Lacking Mining Regulations Makes Internal Audits Key: Cereceres

Q: What is the primary legal challenge companies face when entering the Mexican market or continuing existing operations?
A: Legal uncertainty remains a key concern. There are reforms in the mining and national water laws that have yet to be fully regulated. However, I understand that the regulations are well on their way and that once they are published, they will bring greater clarity and confidence to investors.

A good example of this legal uncertainty is in the Mining Law reform, which requires a company to seek authorization from the Ministry of Economy (SE) before transferring a mining concession. The process for this request is not yet clear, and we all hope that the regulations will establish these procedures. However, I have noticed that investors are very optimistic about the new government because there is more openness and a constant dialogue with the industry, which did not exist in the previous administration.

My Canadian clients, in particular, have a very good impression of President Claudia Sheinbaum, whom they consider to be a very intelligent and prepared person. They also view our Minister of Economy, Marcelo Ebrard, as pro-business and pro-industry, so there is a good feeling. We are just waiting for the rules to be a bit clearer, and I believe that things will move forward in better terms. 

Q: In this context, what is the most valuable legal advice a firm like yours can provide?
A: My main advice to clients is to always comply with the law, regardless of the mining reform or the government in power. Second, I recommend they perform constant internal audits to ensure all of their permits, authorizations, and documentation are up to date. This way, when the new regulations are published and they want to reorganize or begin a new operation, they are already in compliance.

If you have a strong organizational, legal, and administrative foundation, any future investment or expansion will be much easier. My other recommendations are to provide internal training for your staff on new laws and regulations and to seek advice from experts to ensure you are on the safest possible path. 

Q: Considering the recent trend of mining M&A in Mexico, what is the most critical legal risk you see clients consistently overlook in their due diligence, and what specific action does your firm take to mitigate this?
A: We have always handled M&As, and it is in fact one of our specialties. Now, with the opening of markets and the new economic trends, there is a lot of co-investment and joint ventures (JVs). The trend is for several companies to form an alliance for different projects, with each contributing its specialty and capital. This is a very important time for alliances to drive more investment into Mexico.

There are many forms of alliances, but a clear legal framework is necessary to implement them. This refers to the lack of regulation I mentioned earlier, and I believe that once the rules are clearer, this type of alliance will develop even further.

A mining project is built on its concessions. It has historically been difficult to know the status of a concession because the public registry was not always up to date. While it is now a bit more agile to do due diligence, it was nearly impossible just a few months ago to perform a proper audit. This created a lot of uncertainty for investors. This is why we hope the regulations of the Mining Law will clarify issues like the authorization process for transferring a concession and the requirements for granting guarantees.

For any mining project, water is essential. A company that wants to invest must first ensure there is water availability, because a project can be stopped even if all other permits are in place. After that, a proper approach to communities is fundamental. Without a sensitive and collaborative approach, a company will not be able to develop its project optimally. Community participation is basic, and negotiations with them are fundamental. While mining companies are characterized by bringing many benefits to a community, sometimes you have to know how to present those benefits properly.

Another fundamental aspect is security. For any development, you have to analyze the security situation and work hand in hand with the government. Communication with government bodies is fundamental for any project. 

Q: Beyond the legal requirements, what is the most valuable advice you can give to clients to ensure that their acquisition of a claim or project includes a strong, durable social license to operate with local communities, particularly with ejido landholders?
A: A mining concession does not give a company the right to the land’s surface. A company must first conduct a land title study to determine if the land is private or communal, as there are two completely different ways to negotiate. If it is private land, you can sign a contract, buy, or lease the land. If it is communal, you must negotiate with the ejido leader, and the agreement must be approved by the Ejido Assembly, following all the formalities established by the Agrarian Law.

Negotiations and the assembly must be conducted with clear communication about what will and will not be done, the compensation, and the terms. I have seen that a lack of clarity leads to misinformation, which makes the community feel deceived. The community is not foolish and will feel taken advantage of if there is not a clear and honest negotiation. This is why the person who conducts these negotiations must have the experience, knowledge, and sensitivity to understand the environment they are working in.

These elements are extremely important for reaching a good contract. Once the contract is approved by the assembly and registered, the work is not over. It is like a marriage: you are marrying the community for a project that will last 10 to 20 years. You must always maintain a good relationship, clear communication, and, above all, be fair in the compensation you offer them.

Q: What are Cereceres’ perspectives on the future of the issuance of new mining concessions during Claudia Sheinbaum's administration? 
A: I do not believe there will be new concessions, at least not in this administration. This is the political trend I have observed since the previous administration, and the president has continued with this policy. Therefore, existing concessions must be leveraged.

This is why it is very important for all concessionaires to preserve their concessions by paying their fees, fulfilling their obligations, and making the corresponding investments, because these are the only concessions that will be worked for the foreseeable future.

I see the possibility of new concessions as very complicated. While the Mining Law does establish a new procedure for them, it appears that this procedure will not be applied at the moment. Therefore, I believe there will be no changes in this aspect for now.

Q: What are the firm’s perspectives on the future of the mining industry in the next five years?
A: As a law firm, we have to be very creative to find solutions for the new challenges, legal changes, and dynamics of the mining industry. Our purpose is to provide solutions and not to create obstacles for projects. We must adapt to the new times, both in the law and in government policy, and work collaboratively.

I have always believed that a difficult situation is an opportunity to reinvent yourself, to develop new products, and to help the industry in this way. For example, if the public registry no longer accepts a certain type of contract because the law has changed, we must reinvent ourselves and create new types of contracts that are still legally sound and provide our clients with certainty. We do not simply tell our clients that something is no longer possible; we find new legal ways to achieve the same result, without ever violating the law.

The mining industry has to continue. Operations and business must go on. Therefore, we have to be very creative. I believe that the mining industry will continue to grow and that there will be more investment once the legal framework is fully regularized. I am very optimistic about the new government because I see a very open and positive attitude.

I believe we must work closely with them and have a very good relationship. I see good things for the mining industry and believe it is a good business for everyone involved: the government, the communities, the companies, and the service providers.

I have great hopes and faith that everything will turn out very well from here on out. We must simply adhere to the full compliance of our obligations, as that is basic in this industry and in any other.