Essential Legal Advice for International Mining Investors

The last 18 months have seen the administration of President Enrique Peña Nieto unveiling reform after reform. Of these, the Fiscal Reform sent shockwaves through the mining industry because of its direct affect on companies with mines in production. Cereceres Estudio Legal (CEL) is a leading Mexican law firm that is primed to help mining companies navigate the treacherous shoals of these tax reforms, supporting its clients by reviewing their current business practices. “The amendments to the existing laws, and the introduction of new laws, have given companies a great opportunity to reorganize, assess their operations, and improve their working processes,” states Rafael Cereceres Ronquillo, Partner at Cereceres Estudio Legal. “Many of my clients are reviewing their internal structures, employment policies, working conditions, and agreements they have with their service companies. This is a great opportunity for them to clean house.” Most, if not all, of CEL’s clients originate from outside of Mexico. Due to the stark differences in how business is conducted in each country, companies from the US and Canada place high importance on understanding how to operate in the Mexican market. The law firm is thus able to offer extensive advice on this matter and helps prepare its clients for the transition into Mexico. To exploit a mine in the country, companies require a federal concession which grants them the authority to perform exploration and exploitation activities. Even then, the federal concession only allows access to subsurface levels and restricts access to the land surface. After successfully negotiating with landowners, companies have to check that their desired prospecting areas are not protected and do not compromise the lands of indigenous communities. Only then can they begin setting up their mining projects. The subject of concessions alone provides a crystal clear example of how tortuous Mexican regulations can be and how CEL can help to scythe through the confusion. “One company could be the holder of the concession, another company could be the owner of the real estate, and another one could hire the employees. We can advise all involved on how to structure their operations in Mexico depending on their needs, since different companies need to comply with different permits,” explains Cereceres Ronquillo. This is where the firm’s expert knowledge can be a precious guide. In the above scenario, CEL might well advise dividing operations up among different companies as a better way to structure the project by entering into service contracts or lease agreements. This would also impact the income structure since a company would need to alter the way it plans social security fees, or insurance against various risks and accidents. “The structure of any mining operation in Mexico would depend on factors such as the number of employees or the amount of assets,” he continues.

Cereceres Ronquillo mentions some of the additional advice his company gives to foreign mining companies. “Once a company is complying with the requirements for the federal concession, we advise them to incorporate Mexican companies into their project. For example, one company holds the concession, one is the real estate owner, and one hires employees. This divisional structure is designed to prevent any problems which could jeopardize the entire operation, and makes it easier for companies to enter into service contracts or lease agreements.” Occasionally, CEL handles joint ventures between two different companies wanting to invest in Mexico. In order to do this, a Mexican company must be created for the joint venture to operate in the country. CEL’s advice about how to close such deals varies depending on whether its client is a majority or minority shareholder in the investment.

Ultimately, there is no area of Mexican mining regulation that CEL does not feel fully comfortable in navigating. Based in Chihuahua, CEL is part of the Professional Legal Alliance (PLA) which is comprised of six separate companies, all founded by former employees of Baker & McKenzie. After the individual companies were set up, the PLA was created to combine knowledge, expertise, and working philosophies across Mexico, establishing a group of associated law firms. “Our alliance enables us to provide the same quality of service as larger firms, but for a much lower fee,” explains Cereceres Ronquillo. “To ensure that we speak the same language as our clients when participating in multi-national projects, we are also connected with law firms in Canada, the US, Europe, and South America. By working with our affiliates in these different jurisdictions, we can provide a higher level of service for our international clients.”