the discovery has been verified and the existence of the deposit assured, the entrepreneur may apply for the formal concession of the mine. Formal disclosure of the discovery confers the right to the concession of the mining deposit and therefore the mining property rights, arising from the original or radical domain of the State, are awarded to the discoverer. The notice of discovery given within legal requirements to the enforcement authority is sufficient for the State to register the mine in the discoverer's name. The term for the referred to definite work may not exceed 15 months, and the explorer may establish one formal work every four measurement units. The holder of a prospecting permit may not undertake formal exploitation nor extract minerals before a legal concession has been granted, but he may make use of and dispose of those found on the surface or those that must be taken out in the work of prospecting.

The mining concession Private ownership of a mine is acquired by virtue of a legal concession granted by a competent authority in accordance with the provisions of the MC. A concession may be granted for the following purposes: (a) for the discovery of new minerals or new deposits, (b) for new mines, as defined, sometimes called estacas, and (c) for abandoned or forfeited mines. The first person who applies for registration receives the concession, provided the priority is not the result of fraud. However, in case of conflicting claims, the holder of the exploratory claim receives preference. The formalities to be completed to obtain a concession are the same for a new mineral or a new deposit, indicated in Article 113 of the MC. Any discovery must be notified to the competent authority together with a sample of the mineral. The discovery must also be registered by the mines notary and then published. As defined in the MC, a claim (pertenencia) is an area of land within the boundaries of which a concession may be exploited to an indefinite depth. The discoverer is entitled to three adjoining or separate claims relating to the deposit at his choice and up to two more adjoining or separate properties relating to the other deposits.

Size of claims Claims have an extension of 300 meters in length by a width of 200 meters, which may be extended up to

300 meters x 300 meters according to the dip of the deposit. In spite of this general rule, the Code establishes the following exceptions: (1) The mining concessions with respect to iron ore deposits will have an extension of 600 meters in length and a width of 400 meters (extendible to 600 meters). (2) Those relating to coal and other fuels: 900 meters of length by a width of 600 meters that could be extended to 900 meters. (3) The mining concessions of a disseminated character when the mineralization is in a distributed form, will have an acreage of 100 hectares. (4) The mining concessions related to borates and lithium will also have an acreage of 100 hectares. In the case of point (1), the annual fee for the concession will be four times the one of an ordinary concession's fee. In the case of point (2), nine times more and in the cases of (3) and (4), twenty times more. Within a term of 100 days, which may be extended, the discoverer will have a right to work out the direction, dip and size of the deposit, and also to verify the existence and kind of mineral discovered. Subsequently he must request from the enforcement authority the measurement of the properties, which once effected, must be duly registered. Such register determines the acquisition of the mining property. The mining properties may be expanded when the underground work penetrates into vacant land.

Mining group The owners of two or more adjoining mines may join them in a single property and a single exploitation (mining group). The mining group may have the number of concessions which, at the discretion of the mining authority, would be necessary to encompass the geological unit of the ore deposit or deposits. Terms of the mining concession Mining concessions are granted to individuals for an indefinite period but the validity of the concession is subject to the following conditions:

(a) Surface Tax ('Canon'). The mines are granted to individuals, among other requirements, by means of the payment of an annual surface tax or 'mining canon' which is fixed periodically by national law. The concessionaire will pay this tax to the government of the Nation or of the Provinces, according to the jurisdiction in which the mines are located. A mining concession is forfeited if the annual surface tax has not been paid within two months after it is due. During the first five years, counted from the registration of the concession, no tax other than that referred to may be applied to the mining property or its products, profits, equipment, workshops or vehicles intended for work and exploitation. The

35

The new Argentine mining framework: SF A lbarracin exemption includes any national, provincial or municipal taxes applicable to the exploitation and marketing of mining production. Although almost all companies would view a tax holiday as an attractive feature, it is not a recommendable tax policy instrument. For many projects the existence of a tax holiday may have little impact on the project's lifetime tax liability. Furthermore, it is often argued that tax holidays can lead to high-grading of deposits as companies rush to extract maximum value during the tax holiday period (Otto, 1992a).

