Mining

SYNOPSIS

A. LEGAL FRAMEWORK 23.101

1. Private State Ownership 23.104
2. Acquisition: Exploration-Exploitation 23.110
3. Mining Property 23.117
4. Mining Agreements 23.129

B. FRAMEWORK FOR FOREIGN
    INVESTMENTS IN ARGENTINA 23.131

C. TAX FRAMEWORK 23.138

D. MINING REORGANIZATION LAW 23.139

E. FEDERAL MINING AGREEMENT 23.140

F. MINING UPDATING LAW 23.142

G. ENVIRONMENTAL PROTECTION FOR
     THE MINING INDUSTRY 23.149



A. LEGAL FRAMEWORK

23.101 The Mining Code was approved by Congress on November 25, 1886, it regulates the rights, obligations and procedure for the acquisition, exploration, exploitation and utilization of mineral substances. It has undergone several amendments, the latest being laws Numbers 24402 (Financing Regime for the Payment of Value Added Tax) and its Regulatory Decree 779/95; 24498/95(Mining Updating) and 24585/95 (Environmental Protection) and Reorganization of the Mining Law Code. This way Congress put into practice its constitutional obligation of approving the Mining Code for all the Republic (Argentine Constitution article 75, paragraph 12).

23.102 A person ( Mining Company) or a Company may be granted the power to search for mines, utilize them and make use of them as owners, according to the provisions of the Mining Code Section 8.

23.103 Mining property differs from the general property principles recognized in our Civil Code that recognizes property of mineral found in the subsoil to the discoverer.

1. Private State Ownership

23.104 Minerals have an original owner, they are the private property of the Federal or Provincial State, according to their location, and the distinctiveness of their nature is that they are affected to the "general use".

23.105 State private property is distinguished from public property since the latter may not be used exclusively by any individual, and the former is a right of all the inhabitants in the country.

23.106 The general principle established in the Mining Code rules that the State may not exploit mines but only grant property rights. Although the Mining Code adopts the royalty system, some principles of the accession system are also included. The royalty system is applied to primary substances (gold, silver, platinum, mercury, copper, iron, etc.) and secondary substances (metal-bearing sand-borates and saltpeter, salt pits and peat bogs, other metals that do not fall under the first category, etc.) whereas the accession system is applied to third category substances (mineral products of a stone nature, building material) Therefore the first and second category mines are originally owned by the State (Federal or Provincial) and ownership therefore is granted either to individuals or companies. In the case of the second category mines, there exits a subdivision:a) mines of common use or b) mines which belong preferably to the owner of the land. The third categoty mines (quarries) belong to the owner of the land.

23.107 The Mining Code states that the private ownership of a mine is established by legal lease. The discoverer of a mine is granted property rights to the discovered mineral substances. Thus the Mining Code distinguishes between the property of the discovered substances from the ownership of the land where they are found. Mines are considered real property, the ownership period is unlimited and a copy of the measurement certificate of the mine is issued as evidence of the mining title deed.

23.108 When mineral substances are discovered, the expectant right of the explorer becomes definitive once the requirements to obtain ownership are fulfilled. When the area to be exploited is measured, true mining ownership is established. This ownership has the same characteristics of common law ownership, it may be assigned through sale, donation, barter and it can also be mortgaged.

23.109 Finally, section 19 of the Mining Code states that any person capable of acquiring rights and of legally owning real estate, may acquire and own mines.

2. Acquisition: Exploration-Exploitation

23.110 Any person capable of administering his property may apply for an exploration permit from the federal or provincial authority and explore a certain area, previously determined, for the time and extension the law establishes.

23.111 The aim of this right is to extract mineral substances and to acquire their property. To be able to exercise this right, the interested person must have a prospecting permit issued by the authority. The Mining Code establishes different ways of exploration: a) Exploration or prospecting itself; b) Exploring tunnels or shafts.

23.112 The explorer must compensate the surface owner for any damage caused by prospecting and the activity resulting from it. The surface owner has the right to require a bond to cover the value of compensation prior to the initiation of exploration.

23.113 All exploration activities are limited to the surface owner’s formal consent, based on the fact that the explorer carries out activities on land owned by third parties. This situation gives rise to an easement imposed by law on the land.

23.114 The owner of the land may explore and carry out any prospecting task, even in places restricted to third parties, and even without a permit. If he does so beyond his property limits and without a permit he cannot enforce his claim against an applying third party.

23.115 The Mining Code also establishes that the lease of a mine also implies the right to demand the sale of the land that corresponds to the area of his mining property. If the miner proves need or convenience, he may extend the surface he intends to buy to more than one mining property. In every case he must pay the owner of the land its value plus the damages caused to the owner’s property, including crops, cattle, use of water, etc. If it happens to be necessary and until the final payment, the miner might take possession of the property upon payment of a bond. Final payment may be adjusted once the exact limits of the mining property have been fixed.

