1. MINING POLICY AND SUSTAINABLE
DEVELOPMENT: THE VIOLATION OF FISCAL
STABILITY IN ARGENTINA
Tomás Chevallier-Boutell
ABSTRACT: Mining is not sustainable itself but contributes to sustainable development. The
maximisation of the capital substitution involved in the mining activity constitutes a yardstick to assess the
contribution of mining to sustainable development. Mining is also essentially an intergenerational activity so
the contributions of mining to sustainable development should also guarantee lasting benefits for future
generations. Mining policies applied by the state as an administrator of the mineral wealth can have an
important influence in the maximisation of this capital substitution for present and future generations. On
December 2008, the Argentine federal government issued two administrative decisions with far reaching
effects on mining and sustainable development. After a brief overview of the concept and different aspect of
sustainable development, this paper will analyse the impact of these decisions from a sustainable development
standpoint contrasting its limited term effects with the eventual lasting effects on future generations.

The author holds a Law Degree from the University of Buenos Aires in 2002 and worked as an associate
lawyer for more than five years in the energy and mining teams of major law firms in Argentina. Between
2006 and 2007, he worked in the International Arbitration and Latin America teams of the Houston office of
Fulbright & Jaworski, LLP. In 2007 he started an LLM in Mineral Law and Policy at the CEPMLP. He is now
part of the legal team of YPF S.A. in Buenos Aires, Argentina. E-Mail: tchevallierboutell@gmail.com

2. ii
TABLE OF CONTENTS
Page
TABLE OF ABREVIATIONS...............................................................................................iii
1. INTRODUCTION. ...........................................................................................................1
2. SUSTAINABLE DEVELOPMENT AND CAPITAL SUBSTITUTION IN MINING.
......................................................................................................................................................2
2.1 Sustainable Development. An evolving Concept...........................................................2
2.2. Sustainable Development and the State. ........................................................................3
2.3. Maximizing the Capital Substitution..............................................................................4
2.4. Materialisation of sustainable development...................................................................6
3. SUSTAINABLE DEVELOPMENT IN PRACTICE: ARGENTINA..........................7
3.1. Context: Argentina’s Mining Bet. ..................................................................................7
3.2. Did it work?......................................................................................................................9
4. VIOLATION OF THE MINING INVESTMENT REGIME.......................................10
5. EFFECTS OF THE VIOLATION OF FISCAL STABILITY. ....................................11
5.1. Impact on the Federal Government. .............................................................................11
5.2. Impact on the Companies..............................................................................................12
5.3. Impact on the Provinces................................................................................................14
5.4. Local Impact: Puerto San Julián..................................................................................15
6. VIOLATION OF FISCAL STABILITY AND SUSTAINABLE DEVELOPMENT.
....................................................................................................................................................18
7. CONCLUSION..................................................................................................................20
BIBLIOGRAPHY...................................................................................................................22

3. iii
TABLE OF ABREVIATIONS
CAEM Argentine Chamber of Mining Companies
Cerro Vanguardia Cerro Vanguardia S.A.
MMSD Mining Minerals and Sustainable Development
NPV Net Present Value
SCI Secretariat of Internal Commerce
SM Secretariat of Mining
SCI Secretariat of Internal Commerce
UNEP nited Nations Environmental Program

4. 1
1. INTRODUCTION.
In 1901 the British economist Alfred Marshall sent a letter to ‘The Times’ expressing his
views against the imposition of export duties to coal expressing: “Coal is a chief foundation
of our industrial wellbeing, we are wasting our children’s inheritance”.1
Marshall appeared
to be worried that excess taxes would discourage coal mining at a time when Britain was
maximizing the capital substitution from mining and building a powerful nation for the
benefit of present and future British generations.
Sustainable development is an inter-generational concept interested in lasting benefits and
opportunities rather than limited term endowment.2
The fact that mining involves the
exploitation of non-renewable resources on a long term basis makes the inter-generational
principle that guides sustainable development to become central to mining policy.
This paper is aimed at putting the problem of the inter-generational impact of decisions
adopted by the state that affect sustainable development in a practical context. It will
analyse the recent imposition of export duties over mineral exports in Argentina. This
decision has considerable importance from a sustainable development standpoint since it
implied a violation of the fiscal stability guaranteed in the Argentine mining investment
regime and may eventually prevent further development of mining regions.
After a brief overview of the Argentine mining sector, the paper will consider the impact of
the violation of fiscal stability on investors, on the federal administration, on provincial
governments and on local communities. It will then make a contrast between the short term
increase in revenues and the eventual, long run effect of deterring further investment in the
sector. Finally, the decision will be examined under sustainable development considerations
in order to assess whether the decision has in fact contributed to sustainable development of
mining regions in Argentina.
1
Marshall, A., An Export Duty on Coal, The Economic Journal Vol. 11. 267.(1901)
2
Di Boscio, N., and Humphreys, D., Mining and Regional Economic Development in International and
Comparative Mineral Law and Policy: Trends and Prospects, 590 (Bastida, E., Wälde T., and Warden, J.,
,eds., London: Kluwer Law International, 2004).