(b) Investments. The concessionaire must file with the mining authority an estimate of the development plan and amount of the fixed assets which he proposes to invest, an investment which must be effected within a term of five years. Said investment may not be less than 500 times the annual surface tax. In each of the first years the amount of the investment may not be less than 20% of the estimated total. Non-compliance results in forfeiture of the concession. A concession holder is the owner indefinitely of all deposits found within the boundaries of his claim, regardless of the substances and minerals they contain, with the exception of those in category three which belong to the surface owner. Exploitation freedom Miners may freely exploit their concessions without being subject to any other rules than those of safety, policing and conservation of the environment. The enforcement authority will exercise a constant control in this connection, and may dictate and demand execution of any advisable measures. Should there be in any risk in connection with person's lives or the conservation of the mine, work can be suspended. Any breach is penalized with a fine. This controlling function is the responsibility of the provincial mineral authorities, who also are responsible for: granting permits, receiving exploration requests, registering of titles, sales, contracts and transfers. Some provinces have also mining judges and mining notaries. Easements The Code determines that the mining activity in the country is of public benefit ('utilidadpt~blica '). It also specifically establishes the circumstances in which the consent of the landowner is required to occupy the surface area for construction work and also the due compensation in respect of that work. In spite of what has been stated, the concession of a mine involves the right to demand from the landowner the sale of the corresponding land, although limited to the extension of one mining property, having the possibility of a supplementary acquisition if necessary. Likewise the Code establishes the obligatory granting of surface occupation, use of water, communication routes and use of pasture land easements. The owner of the mine

36

is held liable for any damages caused to third parties, not only in respect of surface work but also of underground work.

Abandonment and termination If the essential requirements laid down by the Code are not complied, the concession of the mine will be terminated. A discoverer or concessionaire always has the right to abandon his concession or mine, and is relieved from his obligations from the date of such declaration. Should the mine have been inactive for more than four years, the enforcement authority may demand the filing of an reactivating project and otherwise declare the concession terminated. Mining companies The MC does not accept joint ownership of a mining property, but it does legislate in respect of a juridical entity known as a 'mining company' which is the outcome of two or more persons jointly working one or more mines. A mining company stems from a contractual relationship subject to rules established by the Code. In a certain way it is similar to a joint venture. Exploration companies are created by two or more persons agreeing to carry out an expedition for the purpose of discovering mineral lodes. The agreement may be made verbally and when the prospectors or persons responsible for the exploration work do not receive a salary or payment, it is assumed that they are partners in what they discover. When the companies are formed by two or three persons, they will be granted up to two further concessions, in addition to what they would be entitled to. If the companies are made up of four or more persons, they will have a fight to four additional concessions. The partners to the mining company are held liable in respect of the c o m p a n y ' s liabilities only according to their interest in the mine, unless otherwise stipulated. Mining deposits The National State or the Provinces may freely carry out geological-mining surveys anywhere in the country. For that purpose, each state entity may protect its surveys for a term of up to four years, reserving up to 200 000 hectares per province. Any mines discovered during the course of the survey will be declared vacant after five years of the registration of the discovery, provided that during that period they were not publicly auctioned by the discovering entity. The acting state entity should share the sale profits with the provinces. Vacant mines may be acquired by anyone, but in the case of strategic mineral deposits, the prior approval of the Ministry of Defense will be necessary. State entities authorized by law to carry out mining exploration and exploitation, may opt to carry the exploitation of the mines that they have discovered either on their own or through third parties, or declare

The new Argentine mining framework: SF Albarracin

them as 'reserves' for a period not exceeding four years.

Royalties Grounded on the principle of the Provinces original vested domain over mining properties, many Provinces have imposed royalties over the production of mines awarded to private investors. Even though the legal validity of this kind of tax is very questionable (as this levy on the mine is not considered in the MC) the issue has not yet been raised towards the Supreme Court's ruling (Loncan, 1991). The requirement of the payment of royalties does not fit within the whole spirit contained in the MC. The Provinces do not have such a fiscal authority as the law of mines is called to concede to private persons its dominion and to dispose of them with no other norm nor other consideration but the public interest. The uncontrolled application of royalties could further hinder the MC's basic principle of the private mining property. Furthermore, in an investor's point of view, taxes which are not profit-based (such as royalties, severance taxes, export taxes and import taxes) are more harshly viewed than taxes which are profit-based (Otto, 1992b, p 17).

