By Shane Romig 
 

MAR DEL PLATA, Argentina--Santa Cruz Province has unsettled investors with legislation that would hike mining taxes and force mining companies to cede a stake in their projects to the provincial government, according to the president of Argentina's mining chamber.

"The laws need to be coherent and foreseeable...They can't be changed in such an absurd way," Martin Dedeu said in an interview.

The bill currently before the Santa Cruz legislature would see provincial mining company Fomicruz take a 10% equity stake in current and future mines without compensation, and increase royalties to 8% of the value of mineral output.

While it's not clear if the bill will be passed, the cash-strapped province's repeated attempts to secure more tax revenue out of the mining industry threaten a decade-long investment boom that has made Santa Cruz home to the bulk of Argentina's gold mines.

Companies with Santa Cruz operations include AngloGold Ashanti Ltd. (AU, ANG.JO), McEwen Mining Inc. (MUX, MUX.T), Hochschild Mining PLC (HOC.LN), Mirasol Resources Ltd. (MRZLF, MRZ.V), Minera IRL Ltd. (MIRL.LN, IRL.T) and Pan American Silver Corp. (PAAS, PAA.T).

"Investment will go to other provinces, other countries or other parts of the world," Mr. Dedeu said.

Critics say the legislation, known as "Fomicruz to 10%," clashes with the 30 years of fiscal stability that Argentina's constitution grants mining projects. It also signals to investors that provincial governments won't shy away from changing the rules to plug budget deficits.

The mining industry has proposed alternative legislation that would tax operating income and provide for higher taxes when surging metals prices lead to windfall profits for miners.

"We're thinking about ways to get out of this uncomfortable situation," Mr. Dedeu said.

Argentina's miners are already wary after the Supreme Court in July reversed a lower-court ruling that suspended the implementation of a glacier-protection law in mining-friendly San Juan Province. The law threatens to derail several multibillion-dollar mining projects there.

The high court still hasn't ruled on the constitutionality of the law, which limits economic activity in the areas surrounding glaciers.

The mining industry expects the law to be declared unconstitutional as it infringes on the rights of the provinces to manage their environment and natural resources, Mr. Dedeu said.

The government has started the long-delayed nationwide inventory of glacial ice to determine which areas will be made off limits to mining.

The Supreme Court ruling means that projects such as Barrick Gold Corp.'s (ABX, ABX.T) $5 billion Pascua-Lama mine will have to conduct an inventory of nearby glacial ice before proceeding with construction.

Currency controls that led some mining companies to suspend mineral shipments earlier this year have been loosened and exports are flowing again, Mr. Dedeu said.

In June, mining exports virtually ground to a halt after the government imposed new rules making mining companies exchange their export revenues for Argentine pesos on the local foreign exchange market within 15 days of an export sale. Many companies said it was impossible to comply, as they often don't receive payment until months after shipping the minerals.

The administration of President Cristina Kirchner has tried to bolster the country's international reserves by blocking imports and speeding up the repatriation of export sales.

However, the government relented when it became clear that exports were plunging and extended the repatriation period for many companies to about 120 days.

-Write to Shane Romig at shane.romig@dowjones.com

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