5. 2
2. SUSTAINABLE DEVELOPMENT AND CAPITAL SUBSTITUTION IN MINING.
2.1 Sustainable Development. An evolving Concept.
What is sustainable development? The concept of sustainable development was born as a
response to the international concern over the exhaustion of natural resources and on the
negative impact of development over the environment. Indeed, the 1972 United Nations
Conference on the Human Environment (1972 Stockholm Conference)3
expressed the need
for an internationally concertated effort to preserve non-renewable resources from their
exhaustion so that that future generations would also be able to share the benefits from the
use of natural resources.4
However, the idea of constraining development raised concerns as well. Especially in those
nations that had not yet developed. The World Commission on Environment and
Development addressed this tension of different interests and proposed an integrating view
of environmental and developmental policies.5
In 1987, the Brundtland Commission
defined sustainable development as “Development that meets the needs of the present
without compromising the ability of future generations to meet their own needs”.6
Since
then, the Brundtland definition has become the most broadly accepted characterisation of
sustainable development amongst governments and international organizations.
The forging of developmental and environmental interests was further crystallized in the
United Nations Conference on Environment and Development (UNCED) in Rio de Janeiro
in 19927
which reflected the needs and interests of the developing world by reaffirming the
3
Report of the United Nations Conference on the Human Environment, United Nations, United Nations
Environmental Programme (UNEP) Stockholm at
http://www.unep.org/Documents.Multilingual/Default.asp?DocumentID=97&ArticleID=1503&l=en
4
Dalupan, C., Mining and Sustainable Development: Insights from International Law, in op. cit. in supra
Note 2, 160.
5
Bastida, E., Mineral Tenure in the Context of Evolving Governance Frameworks: A case study of Selected
Latin American Studies, Phd. Thesis, 227-229 (Dundee: CEPMLP, 2004)
6
World Commission on Environment and Development, Our Common Future, 43 (Oxford: Oxford
University Press, 1987).
7
Report of the United Nations Conference on Environment and Development, Rio de Janeiro
http://www.un.org/documents/ga/conf151/aconf15126-1annex1.htm

6. 3
principle of the sovereign right of countries to develop and exploit their own resources and
by declaring the eradication of poverty as an indispensable requirement for sustainable
development.8
2.2. Sustainable Development and the State.
Who is responsible for sustainable development? It could be argued that all those who have
the ability to influence the manner in which development is carried out and all those who
benefit from this development should share the responsibility for ensuring that development
is sustainable.
In the case of the extractive industries, since the actual commercial activity that impacts
directly on development of communities is usually carried out by private or mixed
corporations, companies have often being on the frontline when it comes to assessment of
responsibilities for sustainable development.9
In his doctoral thesis Aminu Kabir addressed the issue and indicated that currently the
prevailing tendency is to place “social responsibility within the corporate realm”.10
However, Dr. Kabir insists that the role of governments in mineral resource development
should not be shielded from their responsibilities by the increasing pressure placed on
corporations.11
The MMSD report on Mining, Minerals and Sustainable Development emphasized the role
of the state for improving governance for sustainable development through a national
8
Supra Note 4, 161.
9
“Minerals development has in the past decade been the province of the investor”, MMSD Final Report,
Breaking New Ground: Mining, Minerals and Sustainable Development, International Institute for
Environment and Development (IIED), London, UK, (2002), Executive Summary xxii
10
Aminu Kabir’s research is focused in corporate social responsibility. However, his discussion is also
concentrated in development and he makes reference not only to corporate social responsibility but at the
necessary sustainable development concept that is implied in a corporate and socially responsible
development. Kabir, Aminu, Social Responsibility and the Role of Governments in Mineral Resource and
Development, Phd. Thesis,2 (Dundee: CEPMLP, 2005).
11
Ibid.

7. 4
policy, framework, regulation and enforcement.12
The state should also act consistently
with a broad consensus in society and include the voices of most vulnerable groups.13
In those countries where ownership of minerals is vested on the state, the government acts
as an administrator of the common property of the people. Therefore, a state which pursues
good governance for sustainable development has the role of obtaining the maximum
benefit from its mineral resources balancing local and national interests.14
A state that embraces sustainable development principles ought not to neglect any these
responsibilities.
2.3. Maximizing the Capital Substitution.
Based on the evolution of the concept of sustainable development that has combined
environmental concerns on development with the right to develop, it can be inferred that
states have a positive and a negative duty towards sustainable development.
In the case of the mining industry, Governments not only have the responsibility of
restricting or regulating development (negative aspect) in order to protect the environment
and save resource for future generations, they also have a duty to promote development
(positive aspect) in order to maximise wealth creation and optimize the capital substitution
to achieve a sustainable trade off between environment and development. It has therefore
the duty to administer this property so that wealth creation is maximised in the best interest
of present and future generations.
The duty of the State to maximise wealth creation also stems from Principle 5 of the Rio
Declaration which places in States and people a duty to co-operate “in the essential task of
eradicating poverty as an indispensable requirement for sustainable development, in order
12
Supra Note 9, Executive Summary xxii, xxiii.
13
Principle 6 of the Río Declaration, See Supra Note 5, 255.
14
Supra Note 9, Executive Summary xvii.

