Santa Cruz to face multiple challenges to "absurd" mining tax - McEwen

Wednesday, August 21, 2013

The government of southern Argentina's Santa Cruz province is likely to face multiple legal challenges from mining companies angered at an "absurd" tax on mineral resources, Rob McEwen, CEO of Toronto-based McEwen Mining (NYSE, TSX: MUX), told BNamericas.

In June, the provincial legislature approved a 1% tax on mineral reserves to be applied to the revenue potential of their in situ value, regardless of whether a mine is producing or not. Officials are currently drawing up the regulations before implementing the measure.

"It's an absurd tax. It is going to be contested legally," McEwen said.

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The tax would reduce dividends and make mining properties less attractive, McEwen said, and cost about US$10m a year at the San José gold-silver mine, a 49:51 JV with Peru's Hochschild (LSE: HOC).

McEwen Mining Argentina VP Andrew Elinesky said in August that the company is considering challenging the proposal, while compatriot Goldcorp (TSX: G, NYSE: GG), which has suspended exploration at the Cerro Negro project in Santa Cruz in response to the tax, is also considering its legal options.

"The legal challenge would be based on the fact that the new tax contravenes a 30-year fiscal stability period under the federal mining law," McEwen told BNamericas.

"At the moment it appears as though several parties choose to go at it on their own and several others have said let's go together. You will likely see several actions being brought forward."

The likely outcome of any legal challenges remains uncertain, McEwen said, with all such challenges "subject to a lot of risk," but the proposed tax will "be in court a long time before anyone pays [the government] a dollar."

Other miners with operations in Santa Cruz include US-based Coeur Mining (NYSE: CDE, TSX: CDM), Peru's Minera IRL (TSX: IRL; AIM, Lima: MIRL) and Vancouver-based Pan American Silver (TSX: PAA, Nasdaq: PAAS).

McEwen Mining also has the El Gallo mine in Mexico and the Los Azules copper project in Argentina.

The full interview with Rob McEwen will appear in this week's Mining Perspectives, to be published on Friday, for subscribers only.