Argentina Election a Win for Mining

Investing in Argentina has for the most part been impossible for the last decade under the reign of Cristina Fernandez Kirchner, who imposed currency controls and sent the country into default. 
Under the Kirchner administration, Argentina’s resource sector was stifled, so much so that “farmers were overjoyed at Mrs Kirchner’s departure, and eagerly anticipating the arrival of a more market-friendly leader,” The Telegraph reported recently. However, now that Mauricio Macri has been sworn in as the country’s new president, investors can expect big changes.

Argentina’s Macri to settle debts

Macri has promised to put an end to Argentina’s long-running dispute with American bondholders who are demanding the repayment of loans made after the country’s 2001 financial collapse. Kirchner refused to pay the lenders, leading the country into default.
As Dr. Richard Spencer, CEO of uranium junior U3O8 (TSX:UWE,OTCQX:UWEFF), explained to the Investing News Network, from a North American perspective the default was a huge issue that had a significant impact on foreign investment. Indeed, the resource-rich country suffered from lack of investment for many years.

“This is the most critical change,” he said, adding that “it is extremely encouraging that in the last couple of weeks the new government has had meetings with bondholders. They’ve said it is their priority to negotiate with the bondholders and reach an agreement.”
Macri, however, will need to operate cautiously in settling the dispute.”We really don’t have good information,” Macri said prior to his inauguration, when asked what his economic plans were. “We still don’t know the exact situation we are inheriting.”

Argentina to lift currency controls

Macri has also promised to lift currency controls, another critical undertaking that may breathe more life into the resource sector.
Currency control measures were introduced by Kirchner in 2011, and as The Telegraph states, “whole layers of chicanery have been added on top in a bid to stabilise the financial system.”
Unfortunately, Argentina’s current inflation rate and its artificially strong currency have made it impossible for the country to be competitive on the global stage. That has made it particularly difficult for the resource sector to engage in exports.
Speaking with the Investing News Network earlier this month, Rob McEwen, chief owner and chairman of McEwen Mining (TSX:MUX,NYSE:MUX), spoke hopefully about Macri’s plans for currency controls. “Our operation there right now is a breakeven, and if … they improve the exchange rate by lowering it relative to the dollar, our costs are going to fall because they’re going to be in local currency and our revenue is going to go up. So that’s very good.”

Argentina’s mining community

There are many different resources that may benefit from Macri’s presidency. Indeed, Argentina is host to an impressive number of commodities, including Vaca Muerta, one of the largest shale oil deposits.
And already, notable players are in the field in Argentina. Aside from McEwen Mining, investors may be familiar with Glencore’s (LSE:GLEN) El Pachon property, which see about $3 billion in investment. Meanwhile, Yamana Gold (TSX:YRI,NYSE:AUY) is also operating the Cerro Moro gold and silver mine in the country, and Golden Arrow Resources (TSXV:GRG) holds the Chinchillas project.
On the uranium front, Spencer’s U3O8 is working on advancing its Laguna Salada project. Spencer said that as far as uranium — and by extension nuclear power — goes, Argentina is a “go-ahead country” that has its own nuclear technology. In fact, the country recently saw its third nuclear reactor come online, with a fourth and fifth in the construction phase.

Investor takeaway

All in all, for investors the takeaway from the Argentina election should be that Macri’s appointment is likely to be a boon for the country. And while the stabilization of the country’s economy is going to take some work, Macri “has an incredible opportunity to set the change direction and to pull the Argentine economy up by its bootstraps,” Spencer said.
 
Securities Disclosure: I, Vivien Diniz, hold no investment interest in any of the companies mentioned. 
Related Reading:
Rob McEwen: $5,000 Gold Still in the Cards
Argentina Election Could Bring Life to Mining Sector
U3O8: Low Capital Costs, Short Term Uranium Production in South America