8. 5
to decrease the disparities in standards of living and better meet the needs of the majority of
the people of the world.”15
Poverty reduction and maximization of the capital substitution from resource exploitation
for the benefit of present and future generations is inextricably linked to the principle of
good governance which guides and informs sustainable development.
Indeed, Dr. Bastida mentions that good governance also requires states to analyse whether
“it might be prudent to either leave minerals in the ground or to devise mechanisms to save
windfalls to cushion shortfalls, or to implement some form of revenue fund.”16
We can add to this that good governance not only implies prudently deciding to leave
minerals in the ground but it also implies prudently promoting exploitation of resources
when international markets offer the opportunity to maximise the benefits of resource
exploitation.
This duty to promote timely development acquires special relevance when analysed under
the perspective of those mining economics theories which present evidence showing that
leaving minerals in the ground is not necessarily beneficial for their owners in the long
term.17
That is to say, Hotelling’s theory seems to be becoming older by the day. Evolution of
mineral prices in the last century indicates that even though minerals are a non renewable
resource, their prices are influenced by a number of factors such as technology, changes in
end uses and discovery of new deposits.18
Hence, there is not a clear trend in mineral
prices and they tend to fluctuate rather than to increase over time19
. For this reason,
15
Supra Note 5, 246.
16
Supra Note 5, 250.
17
Tilton, J., On Borrowed Time?, 15-53(Washington D.C.: Resources for the Future, 2003) Radetzki, M.,
Economic Development and the Timing of Mineral Exploitation in Mineral Wealth and Economic
Development,40-43(John Tilton, ed., Washington D.C.: Resources for the Future, 2003Crowson, Phillip,
Astride Mining, 39-42(London: Mining Journal Books Ltd., 2003)
18
See Crowson, Supra Note 17, 40-42.
19
Ibid, 50-54

9. 6
governments should concentrate their efforts in riding the mineral boom waves with the
aim of taking the fullest advantage out of them.
The overarching principle that guides sustainable development in mining is that the
exploitation that maximises value is guided by good governance principles so that the
conservation or exploitation of resources maximises the capital substitution between
mining, environment and all the other factors affected by mining activities.
Therefore, sustainable development is not limited to identifying different legal constraints
and negative regulations on development. It is an integrating concept that provides a
framework to coordinate different interests involved in resource exploitation.20
It is not
aimed at the curtailment of development. On the contrary, it seeks that sustainability of
development enables that more generations are able to benefit from development.
2.4. Materialisation of sustainable development.
The weakness of the Brundtland definition is perhaps the same reason for its wide
acceptance by the international community. The concept is open and it has been said to be
amorphous and nebulous.21
The task of providing it with form and content has been the
main challenge faced by governments and international organization. As mentioned by Dr.
Bastida, a look into legislation that regulates mineral development is perhaps the proper
place to find the materialization of the sustainable development concept.22
For that reason, if a country has embraced sustainable development as a guiding principle,
the concept should be materialised in its legal system. Good governance should thus be
reflected in a legal framework which encourages development and wealth creation
respecting the principle of due process, the rule of law and human rights, and the
implementation of public procurement.23
The safeguard of those principles will ensure that
20
Bastida, E., Mineral Law: New Directions? in op. cit. in supra Note 2, 418.
21
Ibid, 416.
22
Ibidem.
23
Supra Note 5, 248, 249.

10. 7
development is not deterred by arbitrary decisions which neglect the interests of the
different actors affected by the mining activity.
The following chapter will look into the Argentine legal system to verify whether the
concept has in fact materialised in a recent and controversial decision adopted by the
Argentine government.
3. SUSTAINABLE DEVELOPMENT IN PRACTICE: ARGENTINA.
3.1. Context: Argentina’s Mining Bet.
Argentina is currently formed by 23 provinces with autonomous governments united under
a federal constitution. According to Argentina’s political organization, provincial
governments enjoy significant autonomy.24
Furthermore, as from 1994 the National
Constitution has recognized that Provinces own the Natural Resources located within their
boundaries.25
Argentina’s original mining code dates from 1887 and could already be considered to be a
piece of legislation categorically aimed at encouraging private investment and protecting
security of tenure.26
Indeed, in its comments to the Mining Code, Enrique Rodriguez -its
creator- considered necessary to leave “exploration, discovery and exploitation to the men
who work and have experience, to the men who own capitals and have enough funds to put
them at risk in this tempting adventures”.27
24
Articles 1 and 5 of National Constitution of the Republic of Argentina.
25
Ibid, Article 124.
26
Supra Note 5, 188-189.
27
“so that the coal, metal and other industries can grow and develop amongst us, it is necessary to leave
everything: exploration, discovery and exploitation to the men who work and have experience, to the men
who own capitals and have enough funds to put them at risk in this tempting adventures, to speculators who
know and love the risks and seductions of this noble game of luck protected by the law, to the corporate spirit
that is beginning to grow and ultimately to anyone who wishes to risk his moneys and try his luck. However,
everything should be done with the due right to make exploration and recognizance, both in public and in
private property and with the security that a free concession will be obtained and no one will be in a position
to challenge this right” (free translation), Rodriguez, Enrique, Notes and Comments to the Mining Code, L.L.
(Ley N° 1919) p. 266.

