Juan Francisco Torres Landa
BSTL Abogados
View from the Top

Facing the Mining Sector’s Legal Challenges

Mon, 10/21/2013 - 14:15

Q: How can international investment in the mining industry benefit both Mexico and the investors?

A: Being realistic, there is opportunity for a lot of growth in the Mexican mining sector. If you ask some far-left politicians, they might go so far as to say that international mining companies are taking away the country’s wealth, but fortunately that view is not shared by many. International companies that work in Mexico develop projects, generate employment and economic activity, and pay income, employment and real estate taxes. Stopping foreign investment would not be the way to create more jobs or enhance the economy. Mines also usually operate in areas where there are very few other options for economic development, so from a public policy perspective the key should be to ensure that the necessary conditions exist for the industry to grow. In my opinion, the authorities do now understand that they need to create incentives that allow the industry to keep growing. Mining activities are a perfect fit for states like Zacatecas, Durango, Chihuahua, Sonora and Sinaloa, along with other regions that are not necessarily suitable for other productive activities but which have important mineral and metal deposits.

Q: What do you identify as being the main challenges and risks the industry is facing?

A: Energy is one of the main priority areas. In 2012 there was a severe energy shortage in Chile’s mining industry, to the point where some projects were halted because of it. We cannot afford that to happen in Mexico; we need to make sure that electricity is available, given that the mining industry is a big consumer of electricity. We are not yet in the same position as the Chilean industry, but the government must make sure that the CFE keeps increasing its power generation capacity, which is directly connected to natural gas availability.

Water is also an issue, since it has become an increasingly scarce resource that is very unevenly distributed throughout the country. There is a lot of water in the south, where there are problems with floods, whilst in the north of the country the opposite is true, where limited amounts of water are found in fewer places. A legal battle to take away more water from local communities would not be the right way to start a mining project - social responsibility is key. Another concept related to social responsibility and environmental concerns is reclamation work. One significant problem mining companies used to face when they shut down mines was that after they vacated the mine everything was left in chaos, especially in open pit mines. Today, companies are increasingly leaving the mine area in a better shape than before they arrived as a result of reforestation and infrastructure development. Therefore, when investors want to open new mines in the region, the local communities will welcome them.

Q: Are companies starting to make these efforts from the first day of operation?

A: I have seen companies start working towards reforestation at the same time they are exploring or exploiting, which is good because they are changing the negative stereotypes associated with mining. This also means that they are creating jobs even before production on the mine starts, as well as building a relationship with the community from the beginning of the project. It is a win- win situation for both the companies and the communities, provided that good lines of communication are established and permanent dialogue is fostered.

By law every municipality needs a water treatment plant but very few have one. Local governments would be happy to allow mining companies to build water treatment plants, because they provide water without drilling new wells. In some areas water is so scarce that drilling more wells is not permitted, and hence building water treatment plants provides an obvious opportunity for mining companies not just from an economical point of view, but from a socially responsible and an environmental perspective as well.

Q: What will be the main trends in mining that will define the direction of the industry in the coming years?

A: Democracy is here to stay. We are achieving greater transparency and civil society is holding the government accountable. Mexico moved up two or three places in the world transparency rankings, compared to the downward trend of previous years. The prospects are positive and the country is experiencing consistent growth.