The new Argentine mining framework: Laws 24,196-24,228- 24,224-24,498 and 24,585 Even though the movement towards the reform of the MC did not wait for too long, it has only experienced slight alterations which have not modified its liberal spirit. Two years after its birthday Congress started to pass Laws amending the MC. Many of them were steps back and forth in some controversial issues, like Law 12,161 that included liquid hydrocarbons within the MC; Laws 14,773 and 17,319 that regulated liquid hydrocarbons independently from the MC; Article 40 of the Constitution of 1949 that declared mines as national property of the State vs. the Constitution of 1956 that declared them property of the national or provincial State, depending on their location. Another important reform were the many Laws passed as exceptions to the once cardinal principle of the prohibition of State involvement in the mining industry (Laws 12,103, 12,709, 14,771, 19,059, 20,348 and 20,379), thus creating State Mining Reserves. H o w e v e r , until 1980, the principal amendments of the MC had been limited to three subjects: the system of protection of concessions, the legal rules covering hydrocarbons, and the ones covering fissionable minerals. In 1980, the de facto government passed Law 22,259 thus updating the MC while maintaining the principles of State/Province original domain over mines and the awarding of full proprietary or ownership rights to individuals through concessions. Still, the most important amendments passed to the original MC were executed during this last decade and were

the Mining Investment Law, The Mining Re Ordination Law, the Federal Mining Agreement, the MC Amendment and the Mining Environmental Law which, due to its relevance, deserve a specific in depth study.

The mining investment promotion regime Mining exploration and development require large investments, with a medium or long term return. Therefore, it is fundamental that host governments guarantee that the economics of mining ventures shall not suffer alterations due to increases in the amounts to be paid for national or provincial fees and taxes. This key principle of mining activity that allows mining companies to plan and formulate its strategies, is now reflected in the Argentine mining framework. On 24 May, 1993, the Argentine Congress passed Law 24,196 for the promotion of the mining activity. The Executive Branch of Government regulated the Law through Decree 2686/93 ('R.D.'). The activities included within the new Mining Investment Law ('M.I.L.') are: • Prospecting, exploration, development, preparation and extraction of mineral resources included in the MC. • Processing, smelting, refining, cutting, polishing, and other industrial mining activities performed within the same economic unit and within the same region in which the exploration and exploitation is performed. Companies performing activities included within the scope of this M.I.L. shall be subject to the general tax framework, with the following exceptions: Tax stability

The mining activity comprised under this regime shall be entitled to a special tax stability treatment for a term of 30 years as from the presentation of the feasibility study to the Mining Secretariat of the Federal Government. Tax stability means that the companies performing mining activities within the framework of the Investment Regime shall not be subject to an increase, as from the date of filing, of the total tax exposure due to the creation of new national, provincial or municipal taxes or fees, or to any increase of the rates of the taxes in force. This shall also be applicable to exchange and customs duties regulations (M.I.L., Art 8). Tax stability is not granted for each tax independently, but for the 'total tax exposure'. Therefore, it would not be affected if the increase or creation of new taxes is compensated with the reduction or elimination of other existing taxes under the same jurisdiction. The overall tax burden will be determined in each of the three jurisdictions (National, Provincial and Municipal) independently. Tax stability includes all kind of taxes, ie taxes,

37

The new Argentine mining framework: SF Albarracin

fees, import and export duties (R.D., Art. 8). It does not include the rate of exchange and the reimbursement of taxes arising out of exportations, nor Value Added Tax to be paid by the mining company following general regulations and rates for said tax. In order to obtain the benefits arising from tax stability, mining companies will have to file a feasibility study, either for a new project or for an extension of an existing productive unit, certified by registered and specialized professionals. 2 The Provinces and Municipalities will have to file with the Mining Secretariat a report containing all taxes applicable to existing or future mining projects within their jurisdictions. Should Provinces or Municipalities under this regime not comply with the obligation to maintain tax stability, the mining company affected shall be entitled to claim with the Federal and Provincial authorities to be paid with tax distribution funds corresponding to said Province or Municipality unfulfilling the stability obligation (M.I.L., Art 10). Income tax