11. 8
However, mining activity remained nearly dormant until the last part of the 20th
century
when a series of policy reforms gave life to the traditionally neglected mining sector.
Encompassing the general liberalization of the economy undertaken by Argentina at the
beginning of the 90s, policy makers were determined to give life to the aspirations of
Rodriguez and joined the international competition to attract foreign investment in mining.
Yet, relative to other Latin American countries who were embarked or were embarking in
this same race, Argentina was a newcomer to the mining world. Aware of its lack of a
significant track record to compete with other mining countries, the country doubled its bet
and passed Law 24,196 (the “Mining Investment Law”)28
, Law 24,224 (“Mining
Reorganization Law”)29
, Law 24,498 (the “Mining Modernisation Law”)30
and Law No.
24,228 (the “Federal Mining Agreement”)31
. This group of laws set the basis of a new
mining regime (the “New Mining Regime”).32
Reflecting the prevailing trend in mining legal reform during the 90s,33
the New Mining
Regime put strong emphasis in the encouragement of private investment through the
enactment of a legal framework that provided additional safeguards to investment.34
The Mining Investment Law offered significant fiscal benefits35
which were armoured
against the volatile Latin American political mood through the granting of fiscal stability
for 30 years starting from the date in which the feasibility study was presented by investors
to the National Mining Secretary.36
28
Law N° 24,196 published in the Official Gazette on May 24, 1993.
29
Law N° 24,224 published in the Official Gazette on July 19, 1993.
30
Law N° 24,498 published in the Official Gazette on July 19, 1995.
31
Law N° 24,428 published in the Official Gazette on August 2, 1993.
32
Supra, Note 5, 188.
33
Bastida, E., “Integrating Sustainability into Legal Frameworks for Mining: Trends in Selected Latin
American Countries”, Vol.12, number 3, CEPMLP Journal,. 3; Koh, (2002) Naito, Remy, Felix, Williams,
John P., Review of Legal and Fiscal Frameworks for Exploration and Mining, (London: Mining Journal
Books Limited, 2001) p. 7-13; Bridge, Gavin “Mapping the Bonanza: Geographies of Mining Investment in
an Era of Neoliberal Reform”, The Professional Geographer, 56(3) 2004, p. 406-408; Williams, John P.
“Legal Reform in Mining: Past, Present and Future”, in op. cit. in supra Note 2, 8-9.
34
See Williams, John P., Supra Note 33, 9-10.
35
See Law N° 24,196 Supra Note 28.
36
Ibid Article 8.

12. 9
As mentioned above, Argentina is a federal country. Hence, an amendment to the mining
regime was not going to be effective without the consent of the provinces. Well aware of
this situation, the Federal Government lined up the provinces behind the new system
through the Federal Mining Agreement. 37
3.2. Did it work?
Once the sawing was complete, it was time to harvest and the harvest was indeed abundant.
The sector awakened to an unprecedented growth of investment. The impact of the New
Mining Regime was stunning.
It is not the purpose of the paper to analyse effects of the New Mining Regime in detail but
some data may help illustrate their magnitude:
 Mining investments increased 8 times from a level of approximately 10 million US
Dollars per year at the beginning of the 90s to nearly 80 million US Dollars at the
beginning of the 21st
century.38
 Foreign mining companies operating in the country increased from 17 in 1992 to
110 in 2006.39
 It was estimated that mining generated 116,774 indirect jobs in 2005.40
37
See Supra Note 31. The Federal Mining Agreement was approved by all the mining provinces.
38
Prado, O., Situacion y Perspectiva de la Mineria Metalica Argentina, (Serie Recursos Naturales e
Infraestructura, No. 91, ECLAC, Santiago de Chile, Mayo de 2005)
39
See chart on Report on the Evolution of Investment in the Period 1992-2006 at Cámara de Empresarios
Mineros (CAEM), http://www.caem.com.ar/index.php?sec=galeria
40
See Report on Job Creation in the Period 1992-2006 at Cámara de Empresarios Mineros (CAEM)
http://www.caem.com.ar/media/galeria/datos-estadsticos/115_orig.jpg

