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A traffic sign is seen near Barrick Gold Corp.'s Veladero gold mine in Argentina. Argentine government economic policies and capital restrictions are prompting Canadian mining firms to rethink projects in the Andean country.

Pav Jordan/Reuters

Efforts by Argentina to fine-tune its economy are forcing miners to reassess investment plans in the Andean country that is home to massive gold, copper and other resource deposits.

Argentina, Latin America's third-largest economy, has moved aggressively in recent months to stem capital outflows and bolster the market with measures including forced repatriation of export revenue on local markets and requirements for companies to source equipment locally.

The measures could hinder access to cash flow in one of the world's most capital-intensive industries, and cause operational delays in terms of getting equipment to remote sites in a timely manner.

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Mid-tier gold and silver miner McEwen Mining Inc. cautioned investors Tuesday that measures taken by Argentina in recent months to control capital flight could end up threatening its cash flow and have forced it to re-think how to fund ambitious growth plans, including the development of the El Gallo project in Mexico.

"I just thought it was prudent to alert all of our shareholders to the fact that what we had projected and felt very good about in terms of the ability to internally fund was now in question," said company chairman and chief executive officer Rob McEwen.

McEwen Mining listed in Toronto and New York earlier this year, the culmination of a plan to combine two other McEwen-led companies, one that was focused on Mexico and the United States, and another focused on Argentina. The latter included a 49-per-cent stake in an Argentine mine, already generating cash.

"To develop El Gallo and build the company without Argentina, we would have to go back to the market and look for about $150-million. I don't think that's going to be the case, but that is a worst case and you need to know that," Mr. McEwen said, adding that he was surprised by Argentina's stance.

He said the company would also intensify efforts to find a buyer or partner for the Los Azules copper project in Argentina.

Pan American Silver, the Vancouver-based silver company targeting massive growth in coming years, said last week it would stagger investments in Argentina until the investment climate clears. Chief executive officer Geoff Burns said he was confident that would happen with time.

"I am confident the environment will improve, I don't know when, but I know it will improve," Mr. Burns said.

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Argentine President Cristina Fernandez has been tweaking the country's economy since she came to office, and pledged to deepen those efforts when she won a second term in a landslide in October.

Since then she has ordered a series of measures, shocking investors in April with the expropriation of partially state-owned energy company YPF SA from Spain's Repsol YPF.

Few in the market expect miners to suffer the same fate as Repsol.

"I think the YPF is a reminder to everybody else that your assets are not 100-per-cent safe," said Alberto Ramos, co-head of Latin America research for Goldman Sachs in New York, who has fielded a lot of calls in recent weeks on the Argentine policy moves.

"Other companies now have a strong incentive to follow the lead presented by the government or their assets may be at risk," he said.

Argentine policies will affect miners to varying degrees, with the smaller, earlier-stage companies in the country most exposed because they cannot mitigate effects through operations in other geographies.

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Larger miners like Barrick Gold Corp., which owns the Veladero gold mine in northern Argentina as well as Pascua-Lama, the neighbouring gold project that straddles the Andes mountains with Chile, are at less risk because they can negotiate better terms with government and because they already have long histories in the country.

"We've had a local supplier development program in place for over a decade, with more than 900 Argentine companies supplying goods and services to Veladero and Pascua-Lama," said Barrick spokesman Andy Lloyd. "More recently, the company has also initiated a program to substitute imports with locally available alternatives, with good results to date."

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