Taking into account that prospecting and exploration are the stages of mining investment with higher risk, tax deductions during these periods are a key point for promoting exploration. Furthermore, the ability to deduct a large percentage of the depreciation allowance in the early years of the project can have a large effect on measures of profitability, and would are viewed by mining companies as a positive feature in an analysis of the investment environment (Otto, 1992c, p 18). Mining companies subject to this special regime shall be entitled to deduct for Income Tax purposes 100% of all amounts paid, after registration, for any kind of prospecting, exploration, special studies, analysis of minerals, projects for concentration plants and connected investigations, and works addressed to determine the technical and economical feasibility of the project. Said deductions shall be performed without prejudice of the current treatment that, as an expense or as an investment, may correspond for depreciation following the Income Tax Law (M.I.L., Art.12). The Exploration Fee is not a deductible expense. Capital investments performed, after the effective date of the M.I.L., in equipment, civil works and construction, roads, water and transportation systems, power lines, camps, living accommodations, health, education, communication and other public utility services, police, mail and customs facilities, shall have a special accelerated amortization regime. They will have a 60% depreciation during the first fiscal year, and during the second and third year the remaining 40% in equal proportion (M.I.L., Art. 13). This 2Resolutions 104/95 and 108/95 of the Mining Secretariat establish the procedures for registration.

38

regime includes both imported and national goods, either new or used with suppliers guarantee. Investments in purchase of machinery, equipment, vehicles and facilities not included in the above sentences shall be depreciated one third a year as of the start-up. In principle, goods contributed in such way, must remain in the beneficiary's worth, until termination of the mining activity that caused its purchase or its working life. Default in this obligation will make the beneficiary responsible for returning the deducted amortization, which will be considered as taxable income in the period it was deducted, plus interest and corresponding penalties. As an exception, these goods can be transferred in advance exclusively to a registered third mining party. These goods can be alternatively contributed between various mining ventures held by same person, controlling or controlled companies, companies belonging to same owner, or companies associated within the terms of Business Companies Law (M.I.L., Art. 13). Profits resulting from capital contribution of mines or mining rights to mining companies shall be considered exempted for Income Tax purposes. The contributing party must maintain the shares, and the company receiving the contribution must maintain the mining rights within their respective net worth during a period of at least five running years, unless otherwise authorized by the Mining Secretariat for attendable reasons. Default in complying with this obligation will make the beneficiary responsible for returning the deducted profit, which will be considered as taxable income in the period it was deducted, plus interest and corresponding penalties. Valuation o f reserves

The value of the mining reserves economically exploitable certified by a registered professional may be capitalized up to 50%. The balance shall constitute a special reserve. Said capitalization and reserve will not be considered as taxable for Income Tax purposes (M.I.L., Art. 16). The issuing and distribution of shares as a consequence of said capitalization will be exempted from any national tax. Provincial Governments are also invited to provide a similar exemption within their jurisdictions. This provision is of major importance because mining development requires large amounts of financing. The capitalization of valued reserves increases the company's worth and therefore its access to credit, and encourages company's incorporation to stock markets. Additional tax benefits"

The companies under the present regime shall be exempted from Assets Tax from the date of filing. Article 21 of the M.I.L. exempts mining companies from import duties and any other special taxes or tariffs (such as the Statistics Tariff), excluding tariffs for services, for the importation of capital goods, special

The new Argentine mining framework: SF Albarracin

equipment or spare parts, including raw materials as necessary to perform the mining activities described above. 3 The material and equipment imported under such regime can only be sold once the period of the activity that caused its import or its working life has concluded. In this way, the Law creates a 'free zone', encouraging technological modernization and bringing installations into line with international standards. Royalties The Provinces that stick to this Regime shall not charge a royalty higher than 3% of the mine head value of the extracted mineral. 4 Although this can be considered a positive legal provision that will act as a threshold to the Provinces voracious demand for participation in the mining income, it has the undesirable effect of legally formalizing and somehow recognizing the validity of a tax instrument not considered in the Code and that will surely not fit harmoniously with the rest of the mining framework intended by the original legislator. Environmental expenses reserve Mining companies will be required to establish a special reserve of the amount the company considers most appropriate for the purpose of preventing the impact of the mining activities in the environment. Said amount shall be deductible for Income Tax purposes up to an equivalent to 5% of the operative costs of extraction and benefit. The non-utilized amounts of said contingence shall have to be incorporated to the Income Tax balance at the end of the productive period. Value added tax The Financing Value Added Tax Law No. 24,402 establishes a regime for the advance return of VAT levied on investments in infrastructure (roads, water transport, energy lines, etc) and capital goods applied to new mining projects 5 as long as they are applied to production aimed at foreign markets. This regime is being put into effect6 and is implemented by means of a credit to be granted by financial entities. It will act as an incentive for the incorporation of high technology, increase investments and promote the performance of infrastructure by the private sector.