13. 10
4. VIOLATION OF THE MINING INVESTMENT REGIME.
Figure 1 below plots the evolution of prices for metals and oil in the second half of the 20th
and first half of the 21st
century. The steepness and height of the last segment of the graph
speaks by itself. The boom in the international markets for metals has no precedent in
recent history. However, as the tide was turning, a number of host governments around the
world felt that generous mining regimes should be revised.
Figure 1: Real Price Index of Crude oil & Metallic Minerals 1948-2006
(Base year 2000-100)
Source: UNCTAD World Investment Report 2007
Of course, Argentina would not fall behind on this global race to capture some of the
extraordinary rent. In 2006, Government officials started threatening to impose additional
tributes to mining companies. Yet, when analysing the options to increase the tax pressure,
Argentina faced an additional problem: the country’s ticket to ride the mining boom had
been paid with fiscal benefits and more importantly, with fiscal stability. Hence, export

14. 11
duties could not be imposed to the main exporters of minerals who had made their
investment under the protection of the Mining Investment Law.
Ignoring these constraints and dominated by a rush to capture the market momentum, the
Federal Government resorted to a tool that would allow immediate collection of “rent”.41
On December 2007, two State Secretaries signed Resolution SCI 285/07 of the Secretary of
Commerce and Resolution 130/07 of the Secretary of Mining ordering the Federal Customs
Administration to impose export duties to minerals exports.42
It has been estimated that the imposition of the export duties will increase the Federal
Government’s revenues between 200,000 and 267,000 millions US Dollars for the year
2008.43
However, the resolutions also sealed the fate of the New Mining Regime in
Argentina. Two of the pillars that supported the system received a mortal blow: Fiscal
stability established in the Federal Investment Law was blatantly violated and Federal
cooperation established through the Federal Mining Agreement became history.
5. EFFECTS OF THE VIOLATION OF FISCAL STABILITY.
5.1. Impact on the Federal Government.
Since export duties are applied immediately over exports, the increased in revenues is
almost immediate as well. As mentioned above, the additional revenue to be collected by
the Federal Government is calculated to be around 200 and 267 million US Dollars for the
year 2008. Furthermore, export duties are a Federal tax considered to be “no
41
From a theoretical point of view, the ability of export duties to capture rent is doubtful since export duties
are based on revenue and not on profit.
42
Argentina eliminates 30-year tax stability, Mining Journal, December 21, 2007. Although, the news was
published by the press, the actual resolutions have not been published since they are administrative notes
signed by the Mining and Commerce Secretaries ordering the National Customs Administration to levy the
taxes over the export of certain mineral substances.
43
Ya definieron el aumento de las retenciones a la minería, at
http://www.clarin.com/diario/2007/12/06/elpais/p-01501.htm “Retenciones Mineras: 3,500 M más para el
Fisco”, InfoComercial.com.
http://www.infocomercial.com/noticias/bnoticias.php?tipo_art=unico&id_articulo=33114&cod_sitio=15
Figures used in this paper have been converted from pesos to US Dollars using a 3:1 exchange rate which has
been the prevailing rate during the last four years

15. 12
coparticipables”. That is to say, revenue collection from export duties is captured
completely by the Federal Administration’s coffers and escape the block transfer system
that governs the fiscal relation between the provinces and the federal state.
5.2. Impact on the Companies.
According to the Argentine Chamber of Mining Companies (“CAEM”), mining companies
contribute 1,000 million US dollars in income tax payments. In case the investments
planned by companies are actually carried out, mining companies would pay around 1,500
million dollars in additional income tax.44
On the eve of the final approval of the violation of the fiscal stability, several companies
presented a report to the federal administration reminding the government that the main
reason considered by mining companies when deciding to invest in Argentina was the fiscal
stability offered by the Government. Therefore, the decision of eliminating tax exemptions
to companies who were protected by fiscal stability had put in jeopardy investments of
around 3,300 million US Dollars that would otherwise be carried out during the next two
years.45
Of course, time will be required to properly assess the real impact of the decision. So far,
loss of investment has been based in estimations as companies have not yet decided to
suspend or relocate their project immediately after the decision was adopted. However, on a
recent press release, Xstrata Copper has already announced its intention to invest in Chile
or Perú the 2,000,000,000 US Dollars which the company was planning to invest in the El
Pachón project in the Province of San Juan.46
Figure 2 illustrates the contrasts between the
eventual loss of investment in El Pachón project and the estimated increase in the collection
of federal taxes for the year 2008 resulting from the imposition of the new export duties.
44
See Supra Note, 43, Ya definieron el aumento de las retenciones a la minería.
45
“Mineras desafían con irse del país si aplican retenciones” at
http://www.infobae.com/contenidos/352361-100799-0-Mineras-desaf%C3%ADan-irse-del-pa%C3%ADs-si-
aplican-retenciones
46
“Xstrata rethinking Argentina copper mine over tax”, at http://www.mining-
journal.com/Breaking_News.aspx?breaking_news_article_id=4556
“Grupo minero Xstrata frena plan de inversiones de u$s 2.000 millones en el país por suba de retenciones”
at . http://www.cronista.com/notas/133332-grupo-minero-xstrata-frena-plan-inversiones-u$s-2000-millones-
el-pais-suba-retenciones

