Image credits: Torex Gold
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Analysis

Mining’s True Impact in Mexico

By Paloma Duran | Mon, 07/19/2021 - 12:16

Mining is an industrial activity that has been linked to the development of the country for centuries. However, it has also been linked to irresponsible practices and negative impacts on the environment and communities. Mining data and records show a different reality, in which mining has been and will continue to be fundamental for the sustainable development of the country.

“It is of the utmost importance to highlight the true nature of the modern and professional mining industry that operates in Mexico. Mining is committed to the economic development of the communities, regions and states where it operates. It is an industry that ultimately boosts the quality of life of the inhabitants of our host communities,” Fernando Alanís, President of CAMIMEX, told MBN.

How Important is the Mining Industry for Mexico’s Development?

Currently, mining has presence in 696 communities, 212 municipalities and 24 states in Mexico. It contributes 8.3 percent of the industrial GDP and 2.5 percent of the national GDP, which makes it a key industry in terms of employment generation and social development, reported CAMIMEX.

Mexico is a mining country; 70 percent of the territory has mining potential but only 30 percent has been explored. Mining has historically been concentrated in the center and north of the country and, as a result, there are many mining opportunities in the south. If they are harnessed, more states will develop and benefit, and with them, their communities, said Alanis. “The mining industry creates high quality jobs, trains people with career skills and generates economic activity that has a sevenfold multiplier effect in society due to the supply chain. Mining is one of very few industries with worksites almost exclusively located in poor, rural parts of Mexico. Our jobs tend to be some of the highest paying and most highly skilled work opportunities in Mexico,” said Bradford Cooke, Founder & CEO of Endeavour Silver.

In 2019, the mining industry created 379,000 direct jobs and 2.2 million indirect jobs. Additionally, mining is one of the best paid activities in the country. In December 2019, the average daily salary in Mexico was MX$378.13 (US$19.01), while in mining it was MX$526.7 (US$26.50), which is 39 percent higher. Furthermore, mining supports the development of other economic activities, such as construction, transportation and trade. Mining imports and exports represent 474,000 tons of materials per year and as a result, if the mining sector is promoted, other sectors will also grow, Alanis told MBN.

Is Mexican Mining Responsible?

Society

Environmental leaders, politicians and activists have argued that mining and its projects diminish the quality of life of communities and violate their rights. "There are mining companies that carry out illegal methods, which has generated social conflicts for violation of rights, dispossession of lands and resources of the communities," said María Luisa Albores, secretary of SEMARNAT. However, one of the objectives of the Mexican mining sector is to generate sustainable development and benefits where it operates, in addition to seeking to generate decent, safe and quality jobs.

According to CAMIMEX's 2020 Sustainability Report, in 2019, affiliated companies spent US$87.94 million on social development programs, benefiting 1.5 million people. Moreover, 36 municipalities that represent 75 percent of the mining production value has a higher Human Development Index (HDI) and a Social Lag Index (IRS) lower than the national average.

In 2021, 29 CAMIMEX-affiliated companies received the Socially Responsible Company distinction (ESR), representing more than 50 percent of Mexico's mining value. An example of the positive social impact the mining industry has on communities is Agnico Eagle’s water project in Yepachic, where the company implemented a responsible water management project that provided direct access to clean water to a population of 1,120 inhabitants, who now have a better quality of life.

Regarding its employees, the sector spent US$76.06 million in training and internal development programs. Mining accidents are 38 percent lower than the national average. In 2020, the accident incidence rate decreased by 24 percent compared to the industry’s records in 2018, reported CAMIMEX. In addition to safety, the mining sector has made significant efforts to improve its working environment. Recently, dialogue between mining companies and the government has become more open, leading to better operations. An example is the reopening of the San Rafael mine owned by Americas Gold and Silver, which was accused of operating under unsafe conditions. The company repeatedly denied that this was true and argued that it was the victim of extortion. Despite the differences, an agreement was reached among all stakeholders with the help of the government to ensure the long-term stability of the company's operations, which will be safer and more sustainable.

Environment

The mining industry has been accused of polluting, neglecting and affecting the quality of life of nearby communities. “In Mexico we have socio-environmental conflicts caused by mining. The complicity of past governments and mining companies has destroyed ecosystems and polluted entire regions, ”said Albores. President López Obrador recently said that mining is responsible for altering air quality, pollution and destroying or seriously affecting the ecosystem.

Nevertheless, in 2019 the sector invested US$457.7 million in sustainability initiatives and US$ 375.2 million in environmental programs. In addition, mining is one of the most regulated activities in the country. To operate, mining companies must have an environmental operating license, an operating certificate, authorization in terms of impact and change in land use and comply with Mexican specifications and standards.

In Mexico there are several companies, such as Torex Gold, that have become an example of a responsible company. Regarding its environmental performance, in 2020, Torex Gold reported zero environmental incidents, 100 percent compliance with environmental laws and regulations and zero water discharges at site. In addition, the company completed its engineering studies for its 8.5MW solar plant at its Morelos property, which is expected to reduce its greenhouse emissions.

There are also plans to improve the negative impact that some mining operations have had on the environment. An example of this is the new Cananea Comprehensive Care Plan that seeks to improve the quality of life of its citizens and address the most urgent mining problems in Cananea, Sonora. In 2014, there was a spill that contaminated the Sonora River with copper sulfate, which came from Grupo México's Buenavista del Cobre mine. The government committed to conducting studies on the Sonora River and carrying out constant tests and monitoring to ensure that the water is not more polluted and improve its conditions. "This plan seeks to repair the damage and restore the human rights to water, health and a healthy environment for the present and future generations in Cananea," said Luis María Alcalde Luján, Minister of Labor.  Meanwhile, Grupo México has reaffirmed its commitment to the well-being of the environment and its communities and argued that its operations have been a driver of development for Cananea.

Taxes

One of the most common accusations against mining is that it does not pay taxes to the Mexican government. Recently, there was controversy over the tax dispute between First Majestic and the Mexican government, in which the latter claims that the company owes about US$209.2 million in taxes. This problem is rooted in the validity of the Advance Pricing Agreement (APA), which allowed the company to pay taxes at a lower rate. According to the company, the agreement remains valid until it is annulled by a Court. The parties have not been able to reach an agreement, so this will have to go through an international arbitration based on Chapter 11 of NAFTA, First Majestic reported.

The industry, however, reports paying taxes equivalent to 52.68 percent of its profits. According to data from CAMIMEX, between 2016 and 2019, the mining sector paid more than MX$104 billion (US$5.2 billion) in income tax alone and more than MX$26 million (US$1.3 million) in mining rights. Furthermore, in the last 4 years, mining has paid a total of MX$131 billion (US$6.572 billion) in taxes.

 According to data and background information from mining companies, Mexico is making significant progress toward implementing more sustainable mining. However, there is a long way to go. “The country has the resources and the capacity to become a global mining power and a leading example of responsible mining,” said Sergio Almazán Esqueda, President of the Association of Engineers, Metallurgists and Geologists of Mexico’s Mines (AIMMG).

Mining is an essential activity to promote social, cultural and economic development in Mexico. “What is missing is to be able to communicate this modern vision that we have of a responsible mining industry that actively and constantly promotes the well-being of the environment, workers and their families and neighboring communities,” Juan E. Pizarro-Suárez, Managing Partner at Pizarro-Suárez & Bandala, told MBN.

 

The data used in this article was sourced from:  
CAMIMEX, MBN, First Majestic, Gobierno de México
Photo by:   Torex Gold
Paloma Duran Paloma Duran Junior Journalist and Industry Analyst