23.116 The State may not deny granting a mining property to an explorer, and it cannot reserve mines found and claimed by them.

3. Mining Property

23.117 A mining lease has to be understood as a true property right. Therefore it is necessary that the State as the original owner of a mine, acknowledge on the basis of a legal provision, the property right over the extension of same in the benefit of persons that have complied with the requirements imposed by law.

23.118 This property right has the following characters: a) legal: the conditions of the property are established by law; b) free: it is granted without any consideration for the state; c) indivisible: according to section 14 mines may not be materially divided. However, when mines consist of two or more mining properties, the division shall be admitted; d) unrestricted in time: as common law mining property is not limited in time; e) transferable: it may be transferred by any of the means in which ordinary property is transferred; f) attachable: as any other capital assets; g) mortgageable: the same as ordinary property, mining property may be subject to mortgages.

23.119 There is a discovery according to the Mining Code when the exploration has been authorized or, as a result of an accident, a non recorded seam is discovered.

23.120 The finding of mineral made as stated has legal effects when the discoverer informs the mining authority of the discovery according to the procedure, which will then enable the correct individualization of the location of the discoverer and of the mineral.

23.121 The mining Public Notary is the officer who records the date and time of delivery in the discovery statement and certifies whether there is any other application in the same area or not. The Public Notary sends the statement to the mining authority for its registration and publication. The record in the Public Notary’s protocol, establishes the provisional property of the mine and allows exploitation to begin.

23.122 If two or more discoverers happen to appear before the mining authority to request the recording the same property: I- In case of concurrence the principle of time priority is applied. The law assumes that the first one to inform the Public Notary is the discoverer; II) If they appear simultaneously, the law grants priority to the one who makes the best description of the area of the discovery, the location of the mine and the conditions of the mineral; III) Lastly, the Mining Code rules that the most important mine takes priority if the prior rule does not solve the situation.

23.123 Once the exploitation begins, the finder is obliged to carry out, within a term of 100 days, the legal task, that consists in representing the characteristics the seam has, establish its direction, pitch and existence and kind of mineral. This term may be extended if the explorer can’t recognize the seams’characteristics in time.

23.124 The second type of application for mining property established by the Mining Code is when a mining property already granted by the State has been forfeited because of abandonment or because of failure to pay royalty or through lack of capital investment.

23.125 Other types of acquisition are: a) Enlargement: this is the case when a property may be added to an existing one provided there is vacant land; b) Improvement: which is a change of location given to the mining property on the basis of better exploitation results; c) Surplus: in this case, mining rights are granted between two or more delimited mining properties when the size of the grant is smaller than the minimum mining property.

23.126 Law 10,273 establishes payment of an annual royalty per mining property; the amount thereof is fixed by federal law, and the miner must pay the Federal or Provincial Government, according to the jurisdiction where the mine is located. The royalty must be paid in advance in two equal semi- annual installments. The failure to pay for a year and two months entails the forfeiture of the miner’s rights.

23.127 In regard to capital investment the miner is obliged to invest in equipment for the mine; campsites, buildings, roads, power plants, machinery and works for the mineral exploitation.

23.128 In cases of forfeiture due to the lack of capital investment, the same as for the failure to pay the royalty does not give the miner the right to claim any compensation for the work performed. He may remove machinery and working tools, provided however there are no mortgages on them or preferred creditors.

4. Mining Agreements

23.129 A mining company exists when two or more individual persons organize to work together one or more mines. This may happen when a mine is registered by more than one person or by acquiring a part of a registered mine or by a special companies’ agreement, in this case the contract must be done through public deed.

23.130 The Mining Code acknowledges the creation of companies with characteristics of their own regulated by the code and their dissolution is implemented in accordance with its provisions and not by the rules of common law.

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B. FRAMEWORK FOR MINING INVESTMENTS IN ARGENTINA

23.131 Law No. 24,196 and its regulating decree No. 2,686/93 established a special investment plan for mining activities. Those interested in adhering to this plan should register in a special registry established by the National Secretariat of Mining, application authority of this law.

23.132 There are a number of relevant dispositions in this law which can be summarized as follows: modified tax regulation including fiscal stability, exemption from payment of duties on imports, a cap on royalties and special deduction for Income Tax purposes for the preservation of the Environment.

23.133 Fiscal stability means that the aggregate tax burden of those registered shall not be increased as a consequence of increases in any tax or duty during a thirty year term counted as from the date of filing of their feasibility study. The decree states that this stability covers all taxes, rates and levies, and import and export duties. It is important to note that to be able to obtain tax stability, those who so request it must previously submit a feasibility study appertaining to a new project or extension of an existing productive unit, which must be endorsed by a duly registered and specifically qualified professional.