16. 13
Figure 2
Source: Clarín and Reuters
267
2000
0
500
1000
1500
2000
Million Dollars
Estimation of the Increase
in Federal Tax Revenues
(year 2008)
Estimations of loss
investment in El Pachón
The impact of a decision of this kind is also difficult to assess due to the fact that
preliminary figures published by mining associations base the calculation in projects which
existed and were in an assessment stage.
Yet, a violation of a legal framework translates into a reduced net present value (NPV) of
the projects since the rate of return will have to be increased in order to adjust to the
increased country risk.47
Thus, with the new rate of return used by investment analysts to
appraise projects in Argentina, an unknown number of projects will escape the loss of
investment estimations since their low NPV will probably make them worthless of any
further analysis.
Mining companies further stated that most of the mining projects are very close to the
Chilean border and geological surveys indicate that those deposits which might be
exploited are actually shared with Chile. This was a clear message indicating that relocation
47
Gocht, W.., Zantop, H., Eggert R., International Mineral Economics: Mineral Exploration, Mine Valuation,
Mineral Markets, International Mineral Policies, 140-105 (Berlin: Springer-Verlag, 1988)

17. 14
across the border would be the rational response in case the government went ahead with its
plans.48
According to Philip Daniel “the discount rate to a particular project will be determined by
reference to the returns available elsewhere for investments of the same capital”.49
Chile
might be a good reference to calculate the rate of return in Argentina. Under the current
situation, a calculation of the sort might determine that a mining investment appraisal report
for a project in Argentina will most likely recommend crossing the Andes as soon as
possible.50
5.3. Impact on the Provinces.
The figures reporting loss of investment mentioned in the previous title will impact directly
in the provincial revenue collection. Even when the exact amount of lost revenue for the
provinces is still uncertain, they might be the great losers in the game since they bear a
three dimensional impact: (i) loss of royalties and other taxes or transfers received by local
authorities from operating mines, either due to fall of profits in state participated companies
or through reductions of the base for calculation of royalties; (ii) deprivation of investment
able to support regional economic development and job creation; (iii) loss of eventual
royalties and other taxes paid to local authorities due to the suspension or cancellation of
further investment in new mines or in extensions of operating mines.
In the case of the provinces of Catamarca and Santa Cruz, the impact is even greater if we
consider that the provincial governments participate in the mining projects with equity.51
48
Supra Note 45.
49
Daniel, P., Evaluating State Participation in Mineral Projects: Equity, Infrastructure and Taxation in The
Taxation of Mineral Enterprises, 169-173(Otto, J, ed., London: Graham & Trotman, 1995)
50
“Geological potential is a necessary but insufficient condition for the carrying out of exploration, a second
necessary condition is a satisfactory investment environment which obviously is influenced by Governments
policies”. Eggert, Roderick, Exploration in Competitiveness in Metals, Merton Peck, Hans H. Landsberg and
John E. Tilton (editors), (London: Mining Journal Books, 1992).
51
The Province of Catamarca participates in the Bajo de la Alumbrera Project with a 20% equity while the
province of Santa Cruz participates in the Cerro Vanguardia mine with 7.5% carried interest.
2006 Country Report: Cerro Vanguardia, Argentina. AngloGold Ashanti, at
http://www.anglogold.com/NR/rdonlyres/41FA9F13-0F0C-4D8C-8241-79B306817987/0/Argentina.pdf

18. 15
Therefore, provincial coffers will also be directly affected by the reduction of the
companies’ profits.
Export duties may also have a significant impact on royalties collected by the Provinces.
Through the approval of the Federal Mining Agreement, the provinces accepted to adhere
to the method for the calculation of royalties set forth in the Mining Investment Regime.52
Therefore, provinces accepted that the base for the calculation of royalties shall be the
value of the mineral at the “mouth of the mine”. This value shall be calculated taking the
sales value of the mineral after deducting all direct and operating costs which are necessary
to get the mineral to the commercialization stage.53
If export duties are considered to be deductible costs for the calculation of the base for the
payment of royalties, then the increase of federal revenues through the collection of export
duties will also cause a fall in the fiscal revenues of the provinces through the reduction of
the royalty base.
5.4. Local Impact: Puerto San Julián.
There are still no surveys or figures available showing the real effects on local
communities. However, section 3.2. made reference to the influence of the New Mining
Regime in the growth and rebirth of the mining sector in Argentina. Most of the benefits of
this bonanza were impacting directly in remote regions of the country.54
Argentina Country Report 2007, Mining Journal Online, http://www.mining-
journal.com/registered/Annual_Review_Article.aspx?Type=2&articleid=7516
52
The following laws establish that royalties shall be calculated pursuant to the Mining Investment Law.
Law N° 7,029 of the Province of San Juan
http://www.mineria.sanjuan.gov.ar/legislacion/provincia/pdf/adhesion/Ley%207029.pdf;
Law N° 5031 of the Province of Catamarca http://www.mineriacatamarca.gov.ar/Ley%205031%20-
%20Modificación%20Ley%20de%20Regalias.htm;
Law N° 2332/93 of the Province of Santa Cruz
http://www.santacruz.gov.ar/mineria/index.php?opcion=mjuridico;
Law 6712 of the Province of Salta http://www.camdipsalta.gov.ar/LEYES/leyes/6712.htm
53
See Supra Note 28, Article 22bis.
54
Record de inversión para la gran minería, Clarín, at
http://www.clarin.com/suplementos/economico/2007/02/18/n-00311.htm

