THE RISE OF BRINE IN ARGENTINA: ARGENTINE OUTLOOK ON MINING REGULATION AND POLICY TOWARDS LITHIUM

• Jurisdiction: Derecho Internacional

International Mining and Oil & Gas Law, Development, and Investment (April 2017)
CHAPTER 12C
THE RISE OF BRINE IN ARGENTINA: ARGENTINE OUTLOOK ON MINING REGULATION AND POLICY TOWARDS LITHIUM
Ignacio H. Celorrio
Partner
Quevedo Abogados
Buenos Aires

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IGNACIO H. CELORRIO is a Partner with Quevedo Abogados in Buenos Aires. Prior to joining Quevedo Abogados, he worked with Brons & Salas, Associate (1997-2007); Greenberg Traurig LLP, Miami, United States, Foreign Consultant / Associate (2002-2003); and Smith Lyons, Toronto, Canada, Foreign Legal Consultant (August 1998-May 1999). He received his law degree from the Universidad Católica Argentina; a Master in Administrative Law from the Universidad Austral; a degree in Comparative Law from Samford University, Cumberland Law School, Birmingham, Alabama; and a degree from Durham University, UK. He has been distinguished as a Leading Individual in the area of Energy and Natural Resources: Mining, by Chambers Latin America Edition 2010. He served in the National Chamber of Appeals in Federal Administrative Litigation, Chamber Judge of Federal Judge, Dr. Gallegos Fedriani (1996-1997).

1. Introduction

Argentina is a key player in the lithium mining industry. The geological potential of Argentina brine lakes deposits ("Salars") is well documented in several technical papers.¹ One of three parts of the described "lithium triangle",² it has been a particular attraction to the industry since the launch of the Argentine mining plan³ which enacted the promotional investment framework in the early nineties.⁴

Argentine first significant lithium producing mine, FMC's Salar del Hombre Muerto,⁵ commenced production is that decade. Every subsequent rise in lithium interest had Argentina as a significant investment target.

Last decade Argentine restrictions to foreign investment, either those raised by the last administration national policy⁶ or by specific mining industry situations⁷

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might have slowed down but did not fully derail the continue expansion of lithium related exploration and development.⁸

Due to mid-two thousands lithium exploration, Orocobre's Olaroz Salar mine⁹ commenced production in December 2014.

This situation has been caused by (i) a traditional private company oriented investment policy in the Argentine mining laws,¹⁰ (ii) a recognized geological potential, (iii) a strong incentive to foreign mining investment by the 1990's federal¹¹ and provincial¹² administrations and (iv) an absence of significant national public intervention in the lithium market, notwithstanding increasingly more challenging provincial mining and environmental regulations¹³ and complicate national socio-economic environments.¹⁴

Now, the renewed interest in lithium related products¹⁵ has caused considerable investment in Argentine Salars, either in small cap companies exploration¹⁶ or

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related to important lithium players,¹⁷ with the reasonable expectations of soon-to-be construct mines.¹⁸

These projects include traditional and proven extractions processes,¹⁹ like LAC/SQM Cauchari Salar Project²⁰ and the testing of new, pond-free, process alternatives.²¹

Nevertheless, the underdeveloped condition of the mining industry in Argentina as a whole,²² a country with traditional reliance on other industries (agribusiness, services and manufactures) as pillars to its GDP,²³ might raise several challenges unless Argentine mining institutions are correctly updated to the industry needs.²⁴

Political strongholds²⁵ and significant parts of the Argentine population²⁶ are relatively little informed on mining practices,²⁷ its real potential²⁸ and

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particularities of the mining cycles of investment.²⁹ Argentine Mining Laws have very positive, investment driven, principles; but also are in need of modernization.³⁰

Interventionists' policies towards foreign investment,³¹ restrictive legislation in connection to certain mining practices,³² and provincial state companies participation in mining projects within its jurisdictions³³ have occurred in several mining projects, including lithium ones.³⁴

A better Project-Government-Community interrelationship³⁵ is in need and lithium-mining companies still lack a better-organized industry driven representation.³⁶

This situation might have significant impact in future industry regulations, as regardless of its general pro-business lithium related mining legal principles,

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Argentina still lacks a comprehensive regulatory framework,³⁷ federal and provincial agency rulemaking experience³⁸ and industry long-term objectives to fully capitalize its lithium potential.

