Argentina signs mining deal to unify regulations, attract investment

BUENOS AIRES, June 13 (Reuters) - Argentina’s national government and the governors of 20 provinces signed a mining deal on Tuesday to harmonize taxes and regulations in hopes of attracting investment, but the action was criticized by industry sources and environmentalists alike.

The agreement, which needs approval from Congress and the 20 provincial legislatures, sets a 3 percent ceiling on royalties mining companies pay to provinces.

“It’s an activity that could be one of the pillars of job creation,” President Mauricio Macri said of mining at the signing ceremony. “We can develop it with perfect care of the environment.”

Latin America’s third-largest economy has fallen behind Chile and Peru in attracting mining investment despite rich deposits of copper, gold, silver and zinc. Macri’s center-right government has been trying since last year to unify regulations to woo foreign miners.

Shortly after taking office, Macri eliminated export taxes on metals and lifted a prohibition on companies sending profits overseas, two moves celebrated by the sector. But seven of the country’s 23 provinces still prohibit certain practices, like open-pit mining and the use of cyanide, crucial to extraction.

Despite the limit on royalties, the deal signed on Tuesday would allow provinces to levy a tax of up to 1.5 percent of miners’ sales for local infrastructure funds.

“The new deal doesn’t change the regressive nature of the current tax, which is on mineral sales, and furthermore adds another tax of 1.5 percent. It will reduce the sector’s competitiveness,” said an industry source who spoke on condition of anonymity.

“Investments will continue to favor Chile and Peru.”

Among the three provinces that declined to sign the deal was Chubut, located in the southern region of Patagonia, where Pan American Silver’s Navidad project has been on hold since 2013 when it ran afoul of provincial rules banning the use of cyanide and open-pit mining.

Manuel Jaramillo, executive director of environmental NGO Fundacion Vida Silvestre, told Reuters that environmental groups were not invited to participate in the crafting of the deal and that the government never requested public comment on the details of the agreement. (Reporting by Juliana Castilla; Writing by Luc Cohen; Editing by Peter Cooney)