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Analysis

Calls Grow To Make Mining Policy More Attractive

Mon, 10/22/2018 - 13:29

In 2005, the Mexican mining law was amended to simplify the process of obtaining mining concessions by merging the exploitation and exploration schemes. Despite the improvements, many believe procedures are still too complex and that the country needs greater legal dynamism and a simplified legal framework. “Mexico continues to fall in the Fraser Institute’s rankings of mining-friendly jurisdictions. It used to score in the top quarter of many metrics but is now near the middle or lower,” says Jason Reiner, President and CEO of Gold Resource Corporation. “This is not a good trend and reflects the increased difficulties that mine operators face regarding security and tax issues in the country. Companies want a stable government, business-friendly policies, local support, reasonable taxes and less bureaucracy rather than more. But the trend in Mexico is not going in a favorable direction.”
The country dropped from the 11th-most attractive investment destination in 2011 to 44th in 2017, according to the Fraser Institute Survey. Investment in Mexico’s mining sector in 2017 reached just US$4.3 billion, a far cry from the US$8.04 billion registered just five years earlier. “This shows us that something is definitely wrong. The situation illustrates that it is necessary to revise the country’s fiscal framework in terms of mining,” says Sergio Almazán, Director General of CAMIMEX.
COMPLEX LEGISLATION
Legislation in the mining industry is a main concern among insiders, who point to this as the culprit for the drop in the country’s investment attractiveness. “I think the complicated legal framework is undermining our country’s competitivity and productivity,” says Gerardo Gardea, Director General of Delta Solutions. David Jones, Director of Minaurum Gold, agrees. “In terms of the regulatory aspects, I think Mexico is moving toward being more careful regarding oversight, which is good, but some of the processes are still too bureaucratic.”
The country’s mining potential is undeniable. It is the largest silver producer in the world, the second-largest economy in Latin America and has more than 500 years of mining history. According to CAMIMEX, the industry created 16,854 new jobs in 2017, employing a total of 371,556 direct staff, with 32 percent higher wages than the national average. “The authorities should acknowledge that the mining industry has been vital for Mexico for the last 500 years and it is one of the country’s most important industries,” says Alberto Vázquez, Senior Partner of VHG Abogados.
EVOLUTION OF MINING LAW
It is difficult for the law to develop at the industry’s pace. Today, technology has evolved to the point that many activities have a much lower-impact. But the law does not take this into account. “I would prefer the authorities expedite processing for man-portable drilling, which lets companies drill more quickly and with less impact on the surrounding areas,” says Minaurum’s Jones. He says the permit required to install a man-portable drill is often just as burdensome as creating a road access.
To address this issue, Gardea believes that the mining law needs to evolve hand-in-hand with technological innovation to create a framework that reflects the latest developments. “Lawmakers need to remain up-to-date on industry innovation to provide investors the judicial certainty to keep betting on Mexico,” he says. Jones also encourages an urgent review of the existing regulations. “The authorities need to make distinctions to make processes easier,” he says. “The regulations could be revised to encourage low-impact activities.”
INSTITUTIONAL FRACTURES
The lack of centralized institutions overseeing the whole industry is another big bump in the road. The Mining Undersecretariat was established at the end of 2017 to better integrate regulatory matters related to mining. But the industry still relies on multiple institutions due to transversally-applying laws, including but not limited to those for water use, labor, firearms and explosives, ecological balance and environmental protection. This means miners must not only deal with the Mining Undersecretariat but also with CONAGUA for water-related issues, SEMARNAT for environmental permitting and The Ministry of Defense for explosives permissions.
The Undersecretariat recognizes the hurdles faced by miners and acknowledges that unifying regulatory and public efforts can be the first step. “The growing investment in the mining sector is demanding that we increase our institutional capacity to provide better and easier ways for local and foreign investors in their projects,” says Mario Alfonso Cantú, Undersecretary of Mining at the Ministry of Economy.
The creation of a Ministry of Mining to oversee all industry matters is being discussed as a possibility for the upcoming administration to boost the industry. But while creating a ministry dedicated to mining could improve its institutional effectiveness, it would also imply a huge allocation of public resources. Instead, Vázquez proposes changing mining’s institutional dependency so that it no longer relies on the Ministry Economy but on the Ministry of Energy. “The mining sector should not be part of the Ministry of Economy as it is essentially part of the energy sector,” he says. “I believe that if the mining authorities came from the Ministry of Energy, communication would be much more fluid.”
Vázquez says that public officers overseeing mining matters should also have a deep understanding of the industry’s technical dynamics, rather than just the economic factors. “It is key to have government representatives for the industry who are committed to the sector,” he says. “We must have officials who comply with the law and understand the nuances and importance of mining in Mexico.”
FISCAL ROAD BUMPS
An institutional and legal revision of the mining regulations should also consider the fiscal component. But in Mexico taxes are precisely one of the main hurdles to fostering investment, according to Almazán. The new tax burdens levied on the industry by the Fiscal Reform mean mining in Mexico is becoming costlier. “New taxes, the lack of juridical certainty and the lack of security have become very dissuasive factors for investment in Mexico,” he says.
Felipe Rivera, Industry Business and Process Automation Hub Leader for Mexico and Central America of Schneider Electric Systems agrees that more should be done to attract investment to the industry. “We must strive for a more profitable but friendly tax structure that fosters foreign investment in the industry,” he says. “Regulations for resources management and land ownership are too complex to attract investment. I would ask (the new administration) for an improvement in this regard as there is much that can be done.”
AMLO AND THE MINING FUTURE
Uncertainty over the election outcome may have cleared after López Obrador and the MORENA party won a landslide victory with 53.5 percent of the vote, effectively ending the PAN-PRI presidential duopoly. But his particular policies regarding mining are still unclear. As the industry holds its breath, waiting to see what institutional, fiscal and regulatory revisions will be made, industry leaders to agree that the key to policy success in mining is long-term planning to complement the long-term nature of the industry. “What we need is a policy that lays out the investment, the promotion and the objectives over the course of 10, 20 or 50 years,” says Almazán. “A long-term mining vision is essential for the industry’s survival.” Susana Corella, Federal Deputy for Sonora and Head of the Special Mining Commission for the Federal Government of Mexico, agrees. “It is necessary to create conditions that provide investments greater certainty, and this includes federal and state-level mining-related legislation,” she says.