Mining Sector Not Facing Worst-Case ScenarioBy Karin Dilge | Thu, 06/09/2022 - 17:36
The uncertain environment in the Mexican mining industry created by the latest policy changes appears to merely have had a modest impact, since companies continue to carry out their operations and look toward investment. Nevertheless, regulatory risks and political unreliability are weighing on new investment, with companies looking for opportunities in other Latin American countries.
The administration of President Andrés Manuel López Obrador has been known to be critical of the mining industry, claiming that it has too great an environmental impact and that companies do not comply with the correct practices. In that sense, the government has frozen new concessions, impeding companies to expand to new exploration areas. Furthermore, the permitting process has also slowed down, with SEMARNAT revealing plans to block all new open-pit mining projects.
Moreover, the recently approved Mining Law reform banned the possibility of new private lithium production projects, as well as other resources deemed “essential,” a move that has generated much controversy in the mining industry. This means lithium mining will be carried out by a state-owned company, although existing concessions granted to private companies will be respected if they comply with the applicable regulation.
These factors have created a challenging environment for investment. “It is not attractive for newcomers, especially companies that do not know the Mexican market. With all this uncertainty, it is not attractive,” Alejandra Soto, Associate Director, Control Risks Mexico told BNamericas.
“But for companies that were already here and that can tell the difference, or have the means to evaluate what the risk is and compare the president’s rhetoric to what happens on the ground, those are the companies that are better off and are still operating,” she added.
Nonetheless, the impact of three and a half years of seeing MORENA in power has not been as strong as some had expected. Despite the efforts of some politicians to increase taxes and royalty payments for the sector, nothing materialized. The worst repercussion so far has been restricted to lithium, which is not even being produced yet. Nevertheless, insiders say that companies do not feel as comfortable as they used to with previous administrations, but they are not facing the worst-case scenario, as suggested by the rhetoric of the president.
“Because the president says he is against mining, some had fears when he first took office that there would be other kinds of measures against the sector,” said Soto. “It has just been the fact there are no more concessions being granted, but otherwise mining operations continue,” she concluded.
The more pressing issue is regarding new investment coming to the country, and especially to the mining sector. BNnamericas reported that Mexico ranked 34th out of 84 jurisdictions globally for investment attractiveness in the Fraser Institute’s Annual Survey of Mining Companies 2021. In 2020’s edition, the country ranked 42nd when only 77 jurisdictions participated, which shows an improvement. Nevertheless, the ranking reflects the more negative perceptions in other places, rather than improvements in Mexico.