Mining in Mexico

Mining industry

What is the nature and importance of the mining industry in your country?

According to the information reported by the Mexican National Institute of Statistics and Geography, in 2016, the mining industry represented 3.3 per cent of Mexico’s GDP. Furthermore, it is one of the country’s main economic driving forces. Its importance lies in the set of benefits arising from this activity, such as employment generation in areas where few industries operate, foreign investment, growth of its value chain and in contributing to the nation’s cultural development.

Further its GDP contribution, mining’s social benefits spreads to 24 out of Mexico’s 32 states, making Mexico the third destination for foreign investment in mineral exploration in Latin America, and the sixth worldwide.

What are the target minerals?

The Mexican Geological Service’s (MGS) 2017 report on mining industry’s status that year ranks the target minerals as gold (16.9 per cent), basalt (14.5 per cent), quarried aggregate (14.4 per cent), silver (10.5 per cent), lead (1.9 per cent), copper (15.0 per cent), coal (1.7 per cent), zinc (6.4 per cent) and limestone (5.7 per cent).

Globally, Mexico is ranked in the first 14 positions of the world’s top producers of 22 major minerals, such as silver, gold, copper, zinc, lead and coal, and stands as the largest producer of silver and the eighth-largest producer of gold.

During 2017, there were significant increases in the production of molybdenum, zinc, manganese, lead, copper, cadmium, selenium, silver, bismuth and gold. There was also a significant increase in the production of barite, bentonite, celestite, fluorite, wollastonite, magnesium sulfate, coal and gypsum, among other certain minerals.

Notwithstanding the foregoing, the volume of gold produced in Mexico decreased 13.6 per cent and silver by 2.7 per cent with respect to the previous year.

Which regions are most active?

According to the 2017 MGS report, the most active regions in the mining industry for target minerals are as follows:

• gold - Sonora (33 per cent), Zacatecas (17.4 per cent), Chihuahua (16.5 per cent) and others (33.8 per cent);
• silver - Zacatecas (42.0 per cent), Chihuahua (17.0 per cent), Durango (11.7 per cent), and others (29.26 per cent);
• lead - Zacatecas (63.7 per cent), Chihuahua (17.6 per cent), Durango (11.2 per cent) and others (13.9 per cent);
• copper - Sonora (84.1 per cent), Zacatecas (4.9 per cent), San Luis Potosí (3.9 per cent), and others (7.1 per cent);
• zinc - Zacatecas (48.7 per cent) and others (51.3 per cent); and
• iron - Coahuila (32.0 per cent), Colima (26.1 per cent), Michoacán 13.8 per cent and others (28.1 per cent).

Legal and regulatory structure

Is the legal system civil or common law-based?

The Mexican legal system is civil law-based.

How is the mining industry regulated?

The federal government regulates the mining industry through the Ministry of Economy; particularly, through the Mexican Bureau of Mines (MBM).

Other government bodies administering the regulatory regime relating to mining activities are:

• the Environmental Ministry;
• the Waters Commission;
• the Army Ministry;
• the Labour Ministry;
• the local public registries of real estate properties; and
• the Agrarian Registry.

What are the principal laws that regulate the mining industry? What are the principal regulatory bodies that administer those laws? Were there any major amendments in the past year?

The laws regulating the mining industry are the Mexican Political Constitution and the Mexican Mining Law, its Mining Regulation and the Mining Handbook Services (jointly, the Mining Law).

Additionally, other laws govern ancillary activities to mining activities:

• the Federal Environmental Law;
• the Federal Waters Law;
• the Federal Agrarian Law (communities and social organisations lands’ tenure);
• the Federal Explosives and Weapons Law (for the storage, transportation and use of explosives);
• the Federal Labour Law (this law governs labour relationships and safety at the mines facilities);
• local Civil Codes (applicable to private lands’ tenure);
• federal and local tax laws, Federal Commercial Code;
• municipal regulations for zoning land use; and
• Federal Environmental Norms.

The principal regulatory body in Mexico that administers the Mining Law is the MBM; however, other government bodies administer the regulatory regimes relating to mining activities (see question 5).

There have been no major amendments in the past year to the aforementioned laws.

What classification system does the mining industry use for reporting mineral resources and mineral reserves?

Mexico follows international standards in this regard. Currently, the classification system used by Mexico is similar to that contained in the National Instrument 43-101 of Canada.

In order to report mineral resources, the following classification is applied:

• inferred mineral resource;
• indicated mineral resource; and
• measured mineral resource.

Furthermore, reports on mineral reserves are classified as follows:

• probable mineral reserve; and
• proved mineral reserve.

Mining rights and title

To what extent does the state control mining rights in your jurisdiction? Can those rights be granted to private parties and to what extent will they have title to minerals in the ground? Are there large areas where the mining rights are held privately or which belong to the owner of the surface rights? Is there a separate legal regime or process for third parties to obtain mining rights in those areas?

Mexico, as a nation, is the direct owner of all mineral deposits within the national territory as provided in the Constitution. The exploration and exploitation of such mineral resources are concessional to private parties pursuant to concessions granted by the federal government.

