Argentina has a strong gold and silver industry, but growing demand for clean energy technology has created a long pipeline of lithium and copper projects in the country. |
The tax benefits built into Argentine President Javier Milei's proposed incentives package could attract large miners to the country, analysts and miners told S&P Global Commodity Insights.
An incentive regime for large investments known by the acronym RIGI includes tax, customs and exchange incentives for a company developing a project of at least $200 million in the agribusiness, infrastructure, forestry, mining, oil and gas, energy or technology sectors. Milei introduced the program in December 2023 as part of a larger package of reforms known as the omnibus bill that aims to significantly deregulate the economy and reform the labor sector. It is one of the libertarian president's first major pieces of legislation.
The bill has already worked its way through one chamber of the National Congress of Argentina, and analysts expect it to be reported favorably in the upper chamber. Milei's proposal would be a boon for the mining sector, which has long struggled to reconcile Argentina's vast reserves of lithium and copper with its ongoing economic crisis, analysts said. However, unions and small- and medium-sized enterprises (SMEs) have argued the bill does not do enough to support small miners and local providers.
"The RIGI could serve as a way for Argentina to become a major player on the global mining scale, especially considering widely anticipated shifts toward electromobility," Arianna Kohan, a specialist in public policy, risk and strategy at advisory firm Cefeidas Group, told Commodity Insights. "Despite reservations regarding local SMEs and broader environmental concerns, the regime enjoys widespread support from both public- and private-sector representatives."
Miners dig RIGI
Miners operating in Argentina seem pleased by Milei's pitch.
"I said to [Milei] that Argentina is very much like the story of Sleeping Beauty, who was poisoned by years of populist government policies and fell into a deep sleep and now he is the prince, whose kiss has awoken her," Robert McEwen, the CEO, president and chairman of McEwen Mining Inc., said May 9 during the company's first-quarter earnings call.
The Canadian miner is developing the Los Azules copper, gold and silver project in San Juan province.
"The benefits of RIGI as currently drafted are that it is superior in every aspect compared to the fiscal stability offered under Argentina’s current mining investment law," Jerko Zuvela, managing director at Argosy Minerals Ltd., said in an email. Australia-based Argosy Minerals is developing the Rincon lithium project in the province of Salta.
Projects accepted into the RIGI program would pay 25% in income tax, instead of 35%, may pay value-added tax with tax credit certificates, and would be exempt from certain import duties and all export duties after three years, among other benefits.
Companies would not need to turn revenue from exports into the local currency after two years in operation, as currently required to replenish the Central Bank's dwindling reserves, and will be promised that their benefits under RIGI will be guaranteed for 30 years, regardless of changes in government.
"An investor will have certainty that the government won't change the regime halfway through," Sergio Caveggia, partner at EY Argentina, said in an interview. "That is the most important, as Argentina has been a country that has not followed through with its regulations."
But analysts told local news that they were skeptical Argentina would be able to keep its 30-year stability promise.
"If I am going to guarantee tax, exchange rate and regulatory stability, if I am a serious government, I guarantee it to very few projects," Pablo Rueda, a partner at Martínez de Hoz & Rueda, told Ámbito Financiero.
The country has undergone several economic crises since the 1980s. Inflation in 2023 alone was 211.4%, according to official data.
Argentina's existing Mining Investment Law provides a fixed tax framework for 30 years, a 0% import tax on capital goods, and a double income tax deduction on exploration expenditures.
"This would complement the current Mining Investment Law by providing a broader and more attractive framework for long-term investments in the mining industry," Gonzalo Luis Brest, a partner in tax and legal at KPMG, said in an email.
RIGI not enough?
Argentina's average tax burden for miners is above 50%, according to Cámara Argentina de Empresas Mineras (CAEM), Argentina's mining industry group. Argentina miners have long complained of unfavorable exchange rates, capital controls, import and export taxes and difficulty importing goods and equipment.
"RIGI is seen as a key option to boost the mining industry, especially large copper projects ... even with the benefits of RIGI, it would barely match the conditions offered by our neighboring countries, with greater stability," CAEM said in a May 31 statement.
Local trade groups and unions have argued that the bill would put smaller companies at a disadvantage and does not do enough to ensure companies work with local suppliers.
"The nature of the RIGI offers intrinsic benefits to larger companies with favorable tax conditions, which implies a disadvantage for local SMEs," Cefeidas' Kohan said. "However, the RIGI also provides more autonomy to the provinces, as it gives them jurisdiction over the natural resources within their borders, and allows for increased development of local supply chains."
The passage of RIGI will depend on the passage of the omnibus package.
"What Milei should have done, what analysts say, is present each bill separately," EY's Caveggia said.
Analysts told Commodity Insights that they are confident Congress will pass the bill package.
"Given the political and economic context, as well as the interests at stake, it is difficult to predict with certainty whether the bill will be approved in its current form," said Brest from KPMG. "However, considering that it has already been approved by the Chamber of Deputies and has a favorable opinion in the Senate, it is likely that it will be approved."
Caveggia expects the bill to be approved by July with small modifications.