Concession Cancellations: Dangerous Precedent in Mining

Mexico’s Supreme Court’s (SCJN) decision to cancel Almaden Minerals’ concessions may create a dangerous precedent for the Mexican mining sector, which could result in the interruption of more projects, as well as more international lawsuits against the Mexican government, agree experts. However, some see this also as an opportunity for the government to prioritize a consultation framework.

“We consider the Court's decision a big and extremely dangerous mistake, since it signals that any mining concession granted could be canceled due to the absence of an ‘Indigenous consultation,’ when there are no guidelines, procedures, nor is it clear how the Mexican state can comply with its obligation, affecting the legal certainty of the thousands of holders of mining concessions,” said Ruben Cano, Founding Partner, CR Legal Partners Mexico.

In Febraury, the SCJN cancelled two concessions granted to Minera Gorrión, Almaden Minerals’ subsidiary, after the Ministry of Economy failed to carry a consultation with the Tecoltemi ejido, which possesses territory located within the concessioned land. The Tecoltemi case dates back to 2015, when landowners felt pressed by the fear of losing water needed to cultivate their lands, since the mining project would require over 5 million L of water every day. This is a significant amount for a community that suffers from severe drought, reported Animal Político.

The community sought to cancel the concessions under the argument that the government did not consult land owners before granting the license. The Mexican Constitution and signed international treaties protect the rights of Indigenous communities and ratified the need to consult them about projects that affect them. Consequently, in the Supreme Court's draft, the Court orders the Ministry of Economy to declare Almaden's mining concessions void and reissue them until the Ministry complies with its obligation to consult indigenous communities. The company explained that the SCJN statement is a draft, so its final decision can be modified and deferred. Nevertheless, the declaration creates a “precedent for investment in the country and Puebla,” said Daniel Santamaría, Vice President, Minera Gorrión.

Since Almaden Minerals’ concessions were cancelled, other communities and NGOs have shown their willingness to interpose precautionary measures against mining projects in Mexico. If this becomes the new normal, the mining scenario would resemble that of Guatemala, where large mining companies have suspended operations due to precautionary measures filed against them. Currently, Pan American Silver's Escobal mine and Kappes, Cassiday & Associates' Tambor gold operation have been unable to resume operations in Guatemala.

However, experts say Almaden and other affected miners could seek compensation for the government's lack of action, especially as Convention 169 does not impose a direct obligation on companies but rather on the State to carry these consultations. Art. 6 of the Convention says Mexico must carry out Indigenous consultations to reach an agreement or obtain communities’ consent. In addition, it dictates that the State must establish the means, rules and requirements for the consultation to take place, something that has not yet happened, said Cano. Menawhile, Art. 15 establishes the need for the government to create and maintain procedures to consult Indigenous communities to determine if their interests will be harmed by mining activities. The article recommends that communities participate in these activities and receive compensation for any suffering or damage.

In addition to Convention 169, mining companies could also be protected by international treaties. Currently, Mexico has reached investment agreements with more than 40 countries, committing to fair and equitable treatment. As a result, these decisions could be challenged through international arbitrations. “The decision of the Supreme Court, as well as the possible use of this precedent in other mining concessions in the country, could affect rights protected by treaties, such as the reasonable and legitimate expectations of investors who reserved resources for the country and who trusted the application of a specific legal and commercial framework. This could give way to possible complaints at international courts within the framework of the treaties to which the Mexican State abides,” said the law firm White & Case.While some experts consider SCJN's actions as problematic, others see it also as an opportunity for the government to prioritize the consultation framework, understanding how to establish good relationships with authorities and communities and exercising strong due diligence on documentation and land rights. Margarita Bejarano, Corporate Affairs and Communications Manager, Argonaut Gold, told MBN that many of the problems that mining companies have with communities are due to a lack of communication and understanding of their position. “To communicate empathetically, one must listen first to their motivations and anxieties. Communication is the missing piece that sometimes hinders the industry. That is why it is so crucial to communicate with communities, consulting them on the development of any kind of project.”

Although the situation could promote better guidelines for Indigenous consultations, experts agree that this will also have serious consequences, as it makes the country look less trustworthy. “The worst consequence is the uncertainty message that the ruling sends to beneficiaries of mining concessions that are linked to Indigenous communities and to potential investors. It is in Mexico's best interest to resolve the potential contradictions that the SCJN has generated with its ruling,” said Jorge Ruiz, Mexico Partner, Baker McKenzie Mexico.