The MBM is the agency of the federal government in charge of granting mining concessions and supervising the mining concessionaries to comply with the Mining Law while holding mining concessions, while conducting mining activities and while granting rights to third parties over the mining concessions for them to conduct mining activities, which are also subjected to the Mining Law.

Mining concessions grant their holders the right to explore and exploit all minerals and substances specified in the Mining Law, except for those reserved to be exploited by the Mexican government, such as gas derived from the exploitation of mineral coal, oil and solid, liquid or gaseous hydrocarbons.

Mining concessions do not grant the ownership or possession rights over the surface where they are located. When the concession holder does not have surface rights to access the lands where the mining concession is located, it can directly negotiate the use of land for mining activities with the owners of the surface rights. In the case that no agreements are reached for the use of the surface, mining concessionaries are entitled to start a procedure contemplated in the Mining Law to obtain the following:

• the expropriation;
• a temporary occupation; or
• an easement.

What information and data are publicly available to private parties that wish to engage in exploration and other mining activities? Is there an agency which collects mineral assessment reports from private parties? Must private parties file mineral assessment reports? Does the agency or the government conduct geoscience surveys, which become part of the database? Is the database available online?

Legal information about ownership, agreements, liens and encumbrances of mining concessions is available at the Public Registry of Mining (PRM).

General mining information, including maps, mining cartography, geological and geophysical reports, information of ore deposits, technical data, tectonic and volcanic information, satellite images, hydrographic information, natural protected areas, general statistics on production, etc, for the mining districts (areas in which the Mexican territory is divided by the MBM) for mining purposes is available at the MGS through the Geoinfomex System. Official Mexican mining cartography is also publicly available at the subdirectories of the MBM in the corresponding states.

As part of their obligations before the MBM, mining concessions’ title holders shall annually submit work assessment reports containing economical information on investments incurred in their mining concessions, as well as statistical reports. Information submitted is used to create statistics on mining activities in the Mexican territory, and is used to generate public and private databases.

The MGS also conducts exploration activities in areas allotted to them by the MBM. Its results are also publicly available.

What mining rights may private parties acquire? How are these acquired? What obligations does the rights holder have? If exploration or reconnaissance licences are granted, does such tenure give the holder an automatic or preferential right to acquire a mining licence? What are the requirements to convert to a mining licence?

The most common way for private parties to acquire mining concessions is by staking them.

Private parties may also acquire mining concessions from the MGS. The MGS offers mining concessions to private parties through public auctions, with data derived from its own surveys and exploration activities.

Once the MBM issues the mining concessions to private parties, after complying with certain technical and legal requirements, the rights granted to their holders are freely assignable. All Mexican private individuals and Mexican entities registered before the PRM are legally capable of holding mining concessions or rights deriving therefrom. Mexican entities are those incorporated in accordance with Mexican laws. Foreign investment may participate in up to 100 per cent of the capital of a Mexican entity.

In accordance with the Mining Law, mining concessions allow their title holders to conduct exploration and exploitation works.

Process to acquire mining concessions through staking

Mining concessions are granted over free areas to the first petitioner in time of a mining claim. The location of a mining concession is determined by a fixed base point of the land that is named the ‘starting point’, which is linked to the claim’s perimeter.

The first step to acquire a mining concession through a staking is to submit an application for a mining concession.

The applications for mining concessions must be submitted before the corresponding MBM’s agency depending on the location of the claim to be staked.

A mining expert shall conduct due diligence, considering the following:

• a review of the official Mexican mining cartography in the subdirectories of the MBM in the states (see question 9);
• a recognition of the field;
• a definition of the perimeter;
• the field works; and
• a satellite GPS positioning in order to obtain the coordinates of the starting point of the claim.

If the due-diligence report complies with all applicable requirements, the MBM must issue the relevant title document within the following 15 days.

Energy sector

As a result of the Mexican energy reform enacted in August 2014, the MBM, before issuing a mining concession, is required to consult the Ministry of Energy (SENER) in order to verify that the area requested for a mining concession is not considered an area of interest for SENER to conduct oil, gas or power generation activities.

Since oil, gas and power generation activities are now considered a priority in Mexico, SENER may oppose the issuance of the relevant mining concession or may recommend the granting of it, excluding the area where the priority activities may be conducted, to the MBM.

The Mining Law imposes, among others, the following main obligations to title holders of mining concessions:

• exploration or exploitation activities must start within 90 days of the concession being granted and recorded before the PRM, with the obligation to conduct and evidence minimum investments in the area under the mining concession or the extraction of economically useful minerals in the amounts provided under the Mining Law and provide the relevant work assessment reports showing the foregoing on an annual basis;
• pay government mining concession’s fees, for which the amount payable depends on the following:
• the date on which the mining concession was registered before the PRM (the older the mining concession is, the higher the government fees are); and
• the surface covered by the mining concession (number of hectares) (government mining fees);
• comply with applicable legislation regarding technical, safety and environmental standards;
• provide the Ministry of Economy with statistical, technical and accounting reports in terms of the Mining Law;
• allow inspection visits from the Ministry of Economy; and
• inform SENER in the case of finding any hydrocarbons where the mining concession is located.