19. 16
Resolutions SCI 285/07 and SM 130/07 might change the story. The following example
can be useful in illustrating the situation:
Cerro Vanguardia is a gold mine currently operated by AngloGold Ashanti in Puerto San
Julián, a small town in the southern and remote province of Santa Cruz. Puerto San Julián
is a 7,000 habitant town located on the Atlantic coast, right in the middle of the barren
desert of central Patagonia.
Figure 3
Puerto San Julián, Province of Santa Cruz
According to a country report of AngloGold Ashanti, in 2006 the operations of the mine
employed 905 persons. 623 of them were directly employed by Cerro Vanguardia while the
other 283 were working in jobs directly linked to the operations of the mine but were hired
by contractors. If we calculate a hypothetical average employment multiplier for mining
projects in South America of 3.5 jobs indirectly created by the project,55
we notice that the
55
This the average between the two extreme cases of employment multipliers in mining project in Latin
America used by Di Boscio and Humphreys: Antamina in Peru with an employment multiplier of 1.4 and
Escondida with a rate 5.7. Supra Note 2, 603.

20. 17
Cerro Vanguardia project accounts for approximately 3,167 jobs in Puerto San Julián which
equals 45% of its total population.
The bid tender for the acquisition of exploration rights over the Cerro Vanguardia area was
launched in 1990.56
Since previous exploration had been done in the area and the vein was
already identified, the exploration stage could be accelerated and in 1998, the mine started
producing silver and gold. The estimations calculate that at present record prices of gold, it
is expected that the mine will continue to operate until 2016.57
The process of exploration and construction of this project was brief due to the previous
exploration work that had already been done. However, it took 8 years to reach the
production stage and the life of the mine with unusually favourable market conditions
might total a period of 20 years.
A worker of the city of Puerto San Julián who is currently employed by the company might
not suffer a significant impact as a result of the imposition of the export duties. It is true
that the increase in taxes might raise the cut-off grade and therefore the life of the mine can
be reduced. However, current international prices for minerals might offset the impact of
the tax and prevent the raise in the cut-off grade guaranteeing that many of the current
employees that started working at the mine in 1998 may make it to retirement before the
mine closes.
Whether the current boom will last any longer or not is difficult if not impossible to predict.
However, the volatile behaviour of mineral markets can be accepted as a fact. If we look at
figure 1, we notice that the last period of peak prices was during the late 60s and early 70s.
This is more than 30 years ago. Once the current boom had declined: Will we have to wait
for another 30 years? Future generations in Puerto San Julián will probably be more
interested than us in these predictions.
56
See Fomicruz S.E. webpage: http://www.fomicruz.com.ar/cvsa.html
57
See 2006 Country Report: Cerro Vanguardia, Argentina. AngloGold Ashanti, Supra Note 51.

21. 18
Currently, Cerro Vanguardia holds exploration licences in the area of central and northern
Santa Cruz looking for the expansion of its operating mine or the construction of new
mines.58
The violation of the tax stability might deter the advance of these projects. Thus,
inhabitants of Puerto San Julián that are born next year will not only reach the age of 18
with the Cerro Vanguardia mine closed but in case the resource management and the mine
closure are not carried out following a sustainable guidelines, they might as well find that
the town is deserted and as poor as it was before Cerro Vanguardia started operations in
1998.
Had Resolutions SCI 285/07 and SM 130/07 not been enacted and the projects under study
been carried out, projects could have started operating in 8 to 10 years time and could have
probably been in operation for 20 years or more. Babies born next year in Puerto San Julián
would have probably stood a better chance.
6. VIOLATION OF FISCAL STABILITY AND SUSTAINABLE DEVELOPMENT.
In 1994 the Argentine state expressed its commitment towards sustainable development
through the incorporation of article 41 of the National Constitution which recognizes the
principle of intergenerational equity and sustainable development.59
Furthermore,
commitment towards sustainable development was also recognized in various international
treaties entered into by Argentina.60
On the other hand, according to the Federal Mining Agreement which is still in force today,
the federal and provincial Governments agreed to: harmonize mining policies throughout
the whole country, promote rational and integral exploitation of mining resources, promote
development of the mining sector through the implementation of measures to encourage
private national and foreign investments and strengthen the federal system through the
58
Ibid
59
Supra Note 5, 279.
60
Ibid. Pursuant to article 75:22 of the National Constitution, international have constitutional hierarchy.
Argentina approved several international treaties related to the protection of human rights, the environment
and the promotion of sustainable development i.e. International Covenant of Economic, Social and Cultural
Rights and the International Covenants of Civil and Political Rights.

