BMV an Untapped Resource for Mexican Miners

Q: What is your current perception of the Mexican mining legislation in comparison to the global market?

A: The legislation covers most of the issues the mining industry faces on a daily basis. Mexico used to be a leader in Latin American on mining law and countries used to mimic it. But other systems are starting to advance at a faster pace when it comes to covering new elements in the sector. We consider the legislation and norms to be fair but there are gray areas that need to be addressed. The Energy Reform, for instance, may have opened up a new market to mining companies but the division of land use is not clear. It reduced the amount of land that can be released by mining authorities and the rights of way have not been defined between these two industries.

Q: What needs to happen to promote mining investment on the Mexican Stock Exchange (BMV)?

A: There are a few mining companies listed on the BMV like Industrias Peñoles, Grupo México, Minera Frisco and First Majestic Silver but in general the BMV is an area of opportunity that is not being fully taken advantage of. Mexico relies on foreign capital and Mexicans are not keen to invest in the mining industry, unlike investors in other countries like Canada. Mutual funds need to invest in these large players to create a balance in their portfolio but individuals that have a few thousand pesos in their pockets tend to invest in other markets like Toronto. Mexico needs to start promoting the BMV as a viable alternative.

The problem is that investing in stock exchanges is not a feasible option for the general public. Most of the country is busy living day-to-day and saving to pay for their children’s school tuition and medical care. People do not have sufficient additional revenue to invest in the stock market. In Canada, a recent college graduate with US$500 in savings will most likely invest in the stock exchange, but in Mexico everyday costs can be more expensive as a proportion of salary.

Another option is a dual listing, which can bring many benefits to companies. On the BMV, companies can expand their market to mutual funds if they adequately promote their business. Companies should focus on promoting themselves to mutual funds over individuals and in exchange mutual funds need to direct their market to individuals. Mutual funds in Mexico are strong as they include retirement funds and connect to other funds around the world. The BMV’s legislation is similar to that found in the NYSE, and indeed many Mexican companies are also listed in New York. But listing in Mexico is expensive.

Q: What can authorities do to promote the growth of exploration?

A: Our clients have the difficulty with the non-immediate deduction of exploration costs and VAT refunds process. The deduction of exploration costs needs to be more immediate. Companies are not willing to wait 10 years to get their investment back. Mines are ageing without a generation of new projects to replace them and some of our clients are starting to look at alternative countries in which to direct their exploration capital. The authorities need to realize that mining companies work for shareholders and they have a responsibility to take care of their capital. Mexico may have a long mining history with an abundance of natural resources and skilled people, but its rules are discouraging companies from entering the country. Investors direct billions of dollars into the industry, at times without ever seeing the mine in person.

Q: What is RB Abogados priorities in the long-term?

A: Our goal is not to become a large law firm but to remain as the strongest and fastest reactive law firm for the industry. We are unusually selective when it comes to choosing clients and cases. Our goal is to represent the mining industry and be seen as the best option for mining transactions, mining project finance, mining agreements, corporate structures, joint ventures and M&A.