There are no reconnaissance or other kind of mineral licences, only mining concessions, as described above.

What is the regime for the renewal and transfer of mineral licences?

Mining concessions are granted for a term of 50 years from the date of their registration in the PRM, and are subject to renewal for an additional term of 50 years if:

• the holder does not incur in a cause of cancellation of the concession by any act or omission so penalised by the Mining Law; and
• the holder requests the extension within five years prior to the expiry date.

The transfer or assignment of concessions or rights thereunder may be freely made to any party having legal capacity. The transfer of mining concessions or rights thereunder shall produce legal effects against third parties, the Ministry of Economy and other government authorities upon their registration with the PRM. Owners of mining concessions shall be only recognised as so, if they are recorded as concessionaires with the PRM.

A transfer or assignment will be null and void when made to an unqualified person under the Mining Law. However, the Mining Law provides that a transfer to an unqualified person will not be null and void when it occurs pursuant to a court resolution ordering the debtor (mining concessionaire) payment of the debt, and provided further that the rights are then transferred to a capable party within 365 calendar days after the date of the issuance of the court resolution.

Government consent is not required in order to transfer a mining concession, or in the event of change of control of its holder or its parent.

What is the typical duration of mining rights?

As mentioned in question 11, mining concessions are granted for a term of 50 years from the date of their registration in the PRM, and are subject to renewal for an additional term of 50 years if the holder is not subject to cancellation of the concession as the result of any act or omission so penalised by the Mining Law and if the holder requests the extension within five years prior to the expiry date.

Mining concessions can be cancelled before expiration in the following cases:

• for not paying of government mining fees as provided in the Mining Law and the Federal Duties Law as described in question 10;
• for not filing the work assessment reports evidencing minimum investments incurred in the mining concessions as described in question 10;
• for dropping the mining concession through the corresponding administrative proceeding;
• for exploiting or extracting minerals not permitted by the Mining Law;
• if the mining concession was acquired from the MGS as mentioned in question 16, for not paying the corresponding royalties to the MGS;
• for conducting mining activities without the relevant authorisations and permits necessary to conduct them; and
• if the title holders lose their capacity to own mining concessions (eg, if a company changes its Mexican nationality, among others).

Is there any distinction in law or practice between the mining rights that may be acquired by domestic parties and those that may be acquired by foreign parties?

Foreign investment is allowed up to 100 per cent in Mexican companies that can acquire and work mining concessions. In Mexico, mining concessions may only be granted to Mexican individuals, Mexican companies (companies incorporated under the laws of Mexico and with corporate domicile within the country), land granted by the government to a group of individuals for agricultural and ranching purposes, agrarian communities, townships and aboriginal communities. In the case of companies, they must be incorporated in accordance with Mexican laws, and their corporate purpose shall include the exploration or exploitation of minerals and substances subject to the Mining Law. Since a Mexican company is a company incorporated under the laws of Mexico as mentioned before, there are no distinctions on the rights to be acquired by a Mexican company with 100 per cent Mexican investment in its capital and a Mexican company with 100 per cent foreign investment in its capital.

How are mining rights protected? Are foreign arbitration awards in respect of domestic mining disputes freely enforceable in your jurisdiction?

Mining rights are protected through the applicable legislation and the applicable administrative and judicial authorities; therefore, Mexican authorities are in charge of the resolution of controversies that may arise from mining operation.

In accordance with certain provisions of the Federal Code of Civil Proceedings (which provisions are applicable to mining matters), in the event of a dispute between the parties to an agreement involving mining concessions, an arbitration award cannot be homologated (executed) in Mexico since mining matters are from the exclusive competence of Federal Mexican courts.

What types of surface rights may mining rights holders request and acquire? How are these rights acquired? Can surface rights holders oppose these requests?

The mining rights covered under a concession do not include direct ownership or possession rights over the surface where a mining concession is located.

The use of the lands may be obtained through direct ownership or possession of lands (eg, lease agreements, temporary occupation agreements, easements agreements or expropriation through an administrative proceeding).

The Mexican Constitution recognises the following surface rights:

• social land granted to aborigines;
• social land granted to a group of individuals or communities;
• national land;
• federal areas, beaches and river beds; and
• private property.

The Agrarian Law governs the property rights mentioned in the first three points above. These lands can be legally occupied or acquired by private parties as provided in the Agrarian Law.

A concession holder may acquire all property rights mentioned. Typically, the consideration payable for the lands is agreed between the parties. The Mining Law provides the rules under which a mining concession holder may require the expropriation or the temporary occupation of the land when it does not reach an agreement with the landowner. In the case of expropriation by the Mexican government, the consideration is payable based on an appraisal made by an agency of the Mexican government.

