Mining’s True Impact in Mexico

Mining has been integral to Mexico’s growth for centuries. It has also been linked to irresponsible practices and negative impacts on the environment and communities, resulting in a public image that is far from flattering. The reality, according to relevant data, is that mining has been and will continue to be fundamental for the country’s sustainable development.

“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.

The sector is present in 696 communities, 212 municipalities and 24 states in Mexico. It contributes 8.3 percent of industrial GDP and 2.5 percent of national GDP, making it a key industry in terms of employment generation and social development.

Although Mexico is a mining country, only 30 percent of its potential, estimated at 70 percent of the country’s territory, has been explored. Historically, the industry has been concentrated in the central and northern regions and, as a result, there are many mining opportunities in the south. If those are harnessed, more states will develop and benefit, and with them, their communities, says Alanís.

Bradford Cooke, Founder and CEO of Endeavour Silver, agrees with Alanís: “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.”

In 2019, the mining industry created 379,000 direct jobs and 2.2 million indirect jobs. Additionally, the data supports the assertion that 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.

Society

Among the accusations against the industry from environmental leaders, politicians and activists is that mining and its projects diminish the quality of life of communities and violate their rights. 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 lower Social Lag Index (IRS) than the national averages.

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. The number of mining accidents is 38 percent below the national average. In 2020, the accident incidence rate decreased by 24 percent compared to 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 the allegation 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 also has been accused of polluting, neglecting and affecting the quality of life of nearby communities. President López Obrador recently said that mining is responsible for altering air quality, pollution and destroying or seriously affecting the ecosystem.

Yet, 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, several companies, such as Torex Gold, have become examples of responsible companies. 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 testing and monitoring to limit the pollution in the water and improve its conditions. "This plan seeks to repair the damage and restore the human right to water, health and a healthy environment for the present and future generations in Cananea," says 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

Taxes are another area of contention, with allegations that the industry does not pay taxes to the Mexican government. A recent example is 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 and First Majestic has said it is seeking international arbitration based on Chapter 11 of NAFTA.

That dispute aside, the industry 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 four 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,” says Sergio Almazán Esqueda, President of the Association of Engineers, Metallurgists and Geologists of Mexico’s Mines (AIMMG).

The fact is, mining remains an essential activity for promoting 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.