3Resolution 30/95 sets forth the list of raw material which may be imported for carrying out the mining activities included in the investment promotion regime. 4Resolution No. 12/95 approved the distribution of royalties for first and second category mines, permits for shaft testing, exploitation area, etc. 5Resolution 73/96 establishes the a new mining project is the one that has not yet started extractive or productive processes. 6Decree 779/95 ruled Law No. 24,402. Certain capital goods to be determined by the ApplicationAuthorityare affectedeither directly or indirectly.

National Bank o f Geological Information Law 24,446 created the National Bank of Geological Information for the purposes of reviewing, processing and providing all information arising from geological and geophysical research, development and exploration in the national territory. Beneficiaries of the Mining Investment Law are obliged to supply all geological information derived from their activity to the Data Bank, except that considered confidential.

The Federal Mining Agreement On July 26, 1993, the Argentine Congress passed Law 24,228 thus ratifying the so called 'Federal Mining Agreement'. This Agreement was entered into by the Federal Government and the Provinces on May 6, 1993. It recognizes the Provincial right established in Title XVIII of the MC, allowing them to award mining rights under any way of public offering over the areas under protection and state reserves, and guarantees that no renewals will be granted over reserved areas in the provinces. It also recognizes the Provincial right set forth in Title XIX of the MC thus granting them the authorization to negotiate with the private sector, freely and with no state intervention, the exploration and large scale exploitation of mines within their territories. It propitiates the harmonization of procedures for granting the right to mining permits, and the updating and computerization of the mining register. These measures will avoid superposing and will ensure and increase confidence in the awarding of mining rights. The Agreement strengthens the mining-control authority of the Provinces for the follow up of the fulfillment of the MC requirements, reducing the time for measurement proceedings, the annulment of registrations of vacant mines without approved measurement and the periodic public offering of expired mining rights. It also propitiates the implementation of legal mechanisms for the control of the environmental impact in all stages of the mining activity. The Law also contains several provisions that, although not of a technical nature, are of major importance in understanding the radical change under way. Among those, the most important are the ones that forbid state companies to have privileges over private ones, and Article 4 stating that Provinces shall promote foreign investment overseas in coordination with the Mining Secretariat.

Mining re ordination law Argentina desperately needs to promote large scale mining by increasing prospecting and exploration of large areas. This goal is achieved by this new legal body (Law 24,224) through the elimination of unnecessary hurdles that restricted investment in these areas. The measurement unit for exploration permits is 500 hectares. Permits can reach up to 20 units but

39

The new Argentine mining framework: SF Albarracin no person can be awarded more than 10 permits nor more than 200 units per Province. Therefore, as per this amendment, up to 100 000 hectares per Province can be offered for exploration with a cost of approximately US$80000, through 10 neighboring simultaneous permits. Concessions can have up to 420 hectares for vetiform fields, and up to 3500 hectares for disseminated fields. The mining lease shall be set by Congress, thus granting investors a higher degree of legal stability. Such lease is set in the following amounts: $80 for first category minerals; $40 for second category minerals; $400 per unit or fraction thereof, for (prospecting) permits, without limitation in time. Through these values, holders of paralyzed mining rights are discouraged, without creating an excessive burden on active concessions. The lease is now calculated by multiplying the number of measurement units that form the permit by $400. Therefore, the expensive escalating lease for large prospecting and exploration permits is eliminated. The Law also gives clear instructions for the design of a systematic geological map of the whole national territory, and formally recognizes the Federal Mining Counsel.

The a m e n d m e n t s to the old code On June 14, 1995, the National Congress passed Law No. 24.498 thus introducing important amendments to the MC. Amongst them, the most relevant are the following: Exploration Regarding this issue, Article 23 of the MC establishes that 'any person, whether legal entity or individual, may request the mining authority to grant exclusive permit to explore a determinate area...'. Previously the MC requested such person to have capacity to manage its assets. The MC entitles the holders of exploration permits to a priority right: 'the holders of exploration permits will be entitled to the exclusive right to obtain exploitation concessions within the areas corresponding to such permits'. Finally, the MC establishes that 'the applicant shall pay, on a provisory basis, the surface tax or "canon" corresponding to the lots under application. Such payment shall be effected upon the filing of the application and should the application be rejected it shall be refunded to the applicant either in full or proportionally, if a lower acreage is granted. Default in paying the surface tax shall bring about the rejection of the application by the mining authority, with no right to file any further remedy'. The MC also amends the moment from which the exploration application grants priority to the applicant. Article 26 establishes that from the date of filing of the application the applicant will be entitled to any discovery made by any third party who, without the applicant's consent, has explored the acreage covered