The MBM may revoke the temporary occupation resolved by the agreement or to revert the ownership of the surface expropriated to its former owner in the following cases:

• if the mining works to develop are not started within the 365 days following the issuance of the relevant resolution granting the temporary occupation or resolving the expropriation of the surface where the mining concessions are located;
• if the mining works are suspended for a year or more;
• if the surface granted is destined for a use other than mining;
• if the concessions holders do not pay the consideration determined in the relevant resolution of temporary occupation or expropriation;
• if the mining concession is nullified or cancelled; and
• by a court resolution.

Does the government or do state agencies have the right to participate in mining projects? Is there a local listing requirement for the project company?

Beside the exploration activities conducted by private parties, exploration of national territory for the purpose of identifying and quantifying the nation’s potential mineral resources is carried out by the MGS, through mining allotments, which are issued to this entity by the Ministry of Economy, the registration whereof is published in the federal Official Gazette. No other state agencies conduct mining activities.

Once the MGS explores the relevant allotments, they are sold to private parties by way of public auctions. Mining concessionaires must pay royalties to the MGS as part of the consideration payable for the exploration activities and discoveries made by the MGS.

Are there provisions in law dealing with government expropriation of licences? What are the compensation provisions?

In the case of mining concessions, certain government authorities (ie, Environmental Ministry, Communications and Transport Ministry, Agrarian Ministry and others), because of an event of national security or public interest, may decide to revert the concessions granted to private parties (the Reversion Decision). The Reversion Decision decree shall include the general rules to determine the consideration to be paid to the concession holder and the investments made in the concession. The depreciation of the expropriated assets, equipment and facilities attached to the mining concession shall be considered in order to calculate such consideration, through the payment of a fair market value compensation.

If the affected party agrees with the amount of consideration payable, it shall be final. If not, it has the right to file a claim before a Mexican court, which will take the final decision.

In accordance with the North America Free Trade Agreement (NAFTA), Mexico may only expropriate property in case of public interest and on a non-discriminatory basis. In such events, expropriations will require a fair market value compensation, including accrued interest. In the event of any violations of NAFTA and international laws, investors have the right to international arbitration.

Are any areas designated as protected areas within your jurisdiction and which are off-limits or specially regulated?

The federal government has issued specific decrees for the incorporation of natural protected areas. The federal government has established 181 natural protected areas throughout the country. Each natural protected area has zones where mining activities are forbidden or highly regulated; these limitations are applicable to private and public property within those areas.

In addition to the foregoing, there are certain areas protected by the National Anthropology and History Institute (INAH) where there are archaeological vestiges or historical findings. Each area protected by the INAH has zones where mining activities are forbidden or highly regulated. In the event that while conducting mining works within a mining concession, the mining concession holder or who is operating such mining concession finds archaeological vestiges or historical findings, it shall provide notice of such findings to the INAH. The INAH may determine if such areas shall be protected by it as mentioned above. In the event that those areas have a strong archaeological or historical potential, the INAH may request to the Mexican government the expropriation of such areas. See question 10 in relation to the areas where certain activities are conducted related to oil, electricity and power generation activities (priority activities). As mentioned in question 10, SENER may oppose to the granting of concessions within those areas or may recommend the granting of it, excluding the area where the priority activities are or may be conducted.

Duties, royalties and taxes

What duties, royalties and taxes are payable by private parties carrying on mining activities? Are these revenue-based or profit-based?

Like any other productive activity, mining is subject to income tax and the commercialisation of the minerals are subject to value added tax payable by the purchaser except when minerals are exported, in which case the value added tax is zero. Furthermore, in addition to government mining fees, all mining concessions are subject to the payment of certain fees to the Mexican government, which are based on production.

In accordance with the Federal Duties Law (Duties Law) holders of mining concessions shall pay the following:

• 7.5 per cent of the income from the sale of minerals extracted from a mining concession minus the authorised deductions, on an annual basis (the government royalty); and
• in the case of commercialisation of gold, silver or platinum, concessionaires shall pay an additional 0.5 per cent of the income for the sale of such minerals on an annual basis (the extraordinary government royalty).

Finally, holders of mining concessions that do not perform and verify exploration or exploitation works for two consecutive years, during the first 11 years of seniority counted from their issuance, shall pay on a biannual basis, an additional 50 per cent of the corresponding government mining fees in accordance with the quotas stated in the Duties Law or 100 per cent if the concession’s seniority is over 11 years.

What tax advantages and incentives are available to private parties carrying on mining activities?

Mexican tax legislation does not grant specific tax incentives to mining companies. However, there are other general tax incentives that can be taken, such as the immediate deduction of some fixed assets, tax credit of the special tax over services and production related to diesel consumption and credit of the fees paid over the use of the mining concession.

Does any legislation provide for tax stabilisation or are there tax stabilisation agreements in force?

Unfortunately, Mexican tax legislation does not contemplate the tax stability agreement concept, which could support the mining industry in the early years of operation.

The only possibility under Mexican legislation is to negotiate, upfront, the values to be used in transactions between related parties. The period that could be negotiated is up to five years and it is commonly known as an advance price agreement. This negotiation is basically from a transfer pricing perspective.

Is the government entitled to a carried interest, or a free carried interest in mining projects?

Except for the royalties mentioned in question 16, in accordance with applicable Mexican legislation the government is not entitled to a carried interest in mining projects.

