Juan Torres Landa
Hogan Lovells
View from the Top

Government Intervention Needed In Mining Disputes

Mon, 10/22/2018 - 14:19

Q: What aspects of the Mexican mining legal framework should be changed to increase the country’s attractiveness to investors?
A: One factor that is not usually related to the regulatory framework but has a strong impact on the industry is security. Mining companies not only must include Mexican taxes in their budgets but also security factors. As mine operations are often located in isolated places and have limited communication, they are more vulnerable to organized crime. This makes their spending budget grow significantly in comparison to what they would spend in more secure jurisdictions. The government definitely has to do something about security, which is a very delicate topic as organized crime has incredible economic support based on revenue from drug prohibition-related activities. The only meaningful way to change the current trend is to end drug prohibition. The government must take full regulatory control and thus significantly reduce the ability of organized crime to undermine the security of mining, other industries and the population in general.
Q: What strategies can the industry use to mitigate the risks of higher tax rates in the mining sector?
A: The first step is to try to prevent tax proposals, such as the one implemented in Zacatecas, from moving forward. When these types of bills are enacted, there are several resources available that operators can use to combat them, such as amparos. There are two legal windows: one when the law is enacted and the second when it is actually applied. It gets very technical because often those two stages start at the same time. This is called autoaplicativas and means that the law is automatically applied to a business just by being enacted. Companies must be careful to file the amparos at the right time or they will miss the opportunity to raise objections. Failure to file an objection within the correct window means that they are automatically considered to consent and no longer have the chance to challenge the constitutionality of the law.
Q: How would you describe the main legal issues companies face when it comes to human capital?
A: Labor issues are critical as there are cases of disruptions and issues in this matter throughout the industry. The government should emphasize that as long as mining companies comply with employment regulations, union leaders should not be allowed to extort those companies. I believe there must be intra-agency cooperation on a federal level, perhaps a joint agency between the Ministry of Economy and the Ministry of Labor, to work on these issues. A more visible and public approach can show that the government is aware of the issues and is working to prevent more disputes from arising. It should not tolerate any parties seeking to profit from creating conflict within the mining industry, as it is key for development, taxation and employment creation. It is a matter of public policy to make sure that those companies can operate in a stable environment.
Q: What would be your advice to companies seeking to secure mining concessions in Mexico?
A: Due diligence is key for a safe and profitable investment. Money invested in carrying out a sophisticated analysis is money well spent. Finding a problem after initiating exploration is 10 times more expensive than preventing it beforehand. Being prepared also implies being mindful of the local communities, how they live and the impact the operations may have on their way of living. An environmental impact statement is an equally fundamental element for mine operations. These statements have become more sophisticated with time, as mining developments are considered projects with a high environmental impact. These studies must be meticulous and comprehensive in determining if the operation is open-pit or underground and what impact it could have on fauna, flora and water basins, among other elements. Water treatment and recycling is critical as mining is often carried out in areas where water is scarce. I find that with greater technological tools, mining activities now tend to have a completely balanced use of water.