Education the Key to Best Mining Practices

Q: Two years on from the introduction of the royalty tax, how would you assess its impact on the mining industry?

A: Unfortunately, the introduction of the royalty tax coincided with a marked downturn in global commodity prices. It is causing the Mexican mining industry to lose part of the competitive edge it once enjoyed over its regional rivals. Operating in Mexico is now more expensive than other countries like Chile, Peru, Argentina, Brazil, and Colombia, all of which are working towards lowering costs for foreign companies. If there is less exploration there will be fewer discoveries of mineral deposits, and limited employment. CAMIMEX is in direct contact with the authorities to inform them of the strong negative impact the fiscal reforms have had on the industry. We are working to convince those responsible in the public sector including the Ministry of Economy and the Ministry of Finance, not only to reduce taxation levels across the board but more importantly to ensure that pre-operating costs for exploration projects are tax deductible in the same year.

The fact that companies can no longer deduct more than 10 percent per year has had a crippling impact on mining exploration levels in the country. A total of 154 mining projects had been suspended until December 2015. Instead of creating more obstacles for international investors the federal government should be supporting and promoting foreign involvement in Mexico. Even though CAMIMEX is greatly in favor of reinserting mining proceeds back into the communities that surround mine sites, the state and municipal authorities must do it in a consistent and transparent manner. We are not part of any of the 25 state mining committees that have formed throughout the country.

Q: How can CAMIMEX help promote foreign investment, and boost the Mexican mining industry?

A: As the representative body for the mining community in Mexico, our principal task is to work alongside the government to ensure that it is doing all it can to promote and develop our industry. We also work to encourage positive mining practices throughout the sector in terms of exploration, safety, environmental protection, and community development. Furthermore, CAMIMEX has set up a special commission for community development made up of specialists from the largest mining companies in the country. The commission meets on a monthly basis to discuss recent actions, and to exchange ideas regarding the responsibility for community development.

Fortunately, it is having a positive effect upon Mexico’s mining culture. Since 2002, the Mexican Philanthropy Center (CEMEFI), and the Alliance for Socially Responsible Businesses (AliaRSE) have awarded the certificate of Socially Responsible Company (ESR) to selected companies that fulfill specific requirements regarding community development and environmental care. In its first year only one company, Industrias Peñoles, was recognized with this honor, and now the number stands at 42. It is a true reflection of the growing responsibility that mining companies have towards environmental sustainability. Despite there is still work to be done there is an undoubtable evolution toward socially responsible practices in the sector.

Q: What does the fall in mineral production mean for the state of the industry?

A: The fact that production rates are falling at the same time tax levels reached an all-time high is not a coincidence. Although CAMIMEX cannot directly boost production it can notably influence the mining operations though alternate strategies. A series of debates, meetings, and training courses on energy savings that we offer are an example. The Energy Reform is an increasingly pertinent issue for the sector because it opened a number of new opportunities to players as they can now generate their own energy through cogeneration plants and other renewable schemes. Our role is to educate the community about these possibilities, and provide tools that maximize potential.

Q: How can the sector make the most of the new opportunities afforded by the Energy Reform?

A: The vast majority of companies are well aware of the potential benefits the reform brings. Energy consumption can represent up to 30 percent of all operational costs for many mines. Since the Energy Reform there are a number of new opportunities available to mining companies, who can now generate their own energy through cogeneration plants and other renewable programs. Our role is to educate the community about these opportunities, and to provide them with the tools to maximize their potential. Several of the larger market players, including Industrias Peñoles, Fresnillo, Grupo México, and Minera Autlan are beginning to invest in energy generation due to the fact that it raises competition domestically and internationally. Indeed, there are a total of 35 mining projects in Mexico with valid permits for internal energy creation. It represents a total installed capacity of 1,799MW, and a projected investment of US$2.7 billion, a reflection of a growing consciousness directed towards energy saving opportunities.

Q: What does CAMIMEX hope to achieve in the next 18 months?

A: Our principal objective is to regenerate the competitiveness the sector lost following the fiscal reforms. In 2010, Mexico was the number one Latin American destination for mining exploration investment, and fourth globally, behind only Canada, Australia and the US. Both Chile and Peru have now overtaken us, while other countries including Argentina and Colombia are taking important steps to attract further investment into their respective mining sectors. To buck this trend we feel the federal government must reduce the royalty tax and alter the legislation so that exploration expenses are tax deductible within one year, and not in 10 as it currently stands. Moreover, we hope to soon start offering a diploma course on community development at CAMIMEX, which will serve as a training program to enable Mexican mining companies to train their staff on socially responsible practices.