Are there any transfer taxes or capital gains imposed regarding the transfer of licences?

The transfer of mining concessions is subject to taxation in connection with income tax (considering the gain triggered in the sale, similar to a capital gain) and value added tax (similar to a transfer tax) at a rate of 16 per cent.

Is there any distinction between the duties, royalties and taxes payable by domestic parties and those payable by foreign parties?

Since exploration and exploitation activities conducted by foreign investors in Mexico must be made through Mexican companies, and these companies are considered for all legal effects as Mexican residents, there are no distinctions for duties, royal-ties and taxes payable by Mexican companies with 100 per cent Mexican investment and Mexican companies with 100 per cent foreign investment (see question 10).

Business structures

What are the principal business structures used by private parties carrying on mining activities?

The most common business structures used are corporations and limited liability corporations, regulated by the Mexican Corporations Law.

Is there a requirement that a local entity be a party to the transaction?

As mentioned in question 10, in order for a party to own mining concessions and rights deriving therefrom, it shall be an entity incorporated under Mexican laws and duly registered before the PRM, that those entities are the only capable to participate in transactions over mining concessions and rights thereto; however, note that foreign companies can own royalties over mining concessions and participate in transactions involving them, in addition to the foregoing, financing institutions, either Mexican or foreign, as a result of executing guaranties such as mortgages or pledges over mining concessions, can own the said mining concession for a period of time (365 days). After such a period, those financing institutions shall assign the relevant mining concessions or rights thereto to a Mexican entity or a Mexican individual capable to hold them.

Are there jurisdictions with favourable bilateral investment treaties or tax treaties with your jurisdiction through which foreign entities will commonly structure their operations in your jurisdiction?

Mexico has entered into several bilateral agreements with foreign countries, including, among others, the following free trade agreements:

• NAFTA with the United States and Canada;
• the G3 with Colombia and Venezuela;
• the Trans-Pacific Partnership with Australia, Brunei, Canada, Japan, Malaysia, New Zealand, Singapore, the United States and Vietnam; and
• other commercial agreements with Chile, Costa Rica, the European Union and Israel, etc.

Additionally, the Mexican government has subscribed several bilateral agreements, for the avoidance of double taxation, with the following countries, among others - Argentina, Australia, Austria, Bahrain, Barbados, Brazil, Canada, China, Colombia, the Czech Republic, the United Arab Emirates, Germany, Greece, Hungary, Hong Kong, India, Indonesia, Iceland, Italy, Kuwait, Lithuania, Luxembourg, Malta, New Zealand, Panama, the Netherlands, Peru, Poland, Qatar, the United Kingdom, the United States, Russia, South Africa, Switzerland, Turkey, Ukraine and Uruguay.

All international commercial treaties subscribed to by Mexico include a chapter concerning protecting investment from unlawful acts of authority (ie, Chapter 11 of NAFTA).

Mexico has followed Organisation for Economic Co-operation and Development rules in the negotiation of all tax treaties and even when there could be some minor differences between the tax treaties, in general terms, the conditions agreed are similar.

Notwithstanding the above, it is fairly common to have finance agreements or royalty agreements in place and usually the payments are made to countries in which the tax treatment for such payments is more favourable. Owing to the terms of the Mexican legislation, these payments are usually made to residents of countries with tax treaties with Mexico.

Financing

What are the principal sources of financing available to private parties carrying on mining activities? What role does the domestic public securities market play in financing the mining industry?

The principal sources of financing mining activities carried out by Mexican companies, subsidiaries of foreign companies, are the stock exchange institutions of their countries, with the Toronto stock exchange and the New York stock exchange being the most active for the parent companies of Mexican subsidiaries. Once the money is raised from the applicable stock exchange, the resources are sent to the Mexican subsidiaries, either as capital contributions or as loans. Also, foreign private banks lend money to foreign parent companies or directly to the Mexican subsidiaries. During the past 10 years, successful streaming, royalties and off-take agreements have been structured to finance mining projects in Mexico.

Additionally, a Government Mining Trust Fund (FIFOMI) and the Mexican Government Mining Bank, have provided funds to private parties for the development of mining activities. FIFOMI grants the same treatment to Mexican companies with 100 per cent Mexican investment as to Mexican companies with 100 per cent foreign investment.

The Mexican stock exchange hosts mining companies but only with production projects and a number of valuable assets. There are around 40 Mexican and foreign mining companies whose securities are listed on the Mexican stock exchange.

Does the government, its agencies or major pension funds provide direct financing to mining projects?

FIFOMI and the Mexican Government Mining Bank provide funds to private parties for the development of mining activities (see question 28).

Please describe the regime for taking security over mining interests.

Lenders usually request the following guarantees:

• over 100 per cent of the shares of the Mexican companies that own the mining concessions, through pledge agreements over the shares;
• over mining concessions, usually through non-possessory pledges or mortgages duly registered at the PRM;
• over owned lands and real estate, through mortgages duly registered at the local Public Registry of Real Estate; and
• over machinery, equipment and other moveable assets through non-possessory pledges duly registered at the Movable Assets Registry.

