Mexico’s Commitment to Sustainable Mining Is Here to StayBy Alejandro Ehrenberg | Tue, 09/08/2020 - 14:03
Q: How interested in the mining industry is Mexico?
A: The Mexican people and the government recognize the importance of mining and are keenly interested in developing the industry. We are not interested in just any kind of mining. Only projects that fulfill the following four characteristics will be successful in Mexico. First, mining activities have to be safe for workers and communities. Second, they must be environmentally sustainable. Third, mining has to be socially inclusive. Regarding this last point, it is important that companies go beyond the legal terms of their agreements with communities: they have to be good neighbors and take ownership of the development of the regions where they operate. Fourth, mining must fulfil its legal and fiscal obligations. There are always legal lagoons that can be exploited but it is not advisable to do so as paying taxes is part of the social contract with the hosting society. Mining projects that fulfill these four conditions are very welcomed in Mexico.
Q: Now that the Undersecretariat has been terminated, how will the federal government support mining in Mexico?
A: Our approach at the Undersecretariat of Mining was inspired by the private sector. In the private sphere, you do not push your capacities onto the market. Rather, you look at the market, identify a need and then organize yourself to meet the need. At the Undersecretariat, we did something similar. We first analyzed the Mexican mining sector and pinpointed its needs. We asked ourselves the following questions: why is investment in exploration continuously falling? What is affecting mining companies’ credit grading? We then concentrated on factors like fiscal instability, policy uncertainty and security. Most of the challenges we identified were not precisely under the Undersecretariat’s direct perimeter of action. Therefore, we established interagency teams for tackling these issues. My role has been terminated but the teams will carry on. Economy Minister (Graciela) Marquez is committed to continue working on the basis of what we have already achieved. The team leaders were the ones doing most of the work and all of them are seasoned professionals with the highest credentials from world-renowned universities.
Q: Why did you emphasize the importance of dialogue during your tenure as Undersecretary?
A: It is crucial to break communication silos in the mining industry. Stakeholders in the sector tend to isolate in their respective spheres of action and avoid engaging with each other. Nevertheless, successful mining projects depend on the cooperation of all stakeholders. Some miners think that complying with legal requirements frees them from engaging communities or unions in conversation. But that is not true in Mexico or anywhere else. The active support of communities allows you to address both social and security risks. The support of unions prevents external, illegitimate actors from impacting the mining operation.
The soundness of the dialogue-based approach has proven to provide positive results. At the beginning of the COVID-19 outbreak, the mining industry was classified as non-essential and required to halt its activities. Stakeholders came together to reverse the decision and to demonstrate that mines could keep operating safely. We created unity of purpose, defined priorities and implemented solutions. This resulted in the Ministry of Health allowing us to resume activities in June 2020. There are other challenges like security, supply chain liquidity or normativity to incentivize exploration that would benefit from the same strategy. If industry stakeholders come together in dialogue, they can be very successful.
Q: Can miners be confident that the government will intervene to separate rightful from spurious stakeholders?
A: The federal administration has a track record of stepping in to help rightful stakeholders overcome their differences. This implies being prepared to exclude from the conversation parties that wrongfully present themselves as stakeholders. It is important to underline that in Mexico, the rule of law should only be enforced through force as a last resort. Our way is one of peaceful dialogue. Spurious stakeholders seek to get involved in extortion schemes to obtain money from companies without benefiting the larger society. These groups are not tolerated in Mexico anymore. Rather, legitimate stakeholders have to cooperate in a mutually beneficial way. An example of how cooperation leads to good results is the situation at Newmont’s Peñasquito. The contrast between the before and the after is stark. Through dialogue and community engagement, we smoothed out social tensions that impacted the region’s development.
Q: How ready is Mexico to reap the benefits from the bull market for metals?
A: Investors trying to decide whether to come to Mexico should take a look at the companies that are already here. They have aggressive investment plans. They have made billions of dollars during the last year. Right now, they are refinancing with relative ease. These are the companies that have been here for a long time. They know the country and are betting their futures on it.
But not every project will be successful in Mexico. There is a way to do things correctly. This way works in jurisdictions like Sonora that have a welcoming mining culture, and in more challenging jurisdictions like Guerrero or Oaxaca. The way of the past will not be successful, especially in the more challenging areas. Miners must be able to carry out sustainable, inclusive and responsible mining. If they do that, their chances of success will soar. It is worth mentioning that, in the context of the current bull market for metals, there are signs of a phenomenon that happened in 2012.
Certain investors put together projects, made all kinds of outlandish promises to communities and then went back to Toronto to sell the project. But they did not mention the social liabilities that their reckless approach generated. As a result, when people started developing the project, they uncovered all kinds of entrenched social problems. I would advise prospective investors to conduct thorough due diligence, not only financial but also social. There are experts in Mexico who can offer good advice, whether at the Ministry of Economy or at consultancies.