Xstrata weighs political risk in Argentina before deciding on its $5.5 billion copper projects

Xstrata Plc (LON:XTA), the fourth largest copper producer in the world, said it is analyzing political risks in Argentina, where the company has two major copper projects on the go with an estimated investment of $5.5 billion.

Last month, Argentina nationalized the country’s largest oil and gas producer, YPF SA, arguing that the expropriation was necessary to lift output after years of falling production while in the hands of the former controlling shareholder Spain’s Repsol YPF SA.

“When corporate interests are not aligned with national interests, when companies are concerned only with profits, that’s when economies fail, which is what happened globally in 2008 and what happened to Argentina in 2001,” said President Cristina Kirchner to local media.

Argentina also gave Xstrata and other mining companies, such as Vale SA (NYSE:VALE) and Barrick Gold Corp. (TSX & NYSE: ABX) a deadline to present plans to replace imports with goods manufactured in the country as the South American nation seeks to enhance national industries. The miners have until the end of May to respond to the government’s request.

According to La Tercera newspaper, Xstrata’s CEO Charlie Sartain told investors during a mining conference in Sydney, Australia, that the company continues with its business activities and with the evaluation of current and potential projects in Argentina, “but obviously monitoring what is happening in the country.”

Xstrata is assessing, in particular, two copper projects in Argentina: El Pachón, with an estimated cost of $4 billion, and the Agua Rica project, which could cost about $1.5 billion.

“Work at Agua Rica and El Pachón is progressing, but we need to consider the political risk in Argentina,” Sartain said. “Over 70% of our supplies come from local companies, which actually puts us in a better place in relation to other companies with presence in Argentina.”

The company, which currently operates the Alumbrera copper mine in the country, plans to boost copper production by over 60% from existing mines and projects, to reach 1.5 million tonnes by 2015.

Argentina’s credit outlook = Negative

Earlier this month Standard and Poor revised Argentina’s credit outlook to Negative from Stable last week.

“In our view, the recent government policies could increase risks to Argentina’s macroeconomic framework, squeeze its external liquidity, and hinder medium-term growth prospects,” wrote S&P in a press release.

Some of the country’s biggest foreign investors are not impressed by the move. Business Insider has even published an article entitled “Here’s How Cristina Fernandez Is Destroying Argentina’s Economy,” in which says the expropriation of Repsol’s stake in YPF is “just one in a string of many policy actions that the Argentine president has been criticized for.”

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