ARGENTINEAN URANIUM EXPLORATION AND PRODUCTION PART OF AN INTERNATIONAL NUCLEAR INDUSTRY

• Jurisdiction: Derecho Internacional

Mining and Oil and Gas Law, Development, and Investment - Book 2
(Apr 2007)
CHAPTER 13B
ARGENTINEAN URANIUM EXPLORATION AND PRODUCTION PART OF AN INTERNATIONAL NUCLEAR INDUSTRY
Carmen Diges
McMillan Binch Mendelsohn LLP
Toronto, Ontario, Canada

CARMEN L. DIGES. CFA

Carmen Diges is a partner practicing principally in the natural resource sector with McMillan Binch Mendelsohn LLP in Toronto, Canada. Her practice encompasses all aspects of project financing including debt, equity and capital markets, project development from exploration through to development stages for both public and privatecompanies. Her ability to work in Spanish, French and English has led her to work extensively in South America, Africa and Europe, with governments, institutional and private actors.

Carmen's particular interest lies in the development of capital markets in developing countries, a topic about which she will be speaking during the upcoming Rocky Mountain Mineral Law Foundation Conference, this July in Vancouver.

TABLE OF CONTENTS

FOREWARD

INTRODUCTION

BACKGROUND OF THE ARGENTINEAN NUCLEAR INDUSTRY

RENEWED COMMITMENT TO NUCLEAR ENERGY

Other Argentinean Nuclear Involvement

CAREM Reactor Project

OBSTACLES TO LOCAL PRODUCTION

Foreign Investment Conditions

Regulatory Environment

Environmental Concerns

COMPARATIVE PERSPECTIVE: ARGENTINA AND SURROUNDING COUNTRIES

Chile

Peru

Brazil

CONCLUSION

Foreward

The author acknowledges with great appreciation the contribution of the Grosso & Gorbato, Abogados of Buenos Aires, Argentina and in particular Juan Carlos Grosso and María José Machain who assisted in the research for this paper as well as W.S. (Steve) Vaughan and Melanie Crouch of Heenan Blaikie LLP and J. Alexander Pizale and Stephen Genttner at McMillan Binch Mendelsohn LLP of Toronto, Canada, who assisted in the research and editing of this paper.

Introduction

Argentina's nuclear experience yields a case study of a fully integrated nuclear industry and the potential for a country with a past nuclear history to embrace present trends favouring nuclear energy in order to achieve future growth of its domestic and export markets. In light of the recent trends upwards in uranium prices and the popularity of nuclear power solutions to meet developing and developed countries' energy requirements, Argentina finds itself in a favourable landscape for growth. Concurrent with this substantial growth opportunity, Argentina and other similarly situated nations face a new set of challenges in terms of legal and regulatory responses to the sector and the need to balance the interests of various stakeholders from consumers to Governments and from industry to mining exploration.

Argentina is a leading nuclear nation, unique among its South American counterparts for its vertically integrated nuclear industrial structure. Since the mid 1940's, Argentina has possessed an internationally competitive nuclear industry. Two efficient operating nuclear plants currently produce approximately 8% of Argentina's electrical energy output. A third plant, in which construction was stopped in early 1994 at 81% completion, is now slated for completion over the next two to three years. In August 2006, Argentina confirmed its commitment to nuclear power when it announced the signing of agreements for the completion of the Atucha II reactor, the refurbishment of the Embalse reactor and the commencement of studies for the construction of a fourth nuclear reactor at an aggregate estimated cost of USD$3.5 billion for the three projects.

Besides a commitment to industrial renewal and the construction and refurbishing of reactors, there are two more key factors to Argentina's potential growth story: domestic market demand in the face of an acute electrical power shortage that demands an increase of baseload electrical capacity, and, quite importantly, the presence of current known uranium reserves.

Although Argentina does not at the current time have any commercial uranium production, a number of companies are actively exploring in the country and the Government of Argentina is contemporaneously encouraging the restarting of several formerly producing mines which are owned by the Comision Nacional de Energia Atomica (the "CNEA"). Of these, the two major former producing mines are Cerro Solo, located in the Province of Chabut and Sierra Pintada, which is located in the Province of Mendoza. If current known reserves are mined, they

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are capable of supplying the necessary nuclear fuel for Argentina's current reactors over the short term, with any exploration success adding supply for the new reactors shortly coming on stream in Argentina and generally contributing to the longevity of Argentina's nuclear fuel supply both for its domestic reactors and for export.

