Due Dilligence Key to Avoid Issues with Communities

With the plethora of potential complications that could threaten mining projects, ranging from land disputes to community issues and even taxes, it is imperative that companies have access to legal representation that can cover all bases, says Mariano Calderón, Partner at Santamarina + Steta. “Companies could have performed proper due diligence, acquired all the permits, made all the payments and on the day when operations are expected to start, a community can file a lawsuit claiming to be the rightful owners of that piece of land,” he says.
Santamarina + Steta has a long history in the mining industry, having worked with leaders like Grupo México. While the average dispute lasts around two or three years, “We can work with both national and international mining companies on a variety of matters, whether it be concerns with the Ministry of Economy, agrarian issues, community relations, tax, labor or civil litigation or an IPO,” he adds.
Calderón advises companies to carry out thorough due diligence by going much further than normally required. “Even within public records there may be no record of ejido involvement with any part of the land but it is still possible that someone may stake a claim,” he says. “We would recommend the company touch base with the surrounding communities to ensure no agrarian dispute arises after the commitment has already been made to start operations.”
While investors want legal certainty, Calderón says the Mexican mining industry has come across a few stumbling blocks in this regard. “Investors do not know what to expect from the tax authorities in Mexico,” he says. “They cannot predict if SAT will accept their deductions, question their accounting systems or, as happened more recently, very aggressively negate existing agreements on transfer pricing.” He references the case of Primero Mining, a now-defunct Canadian operator. The mine had an existing streaming agreement with Wheaton Precious Metals and Calderón says an advanced ruling from the Mexican government established this transfer pricing would be dealt with at arm’s length. “Two years later, the tax authorities began questioning the validity of the ruling from the Mexican government itself,” he says.
Another tax issue on which the firm is working is with Carrizal Mining, that operates a lead, zinc and copper concentrates mine in Hidalgo. The company filed an amparo against the fiscal reforms in 2014 that imposed special duties mining activities, arguing the charges were in fact a tax and unconstitutional. This motion was defeated in the Supreme Court by a vote of three to two and the taxes were upheld.