Changing Mining Landscape Post-Midterm Elections

President López Obrador’s MORENA party emerged from the midterm elections without its supermajority in Congress, preventing the government from fast-tracking contested initiatives. The result was welcome news in the mining sector as a subsequent change in policy direction and greater stability were expected. However, the main concerns in the sector remain, including a general halt in granting of concessions and permits.

“The change in political power will not lead to a change in the Mining Law in the near future. However, the outlook is positive for projects, as there have been significant changes in recent years. There has been less exploration in recent years but without a drastic drop,” says Craig Gibson, Technical Director of ProDeMin.

 On June 6, more than 93 million registered voters chose candidates for the more than 20,000 contested positions at the three levels of government. According to INE, voter participation was between 51.7 percent and 52.5 percent. In Congress, López Obrador’s coalition won 279 seats, divided among MORENA (197), PVEM (44) and PT (38). This is 53 seats short of a qualified or supermajority in the 500-seat Congress that would have allowed the administration to fast-track initiatives like an amendment to the Constitution and other controversial decisions. “It will no longer be so easy to make decisions without analyzing all the factors and actors involved. I think this will give investors more confidence,” says Ana Muñoz, Secretary of Women in Mining in Mexico.

However, on June 8, López Obrador said his party did not need many legislators for constitutional reforms to take place. “If we wanted to have a qualified majority, we could reach an agreement with legislators from the PRI or from any other party,” he said. Sen. Miguel Ángel Lucero Olivas, President of the Mining and Regional Development Commission of the Senate of the Republic, agreed that the election results will not affect the party since “there were no serious compositional changes in the Chamber of Deputies, which is relevant for the federal budget.”

MORENA also landed a majority in terms of governorships. The party won 11 of the 15 positions at stake, which means MORENA now has an executive power majority at the national level. Currently, the party holds 17 of 32 governorships, among them Mexico’s main mining centers. The results could influence the future of the country's industry and some of the elected governors have already hinted at their intentions toward the mining sector.

In Sinaloa, Rubén Rocha Moya, the winning candidate for MORENA-PAS, has announced his willingness to improve conditions in various sectors, including mining, and to implement more responsible practices. Although he has not said much about the sector, Francisco Alfonso Durazo, from the MORENA-PT-PVEM-NAS coalition in Sonora, together with Minister of Labor Luisa María Alcalde, supported the CTM Mining Union of the Buena Vista del Cobre Mine, in Cananea, Sonora, which achieved a 6 percent salary increase and better employment benefits. In Zacatecas, the elected candidate was David Monreal Ávila of the MORENA-PT-PVEM-PANAL coalition, who said that agriculture, mining, industrialization and tourism will be the four axes of his government to continue developing the state.

From the opposition, the new governor of Chihuahua, María Eugenia Campos, a candidate from the PRI-PAN-PRD coalition, has expressed her support for the mining industry and her willingness to fight uncertainty in the sector. “With me as the defender governor and a team in the Ministry of Innovation and Economic Development and in the Undersecretariat of Mining, which has technical knowledge about this vocation and a deep love for mining, we will boost Chihuahua and move forward together," she said during a meeting with the Chihuahua Mining Cluster (CLUMIN).

Uncertain Environment

Despite the country’s potential and even after promising election results, the current environment has prevented the arrival of new projects and investments. Political factors, taxes, legal frameworks and security concerns are key to investors and these obstacles are forcing them to look at other countries, reported CAMIMEX. 

First Majestic recently announced that it was seeking greater diversification outside of Mexico, after the company initiated arbitration proceedings against the Mexican government, which says First Majestic owes US$534.36 million in taxes. Keith Neumeyer, CEO of First Majestic, confirmed that the company's decision to acquire the Jerritt Canyon mine in Nevada was influenced by its dispute with Mexico.

The Canadian Chamber of Commerce in Mexico (CANCHAM) believes that the lack of clear rules in policies and uncertainty were behind the 18 percent fall in Canadian investment in 2020. “Canada has billions of dollars waiting for the mining, energy, pharmaceutical and agri-food sectors. The investments are ready but until the investment climate in the country is improved, they will not happen,” says Enrique Zorrilla, President of CANCHAM.

During 1Q21, the Mexican mining sector reported high foreign direct investment (FDI) of US$1.05 billion. According to the Ministry of Economy, mining FDI in 1Q21 was 176 percent higher than in 1Q20, when it received just US$381 million. The increase is mainly due to the fact that the mining sector has learned to operate despite the COVID-19 pandemic, providing confidence to investors. Projects were not suspended due to the pandemic, which could have led to significant monetary losses. The country's economic recovery and increased demand for minerals for the energy and automotive sectors have also fueled investors’ interest in Mexico. However, investment uncertainty persists. “In 2021, other (negative) factors that are affecting the sector became more evident. It is no longer COVID-19 but uncertainty,” says the President of CAMIMEX, Fernando Alanis. He says a dozen companies are planning to invest elsewhere as regulatory and tax problems compromise Mexico’s attractiveness in the Americas.

There have been some positives for foreign investment. Mexican authorities, for example, have introduced new initiatives in an effort to improve the industry's situation. “We are working to provide a modern regulatory system that will reduce substantially the so-called bureaucracy. We need a better relationship with the private mining sector, where both sides trust each other,” Minister of Economy Tatiana Clouthier told MBN.  However, actions such as MORENA's initiative to nationalize the country's lithium production, although it was withdrawn, sent the wrong message to the sector. “We were very concerned about some of President Lopez Obrador’s proposals. If a government can unilaterally break existing contracts and nationalize an industry, foreign investors will generally reduce or avoid investing in all Mexican sectors,” says Bradford Cooke, Founder and CEO of Endeavour Silver.

Potential Improvement?

The election results were well received by investors and companies interested in Mexico as they meant a greater balance in the Chamber of Deputies, which is expected to create stability. “These types of events and results send a positive message to the industry, business partners and countries that have an interest in Mexico. Now, the country has the opportunity to be a strategic destination for large companies looking for a reliable territory," says Rene Espinosa, Plant Manager of Metal Finishing Co.

However, other experts believe that the elections will not have a great impact on the sector as MORENA retains its simple majority in Congress. Misconceptions around the industry have also made concession and permitting processes even stricter. “We ask our authorities to discuss how we can work together to expedite the permits, ”says Alanís.

Despite the different positions, experts agree that mining will continue in Mexico and new projects will arrive. “At the end of the day, politics are temporary. The mining industry is extremely important for Mexico as it provides significant social and economic benefits for the country and, most importantly, for communities. Therefore, I believe that mining will continue, no matter which party is in power,” says Ralph Shearing, CEO of Altaley Mining Corporation.