GEOPOLITICAL RISK GOLD CRUDE OIL

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' A Town's Protests Threaten Argentina's Mining Future

By LESLIE MOORE

ESQUEL, Argentina
JUST a month ago, investors were buzzing about gold buried in the hills and dells of Patagonia, and government officials were predicting that surging gold prices and Argentina's cheap peso would stoke a boom in mining and attract billions of dollars.

But after voters in this mountain town turned against a $720 million gold and silver mine to be built by Meridian Gold, a mining company based in Reno, Nev., investors are thinking twice about mining in Argentina.

"The worry is that antimining forces will spread," said José Luis Andrich, who publishes a mining newspaper called Prensa Geo Minera. "This puts at risk all future mining investment in Argentina."

Instead of tending to new exploration, "we'll have to row against antimining currents," said Víctor Bonfils, who supervises Argentina mining properties at Rio Tinto, a mining conglomerate based in London.

In the referendum, on March 23, a broad coalition of residents here in Esquel (pronounced Ess-KELL) voted against Meridian's project, called El Desquite (Des-KEY-teh), which would be about six miles from town. Opponents said the mine could pollute the water supply in this tourist town at the base of the Andes, 1,200 miles southwest of Buenos Aires and near Los Alerces National Park. Others said Argentina's mineral wealth should be harnessed by Argentines.

Streets and walls in this community of 29,000 are scrawled with antimining graffiti, and armed police have guarded Meridian's downtown office. The company said a Molotov cocktail was hurled at a car owned by a driller. Both mine opponents and advocates say they have received threatening phone calls.

The referendum holds no legal sway, but the drubbing of Desquite has shaken the political establishment. After the vote, Gov. José Luis Lizurume of Chubut Province, which includes Esquel, asked Meridian to halt work on the mine until the company completed an environmental study; provincial authorities had already approved the project. Many people here want Meridian to abandon the project and leave town.

Meridian has stopped construction and is studying how the project may affect local water supplies. After opposition swelled, the company volunteered to establish a fund to cover incidental environmental harm.

Meridian arrived here last year after buying a $320 million, 543-acre site, which it estimates contains three million ounces of gold. The company said it planned to spend $400 million more during the mine's operations, paying monthly wages of about 900 Argentine pesos, or about $308, well above a poverty-level salary, to 400 people.

Mining analysts fault Meridian for bungling relations with the town. "It was as if everything Meridian said was said on purpose so people would get angry," said María Cecilia Ubaldon, a state-employed geologist and Esquel resident who favors the mine.

Gustavo Manuel Macayo, who runs a family-owned bookstore, said: "People didn't oppose the mine — they were indifferent. But from the start, Meridian imposed the project on Esquel. If the mine is built, it will provoke a war here."

Darcy Marud, Meridian's exploration manager, said an "anti-gringo" backlash had fed a firestorm of protest. "People feel damaged by what happened to the Argentine economy," he said. "They see some of their problems as forced upon them by the U.S. and other gringo powers."

The vote against the American company came four days after the start of the war in Iraq and amid protests against the United States Embassy in Buenos Aires. Local radio stations have broadcast messages saying "we're for peace and against the war" and local newspapers have published photographs of war casualties on their front pages.

"It was as if those who voted against the project saw it as a town's triumph of anti-imperialism," said Elina Gil, a Meridian geologist.

Many Argentines are still bitter about the government's sale of oil, natural gas and telecommunications assets in the last decade. They say the sales helped tip the country into turmoil.

Argentina's currency lost nearly 70 percent of its value after the devaluation in 2002, and the economy shrank 12 percent for the year. The economy is rebounding — industrial production has increased for two quarters and exports have surged — but Argentina still has an unemployment rate of 22 percent.


THE Esquel debacle could reverse a growing euphoria about Argentina's gold prospects. Small armies of geologists are digging for gold across Patagonia after recent discoveries, and a flurry of deals have closed since the peso stopped trading one-to-one with the dollar in January 2002.

Buenaventura Mining, a Peruvian company, formed a joint-venture deal with Yamana Resources Inc. of Canada last year to scout for gold and silver. "It was absolutely the peso devaluation that led to this deal," said Raúl Bonfada, vice president for Yamana's Argentina operations. The devaluation lowers labor and other costs.

But the Esquel referendum has made many companies leery, said Patricio Jones, an exploration geologist. "There's a tremendous fear this will affect other provinces," said Mr. Jones, president of Desarrollo de Prospectos Mineros, which is scouting for gold in Santa Cruz Province in Patagonia.

Patagonia Gold, a company partly owned by HPD Exploration of London, has stopped prospecting in Chubut Province, said a vice president, Gonzalo Tanoira. "It's no use exploring if you can't turn the land into a mine," he said. '

http://www.nytimes.com/2003/04/20/business/yourmoney/20GOLD.html