Cautious optimism among miners after election of Milei as Argentina president

There is a sense of cautious optimism in the mining sector following the election of Javier Milei as the new president of Argentina on Sunday November 19, Fastmarkets understands

Milei’s electoral victory comes with Argentina facing significant economic uncertainty, with the rate of inflation close to 143% in the country, and analysts at merchant bank JP Morgan forecasting that it could reach 210% by the end of 2023.

As a result, there have been significant currency controls put in place intended to protect the peso, Argentina’s currency, as well as high interest rates being imposed amid weak economic activity.

These currency controls have affected businesses across the Argentinian economy, but particularly in commodities.

In its recent earnings report, Argentinian aluminium producer Aluar expressed concerns about business continuity as a result of these currency controls.

Milei has outlined radical proposals to help ease this situation, in a process which he has described as “taking a chainsaw” to the economy. These proposals include abolishing the country’s Central Bank as well as adopting the US dollar as the country’s official currency, alongside greater promotion of free trade.

As a result of the economic instability and promotion of free trade, participants in the mining sector have largely welcomed the election result, seeing the avidly libertarian candidate as a potential force for good for the sector.

“[Milei’s] liberal principles will boost activity and help to reduce or remove the existing restrictions affecting the whole economy, including mining,” Saul Feilbogen, consultant for Vitale, Manoff & Feilbogen, said.

Feilbogen noted that the primary areas Milei could affect positively were “mostly the delays on importation of products and machinery and on dividend payments abroad.

“However,” he added, “the changes may take some time because the country will need first to recover its reserves at the Central Bank, to introduce changes in the foreign exchange market.”

One challenge for the country in recent years has been encouraging external investment in the wake of its economic crisis, although some industry participants believe that Milei’s election could help to reverse this.

“Argentina will become a more attractive foreign investment destination,” one source said. “The fact that the currency control restrictions are [being removed] over time means that the biggest cost of investing in Argentina will disappear, or at least reduce.”

“More mining-friendly policy [from Milei] may increase investment,” the head of research at Concord, Duncan Hobbs, said. But Hobbs noted that “it is not just about policy, but also about confidence in the stability of the government implementing the policy.”

A number of sources noted the tradeoff between Milei’s pro-industry policies and the broad scale of issues facing Argentina, and what that means for the nation’s mining industry.

“If he gets support from the parliament,” one miner source said, “it will definitely be good for all industries.”

Argentina is a significant producer of lithium. It currently is the world’s fourth-largest producer behind only Chile, Australia and China, and represents one-third of the ‘lithium triangle’ in Latin America.

According to Fastmarkets research, Argentina is forecast to produce 53,000 tonnes of lithium carbonate equivalent (LCE) in 2023, rising to 343,000 tonnes LCE in 2030.

On top of this, Argentina also holds significant, largely untapped reserves of copper, a key metal for energy transition.

Cautious tone persists

Although there is clear optimism within the country, there are also some concerns following the election result, with some noting that the radical plans for the economy, at least in the short term, could lead to further volatility.

There are also concerns over Milei’s personality, with a second source noting that his rhetoric could be “inflammatory and unproductive to progress.”

“On the surface it appears good,” a second miner source said, “but I’m concerned about his potential to get too crazy. Hopefully, his move to the [political] center at the end of the campaign is how he’ll govern.

“Stuff like breaking ties with China, getting rid of the central bank, and so on, sound dangerous, not to mention the potential social backlash to him and his policies,” the source added.

Others were keen to emphasize the extent of the challenges facing Argentina, and noted that a president may not be able to have the broad sweeping effect that people might expect, particularly in terms of resource development.

Mining projects require long-term commitment, with both copper and lithium mines often taking more than a decade to commence production. Presidential terms in Argentina last for four years, so there is a chance that a single mining project would see several presidential changes before its first production.

“To be honest, Argentina [faces so many challenges] that the task is for more than just one presidential term,” the miner source said.

Provincial governments still key

One further aspect whose importance market participants highlighted is the role of provincial governments in mining operations.

In Argentina, the provincial governments are the owners of all mineral resources, meaning that all the procedures to grant a concession or a permit, approve environmental reports and allow the different stages of a project, fall under the local supervisory body.

The main provinces for lithium operations are Jujuy, Salta and Catamarca, while for copper, San Juan is key.

“[We also need to consider] that there is a difference between central government and local mining policy. For example, San Juan is seen as more mining-friendly,” Hobbs said.

Although there was a significant change in the federal election, at a local level in the three key lithium-producing provinces, there was a sense of stability, with all incumbent parties retaining power.

Market participants said that this should provide stability in governmental approaches.

“At provincial levels, we do not expect any changes, which is good. So far, the three lithium-bearing provinces have been very proactive in promoting and facilitating the development of projects,” the first source said. “We would expect this to continue.”

“The three provinces form a so-called Lithium Panel where they are trying to harmonize their regulations, avoiding mismatches or unfair competition among them,” Feilbogen said. “This means that, from the local point of view, after the general election, everything will remain the same.”

Keep up to date with the latest news and insights on our dedicated battery materials market page.

What to read next
The company will be growing its battery-grade lithium carbonate or hydroxide production from its new direct-lithium extraction (DLE) project
Aluminium and nickel appear to have once again escaped inclusion in the latest list of sanctions imposed by western governments on Russia, ending days of speculation that increased both the prices and the traded volumes of the metals.
Swiss trader Glencore’s profits halved in 2023 due to weaker energy and metals prices and production, according to the company’s full-year results released on Wednesday February 21
Volatile BRM prices can generate uneven profits and highlight the need for risk management
Manganese, chrome, tungsten and vanadium will be key topics of discussion at Fastmarkets' upcoming Asia Ferroalloys Conference 2024 in Hong Kong on February 26-28, after appearing on China's latest list of critical minerals
Lepidolite producers in China have been a major wildcard in the lithium industry of late, with production surging despite its higher cost, energy-intensive nature.