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Analysis

The Mining Law Explained

Mon, 10/21/2013 - 11:51

The Mexican Constitution states that all minerals in the national territory belong to the state, and that their use and exploitation is permitted only by individuals or corporate entities that are in possession of a mining concession issued by the Federal Executive, via the Ministry of Economy’s General Coordination of Mining. Although a condition of owning a concession is that the entity must reside in Mexico, there is no limit placed on the company’s ownership, which can consist of up to 100% foreign investment. Foreign companies wishing to operate in Mexico have to either set up a subsidiary company in Mexico, or register the company in Mexico with a Mexican business address.

According to Karina Rodríguez Matus, Partner at PS&RM Abogados, Mexican law is designed to allow the mining industry to function both effectively and freely. “Generally speaking, the current mining law stimulates the development of the mining industry, since it only regulates the essential aspects of mining concessions and grants significant freedom to the stakeholders, within the framework of a regulatory state. It might be necessary to update the law to take into account the current reality, but in general it is a law that functions and serves its purpose well.” She adds that such freedoms are not, however, reflective of a negligent industry: “It is important to note that the mining industry, contrary to what people think, is very regulated, and there is also legislation in other areas that applies to the industry, such as tax, environment, labor, explosives, and many others.”

Mining concessions are issued for land that is considered to be ‘free’, meaning that it is not protected, part of a national reserve, or already the subject of a concession belonging to another party. In addition to obtaining a mining concession, mining companies must register with and gain permission from a number of government authorities before they may begin mining operations (see box below). Experts in mining law warn that while acquiring a mining concession and completing the formalities to gain permission to mine in Mexico is straightforward, companies must be careful to respect the country’s labor and environmental laws. Following the 2012 Labor Reform, those deemed responsible for environmental damage on an industrial scale can be sentenced to between six months and nine years in prison. Criminal law can also be applied to companies that begin the process of exploration before being issued with the proper permits, so it is essential that mining companies complete all the necessary stages of registration in Mexico before they begin their operations. This process will also provide a better understanding of, and a greater ability to comply with, the different areas of the applicable laws. “Companies need to know how the legal framework functions, the type of environmental impact permitting requirements they have to meet, and what the land use or zoning regulations are,” says Federico Ruanova Guinea, Coordinator of the Environmental Practice Group at Baker & McKenzie. Further incentives for caution regarding environmental law are also provided by the legal reform of March 2012, which allows communities to bring class action suits against mining companies where clear evidence of environmental degradation as a result of mining works exists.

Article 27 of the Constitution states that the loan or expropriation of land is permissible for mining purposes that are in the public interest. This right is not always exercised; provided that the relevant communities are appropriately compensated some argue that there is no reason why this should not be happening. “The current agrarian law allows for the development of any given project to be carried out on social land. There is no need to change the Constitution or the law, because there are no obstacles to carrying out extraction. The issue here is that companies wishing to start an extractive project need to know how to navigate the law,” explains Gabino Fraga Peña, Director General at Grupo GAP.