23.134 Regarding Income Tax, those who adhere to an investment plan are able to deduct one hundred percent of the amounts invested in prospecting and exploration, special studies, mineral, metallurgical, pilot plant, applied research tests and any other work for determining the technical and feasibility of same. It also establishes a tax depreciation regime applied to capital investments. Profits derived from contributions to corporate capital for mines and mining rights in companies which are involved within the Plan shall be tax-exempt.

23.135 Exemption of import duties as well as any other right, special tax, related encumbrance or statistical tax, exclusive of any services compensation rates for the introduction of capital assets, special equipment necessary for the performance of activities comprised within this plan.

23.136 The collection of Royalties is limited by the provisions of the Law, that includes a cap percentage over the "mine’s exit value". This means that provinces adhering to the plan under this law and that decide to collect royalties may not receive a percentage exceeding three percent over the mines’exit value of the extracted ore.

23.137 Preservation of the Environment is also regulated, the registered parties must submit to the enforcement authority, technical studies referred to the environmental impact to be caused by the mining activity, these studies are also filed before the authority of the province involved to permit a joint supervision of compliance with the environmental preservation plan. Those who have filed the study are allowed to create a special provision that will be considered as a deduct tittle charge for Income Tax purposes up to an amount equal to five percent of the operative cost of extraction.

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C. TAX FRAMEWORK

23.138 See Chapter 13.

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D. MINING REORGANIZATION LAW

23.139 Law No. 24,224, establishes three important provisions.

• The first one refers to geological charts, considering them as "the necessary basis for the inventory of natural resources the promotion of investments and human settlements in frontier areas". The law sets forth that the Authority of Application must: annually approve a national program of geological charts.

• Section 11, creates a Federal Mining Council as a counseling organization of the Federal Secretary of Mining whose members are chosen by each of the mining provinces and the Federal State.

• It also establishes the values to be charged as a mining canon for each category of mines. It also amends several sections of the Code concerning subjects such: as penalties for the surveyors who haven’t received an authorization from the owner of the land, modifies the area of the exploration permit, the limited period and the amount to be invested.

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E. FEDERAL MINING AGREEMENT

23.140 This Agreement, was put into practice to promote sectorial development to attract local and foreign investments, protection of the environment and to harmonize procedures according to the typical characteristic of each region.

23.141 Some of the measures agreed upon were:

• to promote attracting mining investments

• Provinces had to harmonize mining procedures in order to achieve basic guidelines for the whole country

• to implement an equal opportunity public bid of mines that had been forfeited announcing the vacancy and conditions of the bid with due anticipation

• the Nation and the Provinces shall jointly take the necessary steps to organize and update the Mining Register.

• Provinces shall tend towards the elimination of taxes and municipal fees that directly affect mining activity.

• Through an agreement with the Nation, the Provinces must eliminate the stamp tax on exploitation contracts of mineral substances except hydrocarbons

• In view of the importance of the environment protection, the need to issue a declaration of environmental effect for each step of the mining activity, implementation of new promotion plans for those favoring the environment and application of funds for research in projects related to the preservation of the environment in mining activities.

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F. MINING UPDATING LAW

23.142 Law No. 24,498 was passed in June 1995, and amended several sections of the Mining Code. Article 2 which amends Section 23 (now Section 25) includes a specified procedure to follow in order to obtain an exploration permit.

23.143 Sections 26, 27 and 28, were also amended in order to settle priority rights on any discovery by an explorer which had already been filed, related with any discovery made by a third party. It also includes certain limitations regarding the amount of permits per province in favor of the same person.

23.144 Section 28 and the subsequent sections specifically describe the procedure to follow once the permits have been granted, this consists in the terms’ extension according to the amount of permits through which exploration is done, these terms may be extended or released. It also includes the term in which royalties should be paid.

23.145 Article 4 included a section to be applied when surveys are made by an aircraft and the procedure to be followed in these cases.

23.146 The other dispositions include regulations which concern the mining register and use of coordinates in the declarations of discovery, vacant mines resulting from the lack of payment of mining royalties and automatic erasures from registers of vacant and lapsed mines.

23.147 The extension of the mining lease and usufruct term is also regulated through this amendment. Therefore mines may be leased with the limitations expressed and in case of usufruct it must comprise the entire mine.

23.148 This Law also contains an appendix which regulates the exploration and exploitation of nuclear minerals and grants the Federal Government the right of first refusal to purchase the nuclear minerals, their concentrates and derivatives produced in Argentina. It also establishes that the export of these products requires prior National Federal approval.

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G. ENVIRONMENTAL PROTECTION FOR THE MINING INDUSTRY

23.149 See Chapter 26.

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