40

by such permit. Formerly, the MC acknowledged that the applicant was entitled to such discovery as from the date of publication or registration of the exploration permit. Article 27 of the MC establishes that the exploration permit measurement unit is equivalent to five hundred (500) hectares and that the exploration permits will encompass up to twenty (20) measurement units. It states that no person may hold, either by himself, by his partners or intermediaries, more than twenty (20) permits nor more than four hundred (400) units per Province. Consequently, this Article has been amended so as to extend the maximum exploration acreage per Province. Formerly the threshold was equivalent to two hundred (200) units per Province; currently Article 27 has extended such to four hundred (400) units per Province. Under the new MC, investigation works carried out from aircraft are covered. Article 29 establishes that 'when the investigation works are carried out from aircraft, the permit may encompass up to twenty thousand (20 000) square kilometers per province and the duration of such works cannot exceed one hundred and twenty (120) days, calculated from the date the exploration permit is granted or from the date the flight is authorized. In the provinces where acreage exceeds two hundred thousand (200 000) square kilometers the permit may encompass up to forty thousand (40 000) square kilometers for the established term. The applicant shall pay, on a provisory basis, a $1 surface tax per square kilometer'. Discoveries In its former version the MC established that 'The discovery may be confirmed on land in which no lode has been registered within a radius of five kilometers'. In this case there is 'discovery of a new ore or mineral'. The discovery may be made within a radius of five kilometers corresponding to a mine which has previously been registered. In this case there is 'discovery of a new deposit or mother lode'. Under the new amendments, not only the aforementioned dispositions have been repealed, but also all dispositions related with the classification of new ore or new mother lode. As regards this subject the MC establishes that 'any discoverer will be entitled to three (3) lots, either adjacent or separate, and will be exempt from payment of the surface tax for a three (3) year period'. Under the new amendments, all dispositions of the MC related with new mines or stakes (articles 138 to 146) and abandoned fields or ores (articles 179 to 190) have been repealed. Mining rights The new MC repeals the former regime which envisaged the public auction of mines for which the concession expired due to default in the payment of the surface tax. Article 274 of the new MC establishes

The new Argentine mining framework: SF Albarracin that in case of expiration of the mine, such mine will revert to the original ownership of the State and will be registered as vacant, in conditions to be acquired as such under the terms of this Code. When the expiration is declared due to default in payment of the surface tax, such expiration will be notified to the concession holder's last domicile as established in the concession file. The concession holder will be entitled to rescue the mine within a non-extendible forty-five (45) day term by paying the surface tax due plus a twenty per cent (20%) surcharge. If such debt is not paid the mine will automatically turn vacant. Once the mine has been registered and published as vacant, the applicant will have to pay all surface tax due up to the date the vacancy took place. The applicant must submit such dues together with the application form. In case of default of payment the application shall be rejected and filled with no further remedy whatsoever. The former concession holder shall not have the right to apply for the mine unless a one-year term as of the registration of the vacancy has lapsed.

Lease of mines The new MC establishes that the lease of mines and queries may be executed for terms of up to twenty (20) years (Art. 356), and that the usufruct of the mines may be executed for terms of up to forty (40) years, whether it is established in favor of a legal entity or an individual. Such usufruct shall not terminate in case of death of the beneficiary, unless agreed to the contrary (Art. 365). Geological and mining investigation Under the new amendments, the former Title XVIII (Arts. 409 to 411) has been repealed. The new article 409 of the MC establishes that the geological and mining investigation which the National State may carry out throughout the country and which the provinces may carry out within their territory, is free and does not require authorization from the mining authority. Investigation by the National State is to be made after notice to the province in which such activity shall take place. The provincial authority or the provincial entity in charge of investigation may establish, notifying the mining authority, exclusive zones of special interest for the mining prospecting, whichshall be achieved directly or with the participation of third parties. The special interest zones may have an overall extension of one hundred thousand (100 000) hectares per province for an unextendable period of two (2) years. In the event third parties participate, the provincial authorities must call for a public bid. Any mine discovered by the provincial authorities during the investigations and in the special interest zones, only when no third-party participation has been agreed, must be transferred to the private activity within a year of the discovery by means of a bidding procedure. If this procedure is not complied with, the new mines shall be considered vacant and free for any individual who desires to acquire them.

