Marco Bernal
President
Mexican Association of Mining Metallurgists, Engineers and Geologists (AIMMGM)
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Insight

A Misinformed and Disconnected Legislation

Wed, 10/19/2016 - 14:59

The Presidency of AIMMGM is soon to be in transition. In August 2016, Marco Bernal will begin his two-year period as head of the National Executive Board of AIMMGM. According to him, his goal is to solidify the actions of previous administrations and prioritize the granting of direct support to AIMMGM associates. “Education is another concern, and we are analyzing the possibility of creating an institution or training center for officials in the mining industry as we used to have one that was quite successful,” he explains. “We plan on taking advantage of installations we already have in important districts.” AIMMGM participates in all that concerns the sector from environmental science studies that are being conducted by higher education institutions, to actively participating in legislative modifications that may affect or benefit the mining sector.

Bernal believes that the country’s legislative body is truly failing to take advantage of the experience AIMMGM’s associates and the industry has to offer. “Often, a lack of knowledge and consultancy causes authorities to miss opportunities, a particular shame for marginalized groups that do not receive the basic services in their areas, and could benefit from the economic boost of mining activities,” he laments. “The government does not realize that in order to explore and develop mining projects, players often invest in infrastructure, strengthen roads and highways, electric power lines, education, health, potable water, and many other assets that can allow communities near mining operators to prosper. Mining companies provide the opportunity of a well-paid source of employment paired with adequate training, especially in remote areas that depend on illegal activities. Our projects can help eliminate criminal groups by offering communities an alternate window of income.”

It is important to work hand in hand with the public sector, he says, as well as with agencies that have a direct relationship with the promotion and development of resources. Within the administrative areas of the public sector that handles mining activities, the Association tries allocate a certain number of positions to experts in the field, as the Mexican Geological Service (SGM) has done. However, Bernal admits that the Association has found very few opportunities to achieve this.

The new fiscal charges for mines that do not have any other productive activity in the country are part of a risky combination of uninformed legislators, low mineral prices, and a heavy drop of investment, according to Bernal. “The implementation of royalties has limited the growth of mining activity, and thus caused a large number of technicians and mine employees to be dismissed,” he claims. “The changes diverted external resources that were meant to fund new and existing Mexican exploration projects as investors are increasingly finding the destination to be less attractive. Countries such as Chile and Peru are in a more competitive position to take advantage of these resources.”

However, the new fees are not the only issue thanks to the fact that players can no longer immediately deduct annual exploration costs, says Bernal. Now, companies receive the deduction in annual payments divided within a 10 year time frame. “Consequently, the industry found that 75 percent of exploration investment was cut in 2015 in comparison to 2012,” he states. “As a way to survive in the low price market, companies are focusing their attention on the most profitable mine sites and causing an accelerated rate of mineral depletion. Even more dangerous, if mining companies continue to delay exploration investment, the industry will no longer have medium to long term projects that can be converted into mines.”

He believes that players must take into consideration internal factors that can delay progress. “Royalty taxes and the elimination of immediate cost deductions have had an additional negative impact on exploration development as there is a lack of capital,” he comments. “The Association lends a hand by offering a wide array of events that create opportunities to show the public the importance of mining activities. For instance, our office in Sonora hosts a biannual international mining seminar, one of our most important events, along with the International Conference in Chihuahua and the International Mining Expo in Zacatecas.”