To be effective before third parties, these guarantees must be granted before a Mexican public notary to be able to register them with the corresponding public registry:

• mining concessions mortgages or non-possessory pledges with the PRM;
• all movable assets, including machinery and equipment, with the Movable Assets Guarantees Registry (federal jurisdiction); and
• lands and real estate with the local public registry of real estate (local jurisdiction).

It is also possible to grant a pledge over the minerals extracted from the mining concessions.

Restrictions

What restrictions are imposed on the importation of machinery and equipment or services required in connection with exploration and extraction?

There are no restrictions for the exportation or the importation of machinery and equipment required in connection with exploration or exploitation activities.

Which standard conditions and agreements covering equipment supplies are used in your jurisdiction?

Mexico does not use standard conditions for agreements covering equipment supplies. Most common commercial agreements used are leasing and purchase agreements; in the event of forward sales, it is common to enter into title reservation agreements or security agreements using the supplies as security.

In case of disputes between the parties, it is common to include arbitration provisions in the agreements involving supplies; however, parties can also use relevant legal resources before Mexican courts.

What restrictions are imposed on the processing, export or sale of minerals? Are there any export quotas, licensing or other mechanisms that prevent producers from freely exporting their production?

In general terms there are no restrictions. All import and export processes require a permit. However, in order to export iron, gold, silver and copper minerals, the producing-exporting company or individual must be registered in a mining sectoral registry for the exportation of such minerals.

For iron exports, exporters are required to be the owners of the mining concession from where the minerals are extracted.

What restrictions are imposed on the import of funds for exploration and extraction or the use of the proceeds from the export or sale of minerals?

There are no restrictions on the importation of funds or investment for exploration, extraction, export or sale of minerals to any national or foreign private party.

Environment

What are the principal environmental laws applicable to the mining industry? What are the principal regulatory bodies that administer those laws?

The principal environmental laws applicable in Mexico to the mining industry are the following:

• the General Law of Environmental Equilibrium and Environmental Protection;
• the General Law for the Prevention and Management of Waste;
• the General Law on Climate Change;
• the General Law of Sustainable Forestry Development;
• regulations of the General Law of Environmental Equilibrium and Environmental Protection regarding environmental impact assessments;
• Regulations of Natural Protected Areas; and
• Mexican Official Norms (NOMS) related to environmental matters: NOM 120, NOM 141, NOM 147, NOM 155, NOM 157 and NOM 159, among others.

The principal environmental regulatory bodies are as follows:

• the Ministry of Environment and Natural Resources (SEMARNAT); and
• the Federal Environmental Prosecutor.

What is the environmental review and permitting process for a mining project? How long does it normally take to obtain the necessary permits?

Exploration, exploitation and processing of minerals require the filing of an environmental impact assessment, as well as the filing of a preventive report in some cases.

Applicants must notify the environmental authority of actions that seek to make it to determine whether the filing of an environmental impact assessment is required, or may be performed without authorisation.

The authorisation of the preventive report for the exploration phase should be granted within 20 business days, and for the land use change on forest land the authorisation should be granted within 60 business days.

What is the closure and remediation process for a mining project? What performance bonds, guarantees and other financial assurances are required?

Remediation works are performed in Mexico in cases of soil contamination. Otherwise, a refurbishing process must be performed. Those responsible for activities that involve the generation and management of hazardous materials and waste that cause contamination of sites are required to carry out remediation works.

If hazardous substances considered highly risky are used during the exploitation phase, it is necessary to have environmental risk insurance that will be required in the corresponding resolution of the environmental impact assessment as a condition to starting operating activities. Three insurance terms or guarantees may be required, which are as follows:

• if hazardous substances are used;
• if hazardous waste is generated; and
• for the fulfilment of obligations contained in the resolutions of the environmental impact authorisation.

What are the restrictions for building tailings or waste dams?

Regarding restrictions for building tailings or waste dams, there is a Mexican Official Standard, NOM-141-SEMARNAT-2003, which establishes the procedure for characterising the tailings, as well as the specifications and criteria for the characterisation and preparation site, project, construction, operation and post-operation of tailings dams. There are no qualifications necessary for the person in charge of operation and management of dam waste.

These facilities are inspected by authorities quite often; there are no specific periods for such inspections.

There is an obligation to get a permit from the authority under the Programme for the Prevention of Accidents; in certain cases, to submit a risk assessment, to register the Hazardous Waste Management Plan, to have environmental insurance and to provide notice to the authority in case of emergencies, accidents or loss of hazardous waste.

There are no specific requirements for emergency drills with the local community.

The Federal Law of Environmental Responsibility provides that the main responsibility for rescuing people and remediation, damages’ costs and penalties rests with the mining company involved in such events.

Health & safety, and labour issues

What are the principal health and safety, and labour laws applicable to the mining industry? What are the principal regulatory bodies that administer those laws?