Large scale mining Under the new amendments the former Title XIX concerning large scale mining has been repealed. Article 410 of the new MC establishes that all protected zones and areas granted under the former titles XVIII and XIX will remain in effect until their expiration date, the fulfillment of obligation, or procedures already began and up to the moment of the termination thereof. Nuclear minerals The Appendix to the MC reinstates the concession regime over nuclear minerals. Such Appendix establishes that the exploration and exploitation of nuclear minerals and of the discarded ore (desmontes), second washing of ore (relaves) and dumps (escoriales) containing such nuclear minerals, shall be governed by the terms of the MC applicable to the concession of mines of first and second category. Moreover, the MC classifies uranium and thorium as nuclear minerals. The MC requires that upon the request of the mining authority, and within the term of sixty (60) days from the notice served by such mining authority, the title holder of an exploration application or of a disclosure of discovery application still pending authorization in which the measurement application has not yet been filed--must file an amended application and must disclose the name and class of minerals of the adjoining mines as well as the name of the landowner, ie whether it is held by the State, a municipality or a private individual, also indicating the coordinates of the mine. The non-performance of such request will automatically bring about the abandonment of the proceeding and the relinquishment of the area.

The environmental framework: Law 24,585 The original MC only had a few, general environmental provisions. According to Article 282 of the MC miners may freely exploit their properties and shall not be subject to any regulation other than the applicable safety and environmental preservation and control rules. The new version of this Article, as per Law 24,585 also includes within the rules to be followed, the new environmental protection provisions (now included in the MC as a complementary Title) and those to be passed in the future as a consequence of the also new Environmental Constitution Clause (Art. 41 of the National Constitution). The activities governed by the new MC provisions are: (a) prospecting, exploration, exploitation, development, preparation, and mining of the minerals listed in the Mining Code, including the closing activities of the mine, and (b) crushing, grinding, processing, pelletizing, sintering, briquetting, primary preparation, calcination, smelting, refining, sawing, cutting, burnishing and polishing also including others resulting from new technologies and waste disposal of whatever nature (Art. 4).

41

The new Argentine mining framework: SF Albarracin

Any person developing these activities shall be responsible for the environmental damages directly or indirectly resulting from the violation of these provisions by its employees, contractors, or subcontractors, or generated by any defect or risk of the property. In any such event, the holder of mining claims shall be jointly and severally liable for the damages caused by the persons appointed by him/her/it to exercise such rights (Art. 3). The environmental enforcement authority is provincial and not federal. The Second Section requires, as an environmental management tool, that miners shall file, prior to the commencement of the mining activities listed above, an Environmental Impact Report (EIR) with the Law Enforcement Authority. After evaluation, an Environmental Impact Statement (EIS) shall be issued for each project stage or for those to be effectively implemented. As regards the prospecting stage, the EIR shall state the steps to be taken as well as any eventual risk of environmental impact to be generated by such measures. The EIR for the exploration stage shall include a description of the methods to be applied as well as the environmental protection measures that may be required. However, the report shall previously have to be approved by the Law Enforcement Authority to start operations in these stages. The Law Enforcement Authority shall approve or expressly reject the EIR within sixty (60) business days from the date of filing. Should its contents be considered insufficient through a grounded decision, the interested party may file a new EIR within thirty (30) business days as from notice. The Law Enforcement Authority shall approve or expressly reject such EIR within thirty (30) business days. The EIR shall be, at least, biannually updated to include the results of the actions taken for environmental protection or any new facts. In case of conflict between the results expected under the EIS and those actually obtained, the law enforcement authority shall provide for the introduction of amendments based on new information about the ecosystems affected as well as the introduction of more effective protective actions in the area of activity. These measures may also be considered at the request of the mining operator. The equipment, installations, systems, actions and activities for environmental prevention, mitigation, rehabilitation, restoration or reinstatement described by the interested party and included in the EIS shall be an obligation of the interested party and compliance shall be subject to the supervision of the Law Enforcement Authority: According to Section 3, the rules for environmental protection and preservations that regulate this Title shall establish: (a) The environmental protection procedures, methods and standards required in each of the stages listed in Article 4, a categorization of the

