License to Operate: Main Risk for Miners in Mexico

Q: How have mining companies in Chihuahua interpreted the government’s decree to halt activities to prevent the spread of COVID-19?

A: The decree has generated uncertainty in the state’s mining sector. The way in which companies must implement it is vague, especially regarding the Labor Law. Perhaps the obfuscation is deliberate on the part of the authorities to surreptitiously justify why employees must still be paid even if the company is closed. Business owners are not sure if there would be any legal liability if they were to pay their workers only minimum wages while operations remain suspended. Nevertheless, all mining companies we work with have chosen not to try to interpret the decree. Instead, they have made a commitment to pay their workers full wages for as long as they can. Even when the pandemic has disrupted miners’ operations, from getting financing through the stock market down to the day-to-day business of running a mine, they all have decided to support their workers.

Q: What is the main risk facing miners that want to do business in Mexico?

A: Uncertainty around social issues has gained prominence in Mexico recently and now represents the top risk for doing business in the country. Obtaining a social license to operate is important everywhere. But in Mexico it is absolutely crucial. As it is well-known, this license is a set of tangible and intangible permits and agreements. Many of these agreements are not even required by law, but companies endeavor to obtain them because they help to forge fruitful relationships with their communities of influence.

One would expect that a strong social license to operate would lead to legal certainty around the project. But in Mexico, that is not always the case. Often, external organizations like certain NGOs provide misleading advice to communities and create unwarranted conflict around mining projects. The most contentious issue normally is popular consultation. Opponents of mining tend to argue that a required consultation was not undertaken and that, therefore, the project is illegal.

Having a strong social license is not sufficient in Mexico: it has to be impenetrable. These licenses need to include popular consultation at different stages of the project so as to leave adversaries with no arguments. We are presently drafting prevention strategies to this end. Companies need to know precisely when and how to carry out public consultations. They also need to know exactly who to consult to guarantee maximum effectiveness.

Q: How can miners navigate a scenario where few or no new concessions are granted?

A: First and foremost, it must be said that this scenario dates back to the last years of the Peña Nieto administration. Its origin lies in the Energy Reform, which required a favorable decision from the Ministry of Energy to obtain a mining concession. This requisite slowed down the process. Often, mining authorities, overburdened with a torrent of requests, argued that they were waiting for the Ministry of Economy before they could make a decision. The truth is that if the energy authorities do not respond within the allotted time frame, the process can proceed without taking their opinion into account.

When the government changed after the 2018 election, the process for obtaining a concession became even more difficult. The new president declared that miners had been looting Mexico’s mineral wealth and that he would put a stop to it. Even when that declaration did not entail a change in the Mining Law, the mining authorities interpreted it as a call to put processes on hold.

ALN Abogados undertook an analysis on the matter. We decided that a good strategy is to begin the normal administrative process for obtaining a concession. If the mining authorities do not respond within the legal time frame, a judge is called upon to intervene and decide the matter. There is a legal provision in Mexico that forces the authorities to comply with legal time frames. If they do not, the petitioner can go to a court of law and demand a decision. We have been doing that and so far, we have obtained good results. The current delay in concession-granting is a mix of politics and bureaucracy. What is crucial is to follow up closely once the request for a concession is made.

Q: Will the changes in the Mining Fund’s structure help fight corruption, as the federal government argues?

A: We believe that it was unnecessary to restructure the way in which resources from the Mining Fund are distributed to citizens. Committees for authorizing projects were already well-structured to prevent corruption. They involved local communities, companies and local governments. Therefore, the changes in the fund’s administration are not an improvement. Likewise, restricting its destination to educational projects impedes the fund from generating a wider impact on mining communities. These communities are located in remote areas and their development often lags the country’s average. Therefore, all kinds of infrastructure are greatly needed for their development.

ALN Abogados is a Chihuahua-based law firm focusing on the mining industry and its related needs. It has over 35 years of experience in a variety of legal matters, including environmental and social license and land ownership.