2. Argentine Mining Regulation Traditions and Framework.

Mining Law in Argentina, as an object of scientific study,³⁹ courts case-law⁴⁰ and in-detail regulation⁴¹ is relatively under-develop in comparison to other areas of law.

The many reasons for this situation can be summarized in (i) a relative small impact of the industry until the late 1990's in the Argentine economic matrix;⁴² (ii) a tendency to custom-form agreements strongly influenced by international practice⁴³ and (iii) a non-conflicted and mostly negotiation oriented company approach towards the political/social constrains that have occurred in the last decades in the industry.⁴⁴

On the hand, Argentina has historic roots of traditional significance⁴⁵ and a core body of law that nurtures our Mining Code⁴⁶ that sets mining principles that are

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overly present in our Mining Law.⁴⁷ Those principles, which strongly encourages private investment risk in mining matters, drives lithium exploration and development.

Our national constitution, additionally, clearly distributes the legislative and administrative powers between the federal government and the argentine provinces in mining matters.⁴⁸

Nevertheless, several traditional legal principles, embedded in the origins of the colonial mining rules are commonly unknown or misunderstood by the general legal community⁴⁹ and the rapid expansion of the activity triggered by the '90s failed to produce an organized body of regulatory and agency rulemaking case-law⁵⁰ which has jeopardized the full application of the rule of law⁵¹ to mining matters.

Lithium, both in brines and pegmatite deposits, does not have differentiated legal rules to the ones applicable to all other metals⁵² and therefore is subject to this situation.

3. Argentine Mining Law Principles.

a. Mining Concession.

Argentina has accepted the "royalist" ownership principle for mineral resources.⁵³ Such principle basically entails three public policy objectives: (i) Differentiate land

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ownership from mining ownership,⁵⁴ (ii) enhance the private miner search and exploitation of minerals⁵⁵ over landowners' rights and (iii) establish cause for a additional revenue stream to the government treasury.⁵⁶

Contrary to some current interpretations, which reads "state original ownership"⁵⁷ as cause for state intervention beyond environmental and police matters,⁵⁸ our Mining Code clearly followed principles raised in the need to encourage private investment in mineral activity.

These objectives, which find it roots in colonial times,⁵⁹ are direct influence on the Argentine Constitution and Mining Code. To this end, the Mining Code includes a mix of public and private⁶⁰ law concepts within the mining concession principle, giving prominence to the miner over landowners and strictly limiting the discretionary authority of the Government⁶¹ in its role of mining concession authority, granting quasi-private ownership rights to the miner while labeling their activity as of "public interest".

These rights, which fully apply to lithium concessions, provide an important - albeit unusual - protection to the miner, as it mixes public and private principles in a way almost impossible to find in other public concessions rights⁶² and which

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characteristics need further development and analysis, both at judicial, administrative and legal doctrine⁶³ circles.

b. Constitutional Provisions related to Mining.

The Argentine Constitution establishes a federal system of government.⁶⁴ Therefore, a key element of its purpose is the distribution of legislative and administrative powers between the federal and the provincial governments.

Although it recognizes the "original" ownership of minerals to the federal or provincial administrations, depending where such resources is⁶⁵ it recognizes legislative powers over such mineral resources to the federal congress;⁶⁶ while the Provinces maintain administrative, regulatory and judicial⁶⁷ powers over mining activity.

The distribution of legislative, regulatory and judiciary attributions over environmental matters is less pristine,⁶⁸ and therefore it has cause several jurisdictional and political⁶⁹ conflicts between the federal and provincial governments.

Several laws and government institutions have the intention to coordinate national and provincial powers on environmental and administrative⁷⁰ mining matters. Still, challenges continue regarding the application of environmental and mining regulations, in-detail procedure, administrative agency capacity to overcome the significant amount of permits petitions,⁷¹ and several inter-agency conflicts both inside provincial,⁷² provincial/industry⁷³ and province/federal⁷⁴ and federal matters.⁷⁵

4. Mining Investment Promotion.

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On mining concession and environmental matters the federal jurisdiction is limited,⁷⁶ but the Federal Secretary of Mining is the authority over a key mining promotional regime that revolutionized the mining foreign direct investment towards Argentina as from the early 90's, which is usually refer to as the Mining Investment Law Framework.⁷⁷

This regime although not always respected by previous federal administrations⁷⁸ has been relatively untouched since its conception⁷⁹ and grants important...