42

activities per level of environmental risk and an ecosystematic description of the area of activity (b) The creation of a Record of Consultants and Labs that may assist the interested parties and the law enforcement authority in outside audits and monitoring activities (c) The creation of an Infringers Record It also states that, except for the prospecting and exploration stages, the EIR shall include: (a) the location and an environmental description of the area of activity, (b) a description of the mining project, (c) any eventual disturbance to the soil, water, atmosphere, vegetation, wildlife and socio-cultural environment, (d) any measure for the prevention, mitigation, rehabilitation, restoration or reinstatement of the affected environment, as the case may be, and (e) the methods applied. As regards the responsibility for environmental damages, the new regulations set that without any prejudice of the administrative and criminal penalties established by the laws in force, any person causing residuary or actual damages to the environment shall be bound to mitigate, rehabilitate, restore or reinstate it, as the case may be (Section 4). Infringers shall suffer fines, suspension of the Environmental Quality Certificate, close down or disqualification. These penalties shall be applied with the prior summary proceedings under the administrative rules that ensure the due process of law, and shall be graded according to the type of infringement and the damages caused (Section 5). Another very important mining policy instrument under way is the Argentina-Chile Mining Agreement that will include, amongst other issues, the implementation of a common ad-hoc tax framework for mining developments carried by one mining company in both countries as one economic unit, the facilitation of the use of frontier crossings, the free circulation of equipment between countries, the use of infrastructure on both sides of the frontier, and common incentives for mining projects in frontier areas.

Conclusion The new policy has targeted the essential failures that existed within the old framework with huge success. After losing half a century, with large periods of negative policies, the essential legal requirements claimed by the mining industry have been satisfied in a market-oriented philosophical framework and inserted in a stable economic environment (Lonc~n, 1995, p 7). The most important goals achieved were the general reduction of mining costs, the destruction of all barriers to foreign capital in the mining industry, the improvement of many of the outdated Titles of the original Mining Code and the creation of a stable economic environment, essential to the mining activity.

The new Argentine mining framework: SF Albarracin

As a result o f the n e w legislation p a s s e d c o m p l e m e n t a r y to the old M C , several m i n i n g c o m p a n i e s i m m e d i a t e l y reacted and started s o m e form o f m i n i n g activity in Argentina. T h e n u m b e r o f foreign capital m i n i n g c o m p a n i e s o p e r a t i n g in A r g e n t i n a has increased. In 1989 there w e r e 4 international c o m p a nies o p e r a t i n g in A r g e n t i n a , and b y 1995 this n u m b e r i n c r e a s e d to 62. I n v e s t m e n t s in e x p l o r a t i o n and prospecting projects have i n c r e a s e d from U S $ 4 m i l l i o n in 1989 to U S $ 5 5 m i l l i o n in 1995. The M i n i n g J o u r n a l o f L o n d o n (9-29-95) has said that A r g e n t i n a ranks first, a m o n g a list o f 140 countries as the m o s t reliable and attractive country for investors.

Acknowledgements T h e author is grateful to D r E n r i q u e Juan Lonc~in for his s p e c i a l i z e d advise, and to M s M o i r a P a r g a and M r Juan D o n i c e l l i for their assistance in o b t a i n i n g material for the article.

References Loncan, E J (1991) Historical origins of civil code legal systems. In International Resources Law: A Blueprint for Mineral Development, Number 1, Paper 1. Rocky Mountain Mineral Law Foundation, Mineral Law Series. Loncfin, E J (1995) Los factores ecrnomicos en el desarrollo de la minerfa, (Buenos Aires: Academia Nacional de Ciencia Economicas), p 7. Otto, J M (1992a) Mineral Sector Taxation Methods: A Global Review. Seminar on Analysis of Taxation Policies in Minerals and Metals Industries, United Nations ESCAP. Otto, J M (1992b) Criteria for assessing mineral investment conditions. In Mineral Investment Conditions in Selected Countries of the Asia-Pacific Region, p 17. United Nations ST/ESCAP/1200, New York. Otto, J M (1992c) Criteria for assessing mineral investment conditions. In Mineral Investment Conditions in Selected Countries of the Asia-Pacific Region, p 18. United Nations ST/ESCAP/1200, New York. Pigretti, E A (1964a) Crdigo de Minerfa Comentado, (Buenos Aires: Cooperadora de Dereccho y Ciencias Sociales) p 36. Pigretti, E A (1964b) Crdigo de Minerfa Comentado, (Buenos Aires: Cooperadora de Dereccho y Ciencias Sociales) p 42.

43