Argentina's unique nuclear mineral endowment may facilitate the rise of a regional mining contender on par with Chile, Peru and Bolivia. Growth may be driven by both a hungry internal market and the obvious potential to ride the wave of global demand and high market prices to develop a thriving export market. Yet, with economic opportunities come regulatory challenges. Foreign investment conditions mark one challenge. Argentina's federal structure itself presents a challenge with some provinces passing legislation which inhibits federal initiatives to promote uranium exploration and development. Federal authorities have not yet determined a process to jointly develop the uranium fields alongside the provincial authorities. Once achieved, this could lead to the same growth in the nuclear mineral sector as that experienced in recent years when other mineral commodities were privatized by provincial Governments. A key element required for effective co-partnership between federal and provincial authorities is to apply state of the art environmental technologies and education of the local communities to the uranium development process.

Environmental concerns require a robust regulatory response, incorporating the coordination of environmental activities among the federal, provincial and local authorities. Uranium waste from both mining sites and nuclear facilities has presented concern. Deposit production in some areas has been opposed by various non-governmental organizations and local businesses.

The overview that follows presents a snapshot of the Argentinean nuclear industry, its history, and where it could be going. In so doing, this case study will illuminate the opportunities and challenges as they shape Argentina's economic and legal landscape.

Background of the Argentinean Nuclear Industry

Argentina has a long and successful history in the nuclear industry. The end of World War II marked the beginning of Argentina's nuclear involvement. The initiative was led by President Peron, who invited a fleet of German scientists to design the architecture of Argentina's nuclear future. In addition, the CNEA, Argentina's atomic energy commission, is responsible for much of this success. In 1950, it was created with the mandate to develop and oversee all domestic nuclear activity.

Argentina's quest for nuclear power began with a research facility established at San Carlos de Bariloche in the Province of Rio Negro at the Atomic Centre Balseiro. This centre remains even today, the predominant think-tank in the nuclear area throughout Latin America. Here research staff were trained and an experimental reactor was constructed. At the same time,

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uranium exploration began to be carried out throughout Argentina.¹ Soon after the San Carlos de Bariloche facility was established, a second research reactor prototype was built, fuel bundles developed and manufactured for both existing research reactors, a uranium concentrate production plant was built in Mendoza, and radioisotope production was carried out. In the mid 1960's, a study recommended building a nuclear electric plant capable of producing between 300 to 500 megawatts of power near Buenos Aires. International bids were sought for the construction of a new water-cooled reactor. A German Siemens AG designed product known as Atucha I was selected and commercial production began in 1974.²

In 1967, Argentina requested bids for a second operating reactor designed to produce 600 megawatts of power. This reactor was to be built at Embalse, near Cordoba. Atomic Energy of Canada Ltd. ("AECL") and an Italian construction company, Italimpianti, won the bid. Their proposal was based on a CANDU design, which utilized natural uranium (U₃O₈). This reactor was successfully completed and started operating commercially in 1984.³

In 1979, a contract was awarded to an Argentinean/German consortium to build a third nuclear reactor. This reactor was to be a 700 megawatt Siemens designed heavy water cooled, moderated pressurized reactor and was named Atucha II.⁴ Unfortuntely, construction was stopped in 1994 because of financial difficulties and a design flaw. To date, this reactor has not been completed.⁵

At the present time, therefore, Argentina has two nuclear power plants in operation and the one under construction, 6 research reactors, 4 parti cle accelerators , 3 atomic centers, 1 technology center, 1 heavy water plant, 2 irradiation facilities and 1 uranium purification plant as well as numerous nuclear medicine schools, nuclear medical centers and radioimmunoassay laboratories. Argentina's three nuclear centers have been under the direction of NASA since 1994. Production concentrate occurs principally in the province of Mendoza and is converted and purified to nuclear quality in the city of Cordoba. The Government of Argentina also owns Investigacion Aplicada ("INVAP"), a company it set up in 1976 to undertake applied nuclear research, engineering development and services to...