Crucial Advice for Environmental Responsibility

Q: Which changes are most likely to be implemented by the Peña Nieto administration that will affect the mining industry, both in general and from an environmental standpoint?

A: We do not expect to see any significant changes coming from the new administration. The basic legal framework, which has been in place for some time, will not be changed. We do not see an exponential change in terms of regulations and certainly no changes in our constitutional framework. What could occur is that we start to see more rules that facilitate the process of securing concessions for investors. One of the main challenges that the industry is facing is the fact that the current federal regulations are not coherent in terms of getting specific permits or land use change authorization, which has become one of the main problems within our legal framework. From our perspective, there will not be significant changes either in the way the government is promoting or regulating investment in mining.

Q: What are the main questions regarding environmental issues that you receive from your international or domestic clients as they enter the Mexican mining industry?

A: One of the most important questions is how laws and regulations work in regard to securing a mining concession, both for exploration and exploitation, and the related issues a company must deal with. Many of the more important questions investors ask have to do with environmental compliance. Companies need to know how the legal framework works, the type of environmental impact permitting requirements they have to meet, and what the land use or zoning regulations are. The majority of issues have to do with environmental sustainability in general. They are conscious that in many cases they will go into regions that are a part of a natural protected area, and that companies that engage in mineral extraction activities may potentially enter into conflict with protective local regulations. Our clients want to get a clear sense of what Mexico’s business and legal framework is like.

Q: What are the key factors that must be taken into account by mining companies when dealing with deforestation and environmental pollution?

A: First and foremost, clients must properly identify all activities they are going to undertake that may generate an environmental impact. Aside from site clearing or site preparation, they need to have a clear idea of what type of impacts they will cause, whether in the area of air emissions, mining waste and how to properly dispose of it, or the type of water sources they are going to use and if they plan to recycle or reuse the water. For example, it should be very clear that they may not discharge wastewater in violation with applicable water quality parameters. All of these issues should be taken into consideration, aside from the zoning and land use change permits.

Q: What are the legal procedures to follow and consequences of failing to comply with environmental requirements?

A: There are many consequences. One of the most common ones is administrative liability, which involves fines that may range from 20,000-50,000 times the minimum wage in Mexico City, which is between US$103,000 and US$259,000. Another consequence can be the implementation of safety measures and remedial requirements, such as shutdowns or the seizure of polluting machinery or equipment. In addition to fines, companies can also face criminal liability given that the Federal Criminal Code establishes prison terms of six months to nine years, depending on the seriousness of the violations, if environmental harm is caused as a result of unlawful industrial activities. The other big challenge has to do with potential class action lawsuits. This is a new concept in Mexico that was incorporated into our legal system as of March 2012.

Q: What are the main challenges that mining companies face to obtain water rights, and what impact does this have on the mining industry?

A: The most significant challenge has to do with the issue of water availability. Many regions in Mexico have experienced very serious water shortages in recent years, and in many areas it is difficult to secure a water concession from the National Water Commission (Conagua). One of the first things that a company must analyze is what type of challenges they will face to secure water. In northern states like Chihuahua, Coahuila, and Zacatecas, a ban on the issuing of new water has been put in place following very serious water shortages. What companies need to do in many instances is buy water from an existing concession holder. If a mine is located close to an urban area or city, conceptually they can enter into an agreement with the local government agency to get water supplied even though the logistics may be difficult. The first issue to consider it is whether or not they can have access to water, and how much that will cost. The impact of water scarcity can be quite severe since water is a key element in mining activities and without access to enough water resources the operations of mining companies can even be shut down. Prior to coming into Mexico, companies need to analyze the feasibility of undertaking a mining project in Mexico with regard to water availability.

Q: How could Mexican law be improved in terms of water access issues?

A: We do not expect to see any constitutional amendments in the short term with respect to the provision stating that the nation holds ultimate proprietary rights over water. The issue of access to water is not something that will be solved by enacting a law or new regulations. It has to do with factual circumstances related to the weather and climate. Companies that possess the necessary financial resources can invest in a desalination plant on the coast, but this would require the construction of a pipeline to feed water to a project, which would be a technically difficult and expensive endeavor. Other than that, the only possible thing to do is conducting the proper due diligence to identify where water is located, and negotiate with water concession holders that are willing. This is not only possible, but also legal. Companies can contact concession holders, enter in an agreement with them, set the price, and then just notify Conagua on the water transfer.