Changes to Mining Laws Harming Competitiveness

Q: To what extent was the private mining sector consulted by the government prior to the decision to impose the mining tax and royalty?

A: The executive branch of the government presented this initiative before Congress but there was practically no consultation with the private sector. There was an attempt at dialogue, mainly through Congress, but the level of dialogue was not satisfactory. Certain deputies understood the industry’s point of view, but others did not. The Treasury granted a few interviews but they were carried out with low level employees and led to no practical result. The industry’s most important point was that it was the wrong moment to establish such a tax, as profitability was already decreasing due to the dropping metal prices. The introduction of the tax was absolutely illogical and, in general, the consultation process was very poor.

Q: What is your perspective on the proposals to reduce the time limit on concessions or limit the availability of concessions?

A: The mining law now allows a concession to be held for 50 years, with a possible extension of another 50 years. Some proposals aim to reduce this to 25 years with a possibility for extension, while other proposals aim to reduce it to 25 years without any chance of extension. The grand majority of initiatives being reviewed in Congress are very negative for mining since they do not understand the nature of the industry. Many of the proposed changes are based on ideological content rather than logical reasoning, and many ignore the reality of the mining business. Some initiatives state that mining concessions should not be given out when they are within 25km of a population of more than 500 people, 25km from an aquifer recharge area, within naturally protected areas, or within 25km of archeological sites. We have over 38,000 archeological sites in the country, and the list is growing. So the question here is, in which part of the territory could a company even obtain a concession under these initiatives? Another proposal aims to prohibit a mining company from having more than two concessions, which is impossible, especially if the proposal to limit the hectares per concession passes. Currently, if the concessions are not occupied, a company can acquire the rights to explore the subsurface of all the land it wants. A company could even ask for 100,000 hectares in concessions. The problem is that more hectares result in more fees to pay since the fee to be paid for a concession is currently based on the number of hectares. If these fees are not paid then the concession is lost, so having many concessions can require a significant investment. During these times of crisis, companies are reducing their concession volume to lower the tributary charge or the obligation to invest in the properties. If the proposal to limit companies to two concessions is passed, then their exploration capacity will be severely reduced. While in the past exploration was carried out by walking through the land and collecting samples, wide areas are now explored using satellite and aerial photographs, as well as geophysical studies. There are now fewer small mines with high grade ores, so these methods focus on finding large deposits with a lower grade. By limiting concessions, the country is limiting the possibility of finding an important deposit.

Q: Are there any other proposals that might be detrimental for the competitiveness of the Mexican mining industry?

A: Another proposal pretends to force mining companies to obtain an environmental impact study before obtaining a mining concession, which is totally illogical since it would imply presenting an environmental impact study of the operational plans without having explored the land. The reality is that a company can only explore and begin a project once it has a concession. The logical order would be to first obtain the mining concession, then design an exploration program, obtain an environmental permit to explore, do the reconnaissance of the land, and then delineate an environmental impact study based on the exploration results. According to the law, environmental impact studies require a lot of information regarding the project in question, which is impossible to get before starting exploration.

Q: What would you change in the mining law and the fiscal laws to improve conditions for the mining industry?

A: The only aspect that could be considered beneficial is the aspect of tributary policy. The corporate tax in Mexico should consider two aspects: the amortization, or the depletion, of deposits and the favorable recognition of exploration investments. The industry does not need these changes urgently, but it would be a way to transfer resources from the public sector to the development of new business; it would be as if the government made a direct investment in mining. There are other minor topics such as the blind deduction of exploration expenses since it is difficult to obtain an invoice for renting horses in the mountains or other similar expenditures. Nevertheless, the current Mining Law is a good law that has allowed the development of the industry and, if possible, should not be changed.