22. 19
strengthening of the role played by Provincial Governments as administrators of the
mineral resources in their provinces.61
It is not the purpose of this paper to make a deep legal assessment of the legality of
resolutions SCI 285/07 and SM 130/07. However, we have mentioned above that
sustainable development is guided and informed by the principle of good governance which
should be reflected in the respect of due process and in the striking of an adequate balance
between regional and national development.62
Resolutions SCI 285/07 and SM 130/07 were definitely not issued in line with the
principles of “due process”. Indeed, they were enacted by two State Secretariats but they
effectively amended a law of superior hierarchy and imposed an additional tribute, a power
which is reserved to the Federal Congress.63
Furthermore, they were never published nor
consulted with provincial authorities thus violating the covenants of the Federal Mining
Agreement.
The balance between national and regional interests promoted by the MMSD and supported
by the Federal Mining Agreement was not respected either. As a consequence of the
increased tax pressure and especially due to the violation of the fiscal stability, the
provinces might suffer a disproportionate negative impact both due to the fall in revenue
collection in the short run and due to an eventual loss of investment in the long run
As consequence of the investment boom promoted by the New Mining Regime, some
regions in Argentina have come to rely on mining as an economic catalyst that could help
in the eradication of poverty. Indeed, mining investment offered the opportunity of creating
wealth with lasting benefits for local communities.64
The effects of the increased tax
pressure and the violation of fiscal stability might deprive local communities of these
lasting benefits.
61
Supra Note 31, Article 3.
62
Supra Note 9, Executive Summary xvii.
63
National Constitution of the Republic of Argentina, Article 75:1.
64
Supra Note 5, 238.

23. 20
The current market for minerals offers an exceptional opportunity to maximise the capital
substitution from mining for present and future generations. Sacrificing the lasting benefits
and opportunities of mining in order to pursue limited term endowment is probably the
exact opposite of what an inter-generational concept like sustainable development seeks to
promote.
7. CONCLUSION
While the New Mining Regime with its fiscal stability appeared to be the legitimate son of
tight markets and fierce competition for mining investment between host countries,
Resolutions SCI 285/07 and SM 130/07 appear to be a reaction to booming markets.
Policy decisions are definitely influenced by markets. It would be naïve to think that
mining investment decisions are not. Policy is important when assessing mining
investment decisions but project appraisal is also based in the international price of
minerals. The increased country risk might be shadowed by exorbitant prices which
provide the “reasonable rate of return” for investors regardless any violation of legal
frameworks.
Yet, it would also be naïve to ignore the fluctuations that characterise mineral markets.
Since sustainable development is more interested in the inter-generational lasting benefits
and opportunities effects rather than in the limited term endowment, the eventual
fluctuation of mineral markets should be central to any mining policy decision.
Although the future is uncertain, we do know that neither local nor federal governments
will be here to bear or enjoy the “lasting effects” of their mining policy decisions. We also
do know that the fluctuation of the mineral markets is unavoidable and finally, we are
aware that mining regions in Argentina do not have plenty of alternatives to eradicate
poverty.

24. 21
When it comes to mining, sustainable development should look at the contribution of
mining to sustainable development rather than to consider the sustainability of mining or
minerals themselves.65
Maximisation of capital substitution within sustainable principles,
especially the principle of good governance, constitutes a basic contribution from mining to
sustainable development.66
Indeed, the maximisation of the capital substitution in mining may help in the eradication
of poverty by creating wealth and serving as a catalyst for further development and lasting
benefits for future generations in remote regions of Argentina.
Despite of the fact that Argentina incorporated the principles of sustainable development
into its legislation, Resolutions SCI 285/07 and SM 130/07 may have favoured limited term
endowment over lasting benefits and opportunities for future generations.
Professor Marshall might have been well aware of the need to maximise the capital
substitution. It was probably for that reason that he was so insistent in opposing any
increased tax pressure that would result in deterring investment in coal mining. Maybe,
Professor Marshall understood that maximizing capital substitution from mining would
ensure that British children would receive a wealthy nation as an inheritance.
Policy decisions adopted with due respect of the principles of sustainable development
might enable children of Puerto San Julián to inherit a wealthy and sustainable nation as
well.
65
Supra Note 2, 591
66
Supra Note 5, 238

25. 22
BIBLIOGRAPHY
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26. 23
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28. 25
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29. 26
 InfoComercial, Retenciones Mineras: 3,500 M más para el Fisco”,
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 Bastida, Elizabeth A. Mineral Tenure in the Context of Evolving Governance
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 Kabir, Aminu, Social Responsibility and the Role of Governments in Mineral
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