The principal health, safety and labour laws pertaining to the mining industry are:

• the Federal Labour Law;
• the Federal Social Security Law;
• the Federal Regulations on Safety, Health and Work Environment;
• Official Regulation NOM-023-STPS-2012, Underground and Open Pit Mines - Safety and Health Conditions at Work; and
• Official Regulation NOM-032-STPS-2008, Security for Under-ground Coal Mines.

The principal regulatory entity is the Ministry of Labour and Social Welfare.

What are the rules related to management and recycling of mining waste products? Who has title and the right to explore and exploit mining waste products in tailings ponds and waste piles?

Standard NOM-141-SEMARNAT-2003 sets the procedure for preparation, design, construction, operation and post-operation of mine tailings’ dams.

For the exploration and exploitation of tailings, no mining concession is required.

There are no specific rules under the Mining Law for the ownership of tailings. If tailings result from the ore beneficiated by the mining concession holder, they belong to the mining concession holder; in the case of tailings derived from the beneficiation of ore in a third party’s beneficiation plant, it usually belongs to the owner of the beneficiation plant.

In Mexico there are ancient mining works that produced tailings. Those tailings have no relationship with today’s mining concessions; these, in accordance with civil law, belong to the owner of the lands where tailings are sited.

Furthermore, dumps, in accordance with the Mexican Mining Law, belong to the mining concession holder.

What restrictions and limitations are imposed on the use of domestic and foreign employees in connection with mining activities?

There are no exclusive restrictions or limitations imposed in connection with mining activities; however, the following restrictions apply in general:

• at least 90 per cent of the workers must be Mexican;
• for technical activities, workers must be Mexican unless there is a very particular and specific expertise that may only be performed by a foreigner, but only temporarily. Foreign workers are required to train Mexicans in the area of speciality dominated by them. Usually when foreign geologists, mining engineers, metallurgical engineers, environmental engineers and technicians are hired for Mexican projects they are hired as decision makers and management officers; and
• doctors (physicians) working for companies must be Mexican individuals.

Furthermore, foreigners require special authorisation from the National Migration Institute to be hired in Mexico for lucrative activities.

Social and community issues

What are the principal community engagement or CSR laws applicable to the mining industry? What are the principal regulatory bodies that administer those laws?

The principal community engagement regulations are the Mexican Constitution (its spirit is social and its focus is in protecting vulnerable groups), some provisions of the Mining Law (see question 41), the Federal Labour Law and the Agrarian Law and regulations thereof.

Mexico has also subscribed to several international treaties (see question 44).

The main regulatory entities are the Ministry of Economy through the MBM, the Labour Ministry and the Agrarian Ministry.

How do the rights of aboriginal, indigenous or currently or previously disadvantaged peoples affect the acquisition or exercise of mining rights?

Mexico has subscribed to the Indigenous and Tribal Peoples Convention, 1989 (ILO Convention No. 169). Concessionaires must consult indigenous communities located in areas where mining concessions are located.

However, there are no mechanisms implemented in the applicable Mexican legislation in this regard, nor sanctions or penalties imposed if the concessionaire does not consult the indigenous community. Considering that Mexico has subscribed to ILO Convention No. 169, in order to comply with its provisions and implement certain mechanisms to consult the indigenous communities, Mexico shall amend the Mining Law.

Additionally, in the acquisition of mining concessions, if there are simultaneous applications made by indigenous groups or tribal people and private miners for the staking of a mining concession, the indigenous communities living where the relevant mining concession is located have preferred rights to obtain the mining concession.

What international treaties, conventions or protocols relating to CSR issues are applicable in your jurisdiction?

The Mexican government has subscribed to several conventions, including the following:

• ILO Convention No. 169;
• the Fund for the Development of Tribal Peoples in Latin America and the Caribbean;
• the Performance Standards on Social and Environmental Sustainability of the International Financing Corporation; and
• the Equator Principles.

Anti-bribery and corrupt practices

Describe any local legislation governing anti-bribery and corrupt practices.

The Mexican legal framework applicable is the following (the Anti-corruption Laws):

• the Mexican Constitution (in particular the Decree published on 27 May 2015 modifying, adding to and removing several anti-corruption provisions set forth in the Mexican Constitution);
• the Ethic Code published by the Ministry of Public Service on 20 August 2015;
• the Federal Criminal Code;
• State Criminal Codes;
• the Federal Anti-corruption Law for Government Contracting;
• the General Law of the National Anti-Corruption System (this law includes the provisions regulating the National Anti-Corruption System); and
• the General Law for Administrative Responsibilities (Law 3 of 3). This law entered into force in July 2017.

Activities governed by the Anti-corruption Laws

• offering, payment or receipt of bribes by government officers in exchange for any action or omission resulting in a benefit or advantage to the offering corporation or individual;
• regulation of the responsibilities and penalties to be imposed on individuals and corporations for violations incurred in connection with the federal procurement procedures as well as violations incurred in international commercial transactions;
• regulation and public policies and procedures in order to coordinate government authorities in the prevention, detection and punishment of corruption.
• adoption of anti-bribery compliance programmes by corporations; and
• regulation of public bindings, permits, licences, authorisations and concessions.

