The recent years have seen the passing of important constitutional and legal reforms in Mexico. These reforms, together with new attention to the industry, have brought opportunities and challenges that mining companies operating in Mexico seek to seize and confront. This article explores these opportunities and challenges from a practical perspective.
1. Energy Reform. On December 2013, the Mexican Constitution was amended to include private participation in several activities related to oil and gas and energy in general, which were formerly reserved to the Mexican state. Implementing laws and regulations have since been enacted.
In particular for the mining industry, existing mining concessions that have been authorized to recover and use coal may continue with such activities, without the concessionaires having any rights to produce any coal bed methane (natural gas associated to mineral carbon mines -CBM), found in the concession area. However, concessionaires may request the National Hydrocarbon Commission to grant them an E&P contract (production sharing, profit sharing, or license) to produce such gas in the mine. This contract will be granted only if the mine is in production and the concessionaire evidences it has the experience and financial means to conduct such activities. In the case of those concessionaires that already have an authorization to extract and use CBM, they may continue to continue such activities, in the understanding they had 90 days from the date the hydrocarbons law entered into effect (August 12, 2014) to request the granting of an E&P contract. Otherwise, within 180 days, their authorization to recover and use the CBM will expire.
2. Mining Royalties. The Duties Law in Mexico has provided for two new mining contributions (duties) as follows: (i) a 7.5% special mining contribution on income from sales resulting from extraction of minerals (less permitted deductions), and (ii) a 0.5% extraordinary mining contribution on the sale of gold, silver and platinum.
These contributions are due on the last month of March of each year. Therefore, the first payment of these contributions (those corresponding to the 2013 fiscal year) is due on March 2014.
3. Environmental Compliance. The recent reports on leaks of acid into a river in Sonora, has launched a significant attention to the operations of the mining industry. The environmental agencies have launched an increasing number of investigations on environmental compliance and there have been hints that more severe environmental provisions applicable to mining companies will be enacted shortly. Specifically, more aggressive legislation of the handling and control of mining waste is on the agenda.
In addition, authorities have been increasingly enforcing specific limitations on the use of land, which have impacted different mining sites and operations.
4. Land. A constant concern for mining companies operating in Mexico is the relationship with land owners (mining companies are the holders of concessions granted by the Ministry of the Economy for the exploration and exploitation of minerals). Land on mining sites is normally owned by community organizations called “ejidos”, which are ruled by very particular and unique set of provisions.
Having proper occupation agreements and a good relationship with these “ejidos” from the start is an important aspect of a successful mining operation, which some companies neglect.