Mining Investment and Competitive Focus for GovernmentWed, 10/21/2015 - 11:49
Q: Mining companies feel penalized by the Fiscal Reform announced in 2014. What is the justification for these new taxes?
A: The Mexican federal government has promoted a series of reforms that affect the country in different areas. These include not only the fiscal and energy reforms, but also reforms to foment competition in the telecommunications, finance, and education sectors, as well as improvements to the Labor Law. These reforms are part of a general strategy to increase growth and development in the country. The Fiscal Reform approved by the legislative power includes a rate of 7.5% over the EBITDA of companies in mining production, as well as an additional 0.5% on precious metal production. Through this initiative, it is expected that the mining industry will more widely benefit the local populations around the operations. For a long time, there was no special tax for this sector in Mexico, unlike in other important mining countries in Latin America and around the world. Nevertheless, companies should know that the Mexican government is committed to supporting the country’s mining sector due to its strategic importance in providing raw materials for industry, generating employment and revenue, and attracting foreign investment. In fact, the sector is included in the National Plan for Development 2013-2018, which is focused on bringing in higher levels of investment and competitiveness. In line with this, the Program for Mining Development 2013-2018 was devised to encourage the growth of mining activity in a sustainable manner.
Q: Do you feel that the fiscal reforms have lowered Mexico’s competitiveness within the global mining market?
A: The competitiveness of the Mexican mining sector does not simply lie in fiscal matters. The country offers important advantages for mining investment. For example, Mexico has great geological potential, there is a wide market for projects in the exploration stage, and there is modern infrastructure for geological and mining data through the SGM. The SGM is among the best geological survey organizations in the world, and assumes responsibility for exploring the national mineral richness through the use of state-of-the-art technology, which provides the mining industry with indispensable elements to facilitate exploration, identification, and quantification of mineral resources in Mexico. Moreover, Mexico is a country with a long mining tradition, competitive legal framework, infrastructure, macroeconomic stability, qualified workforce, maritime routes to the main markets in the world, and access to the largest consumer centers through commercial treaties. It also has a strong internal market, and a dynamic growth of the aeronautic and automotive industries, which create value chains with a high demand for minerals. Mexico possesses ample mineral richness, which is why it is within the top ten producing countries for 16 different minerals. There is also an ample network of suppliers with the capacity to meet the needs of the sector, and a process of modernization is taking place through the consolidation of mining clusters.
Q: What opportunities exist to improve the legal framework for mining in Mexico and the efficiency of administrative procedures for this sector?
A: Mexico has a competitive legal framework, which guarantees legal certainty to investors and facilitates access to the national market. This is proven by the large number of companies with foreign capital operating in the country. However, this does not mean that improvements could not be made to optimize the regulation of mining activities. One of the objectives of the Program for Mining Development 2013-2018 is to modernize institutional norms and improve administrative processes related to mining concessions. This latter objective will be achieved through the implementation of technology which will reduce costs, speed up processes, and provide better information for users. In order to improve the competitiveness of the mining sector, we need a modern and transparent regulatory framework, for which it is indispensable to support administrative simplification, modernization of processes, and the optimization of norms. We will simplify the filing of paperwork and permits at the Federal Registry of Procedures and Services related to the mining industry. Moreover, it will be a priority to keep the Public Registry for Mining updated, as well as the cartography of mining concessions.
Q: How does the General Coordination of Mining collaborate with the mining clusters in Mexico?
A: One of our main priorities is to support the consolidation of mining clusters in Mexico; this has become an explicit policy for driving the development of mining in the country. This conjunction of suppliers, mining companies, and institutions creates mechanisms of mutual collaboration and action, and allows companies to reduce costs, increase productivity, and improve the competitiveness of the clusters in general. The General Coordination of Mining has decided to help formalize these mining clusters by offering financing to cluster projects and proposing models according to the conditions of each mining region in the country.
Q: How is the General Coordination of Mining supporting companies looking to enter the Mexican mining market?
A: Attracting larger amounts of investment to the Mexican mining sector is among the policies that are being pushed forward by the present government administration. This is why we are working intensely on promoting the industry among mining investors, communicating the advantages of investing in Mexico, and providing information on how the sector is structured at a public, private, and social level. Similarly, we inform investors on the permitting that must be done to advance a project, the institutions that they need to approach for these permits, and the best practices to carry out this procedure in a swift and successful manner. A Guide for Mining Procedures is available, which outlines in a clear and concise manner the obligations that need to be met through the range of different authorities that regulate the different aspects of a mining project. This includes the application for a concession, the permits for the use of explosives, and the right to the use of water, among others. The General Coordination of Mining also has a project portfolio which offers specific investment opportunities and includes previously evaluated projects, with precise information on each. Interested parties may approach us and assess whether a project meets their expectations. If it does, we put them in contact with the respective parties, for example, the concession holder, to facilitate a business agreement.
Q: What initiatives are you promoting so that communities and ejidos also become aware of the best way to ensure their participation in Mexico’s mining sector?
A: There are many examples of successful mining companies working on ejido lands, in complete harmony with the communities. There is a variety of benefits for the citizens in regions where mining activities take place, and above all in areas with historic mining activity. There is of course still work to be done, and we consider that information and dialogue is fundamental. In this sense, we collaborate closely with the authorities from state governments to promote dialogue between the different stakeholders. In some states, a specific State Mining Council is in place to facilitate this process. State Mining Councils are collegiate bodies presided by state governments, constituted by the public, private, and professional sectors, and linked directly to the mining industry. Their objective is to institutionalize the concept of mining within the state and define politics and strategies that contribute to the development of the mining sector and deepen the relationship between the social, business, academic, and governmental authorities at a municipal, state, and federal level.
Q: How is the government dealing with issues of insecurity in the country and improving the rule of law in Mexico?
A: The insecurity problems are not present nationwide, but are rather concentrated in certain regions. This is, however, a topic of the highest priority for the present government administration. The Mexican federal government, through its responsible entities, is working to strengthen its institutions and has created a security strategy for the country which includes a more efficient National System for Public Security and improved intelligence work. This effort has already delivered important results in terms of improving security conditions. We are also working on implementing strategies and acting on them to solve security issues that affect the tranquility of our citizens, represent costs for companies, and inhibit investment. We follow up on problems encountered by mining companies and manage the participation of competent entities at a state and federal level.
Q: How do you ensure that structural changes in the Ministry of Economy will benefit the private sector?
A: The Mexican government has very clear objectives and strategies to drive the development of the country and its mining sector. The Program for Mining Development establishes four main objectives. The first one is to promote investment and competitiveness in the mining sector. This objective includes support for the consolidation of clusters, as well as the creation of quality geological information to facilitate the exploitation of a wide range of minerals in the national subsoil, especially those of industrial importance. Our second objective is to provide more financing to the sector and its value chain through a refocusing on new financing strategies that can facilitate the access to credit for SMEs and their value chain. The third objective is the promotion of SME mining activities by providing support for exploration and evaluation of projects, geological, mining, and metallurgical consulting, the evaluation and certification of resources, and increased support for geochemical studies and metallurgical tests. Our final objective is the modernization of institutional norms for the sector and the improvement of the permitting processes related to mining concessions. This is being done through administrative simplification, use of new technologies, and necessary adaptations to efficiently take advantage of the mineral resources in the country.