Do companies in your country pay particular attention to any foreign legislation governing anti-bribery and foreign corrupt practices in your jurisdiction?

Notwithstanding that the Anti-corruption Laws do not require companies to adopt a compliance programme, the General Law for Administrative Responsibilities provides for possible reductions in penalties for companies being prosecuted for ‘serious administrative offences’ if the corporation incorporated an adequate compliance programme at the time the relevant offence occurred. Foreign mining companies generally have anti-corruption and anti-bribery policies implemented from abroad, to be fulfilled not only by the company itself, but for all those with whom the company enters into any type of agreement, either for goods or services. On the other hand, public Mexican mining companies generally implement anti-corruption and anti-bribery policies through a corporate governance system that is responsible for ensuring transparency in the administration, the experience of their organisational values and accountability to its stakeholders.

Has your jurisdiction enacted legislation or adopted international best practices regarding disclosure of payments by resource companies to government entities in accordance with the Extractive Industries Transparency Initiative (EITI) Standard?

The accession of Mexico to the EITI Standard is in progress. However, to date, Mexico has not enacted legislation nor has it adopted international practices regarding the EITI Standard in connection with disclosure of payments.

Foreign investment

Are there any foreign ownership restrictions in your jurisdiction relevant to the mining industry?

Mexican mining companies may be owned up to 100 per cent by foreign investors, either as individuals or entities. Mexican mining companies partially or fully owned by foreign investors are considered Mexican entities and have the same business rights as Mexicans.

The only obligation of Mexican companies with foreign investment is to be registered with the Foreign Investment Registry and report changes to their capital structure and periodically report their finance conditions to the Mexican foreign investment authority.

International treaties

What international treaties apply to the mining industry or an investment in the mining industry?

Mexico has several bilateral agreements with other countries that contemplate certain matters related to the mining industry.

NAFTA

The purpose of NAFTA and other commercial treaties was to eliminate most of the duties imposed on goods imports and exports.

Mexico has a temporary import scheme through which payment of duties is not triggered except where the equipment remains in the country after the term of its temporary importation elapses.

Furthermore, Chapter 3 of NAFTA includes certain benefits for the import of mining equipment against the countries without free trade agreements, which are usually subject to a tax that ranges from 10 to 20 per cent.

Mexico and Japan Free Trade Agreement

With this agreement, Mexican companies will have a tax rate of zero per cent for exports of up to 95 per cent of the goods exported to Japan, including, among others, minerals.

Mexico will reduce duties on goods imported from Japan (eg, goods with electronic and steel components) by up to 44 per cent in the coming years.

Mexico and Chile Free Trade Agreement

This agreement provides the opportunity to participate as a supplier of mining industry inputs with a tax rate of zero per cent between the parties for chemical products for the flotation of minerals, and other processes performed in the mining industry including leachates, depressants, foaming agents, flocculants, sodium cyanide and sodium pentasulfide, among others.

Update and trends

What were the biggest mining news events over the past year in your jurisdiction and what were the implications? What are the current trends and developments in 2019 in your jurisdiction's mining industry (legislation, major cases, significant transactions)?

Neither the Mexican Mining Chamber nor the National Institute of Statistics and Geography of Mexico have published enough relevant mining industry information yet that may illustrate the performance of the Mexican Mining Industry for 2018.

Notwithstanding the foregoing, according to the Chairman of the Mexican Mining Chamber, there are certain aspects of the Mexican Mining Industry that could be improved in order to attract foreign and domestic investments with the purpose to recover the international competitiveness that Mexico had during 2000-2010, which are:

• achieve a competitive tax policy (crucially, to achieve 100 per cent deductibility of pre-operational exploration expenses);
• legal certainty (not allowing implementation of unnecessary local laws - the Environmental Tax approved in 2016 and enacted during 2017 by the state congress of Zacatecas is a measure that also affects a state well known for its preponderance in the development of mining activity);
• certainty about land tenure; and
• achieve effective asset security.

Despite of the foregoing, during 2017, Mexico preserved its place as the world’s largest silver producer at 187 million ounces, which represents 23 per cent of global output. Gold production also remains high, despite a recent decrease owing to a downturn in international markets; it still remains; however, a strong investment commodity.

Significant events in 2018 include Fresnillo Plc and MAG Silver, which continued with their Juanicipio project development plan. A preliminary economic evaluation of November 2017 on silver and gold assets in the state of Zacatecas that replaces an updated study of 2014, shows that its economic growth is owed to the processing rate increase of lead and zinc by-products. Juanicipio promises to be one of the largest and least expensive silver operations in Mexico.

In May 2018, First Majestic Silver Corp acquired all the issued and outstanding common shares of Primero Mining Corp. With this acquisition, First Majestic integrated the San Dimas mine into its portfolio, which is world-class silver and gold mine. This transaction cost US$320 million dollars.

In November 2018, Goldcorp announced that first gold was achieved at Peñasquito’s Pyrite Leach Project (PLP). Commissioning commenced in the third quarter of 2018 and the PLP is now processing 100 per cent of the existing plant tailings at the Project, into which Goldcorp invested some US$400 million dollars.