A New Government Heralds Promising Mining Future

The mining sector went through a turbulent period this year due to the changes brought by the Mining Law, the possible cancellation of concessions, as well as the lack of certainty regarding the lithium industry. Despite these challenges, experts agree that the government transition, regardless of the winning party, might signal an improvement for the industry’s outlook. 

On 28 April, 2023, the Plenary of the Senate, composed only of MORENA senators, without the opposition, approved the Mining Law. Among the main highlights of the reform were a reduction of mining concession times and the facilitation of permit cancellations. Opposition parties like PAN said the reform was unconstitutional as it was fast tracked without a proper debate. “Congress did not comply with the protocols that the Constitution states for modifying laws and for having the legal quorum to do so,” Gabino Fraga, Director General, Grupo Gap, told MBN.

Despite criticism, the Mining Law was published in the Official Gazette of the Federation, changing the panorama for the sector. The new legislation reduced the duration of mining concessions from a maximum of 100 to 80 years. The text also establishes that exploratory activities are reserved for the State through the Mexican Geological Service (SGM) or through assignments to entities of the federal public administration.

The Mexican Association of Mining, Metallurgy and Geology Engineers (AIMMGM), CanCham and CAMIMEX have expressed concern about the new law, especially about leaving exploitation in the hands of the government, as the SGM lacks the resources to properly carry out this activity. In addition, CAMIMEX warned that the Mining Law could cost the nation up to 420,000 direct jobs and US$9 billion in lost investment in the coming years. "We, as the private sector, have around US$700 million for exploration. In contrast, the government has no budget," warned Armando Ortega, President, Mining Working Group, CanCham.

More than 500 amparos have been filed by companies against the reform. Experts pointed out that the main problems with it are its lack of clarity, especially in the process of granting concessions, the validity of the concessions, and its retroactive application. In November, law firm EC Rubio reported a favorable ruling on one of its legal appeals against the reform. EC Rubio informed that its team, conformed by Pablo Méndez, Managing Partner, and César Olguín, Partner, argued a series of violations in the legislative process when formulating the law, which led it to be labeled unconstitutional. “This outcome establishes a precedent that we believe may be replicated in the remaining lawsuits filed against the amendments and currently being processed before the federal courts,” the firm said in a press release.

While this ruling has given hope to the mining sector, experts pointed out that mining is paralyzed under the current administration. According to El Financiero, the number of suspended projects stood at 439 in 2018, while the current figure is 837, representing a 69% increase.

Lithium Concessions Still on Dispute

Lithium was another complicated topic for the industry this year. In February, President López Obrador signed a decree to hand over all of Mexico’s lithium concessions to the Ministry of Energy (SENER). This move was met with skepticism by the private sector and industry experts, who questioned the government’s ability to boost commercial lithium production. Alberto Vazquez, Partner, VHG Servicios Legales, told MBN that the reform was irrelevant since the mineral already belongs to Mexico: “You cannot nationalize what is already nationalized in some way.” 

One of the main uncertainties regarding the lithium industry is the participation of the private sector, as the government’s position has changed several times. While, at first, the government said it would not let the private sector participate in the industry, the government’s lack of resources, expertise, and technology led LitioMX to announce that there could be partnerships with private companies. However, private players will have to relinquish any majority participation to the government.  "There is no doubt that the Mexican government should have control in a strategic association with private companies," said Pablo Taddei, CEO, LitioMx. As for the percentage that the government wants to own of each project, Taddei stressed this will depend on each deposit.

Response to the government’s position has been mixed. On the one hand, Advanced Lithium sees many opportunities in the lithium industry. "The LitioMX people are very smart and I have had very good conversations with them. We believe that if we do a joint venture with LitioMx, we will be doing test mining before President Lopez Obrador leaves office in 2024," Allan Barry, CEO, Advanced Lithium, told MBN. However, other companies have experienced significant hurdles in their projects, such as Ganfeng Lithium, whose concessions were cancelled due to non-compliance with its minimum investment obligations between 2017 and 2021. However, the company highlighted that there is evidence that its investment significantly exceeds what is considered minimum under Mexican law. 

Ganfeng Lithium announced that it would appeal the decision in court and seek alternatives, such as a public-private partnership with the government to move forward with its project. Ganfeng explained that, if an agreement is reached with the court, the project could be developed in 18 months. However, if done with the government, given its financial and technological constraints, it could take 20 years to reach production. Secker stressed that if the matter is not resolved, the project could end up being sold. "No one is going to invest a billion dollars unless they have some kind of security. People will prefer, for these larger projects, to go to lower risk jurisdictions," Peter Secker, CEO, Bacanora (Mexican subsidiary of Ganfeng Lithium), said.

Regarding LitioMX, the state-owned company will receive financial support from the Development Bank of Latin America and the Caribbean (CAF) to invest in technological research to produce lithium batteries. Although the amount and the area in which resources will be allocated have not yet been chosen, the investment is expected to accelerate the lithium industry in Mexico. "The perspective is to continue supporting this line of technology, oriented toward the energy transition," said René Orellana, CAF's Regional Manager.

Operational Hurdles

From an operational standpoint, the Mexican mining faced a four-month strike at Newmont's Peñasquito mine. On June 7, 2023, 2,800 Newmont workers ceased activities as they accused the company of violating their 2022-2024 collective bargaining agreement, demanding that their profit sharing (PTU) be increased from 10% to 20%. The strike ended in October 2023, when the company agreed to pay workers a fixed amount equivalent to 60% of the wages lost since the beginning of the strike, as well as to increase workers' wages by 8%. 

The strike at Peñasquito dealt a heavy blow to the sector’s productivity, as it is the largest gold mine in Mexico and a significant contributor to global silver production. According to the Silver Institute, silver extraction will fall 2% in 2023 due to lower production in the main silver producing countries: Mexico and Peru. Overall, the strike cost over US$3.7 million per day and represented a decrease of 72% in gold production in June 2023. “This unnecessary strike has caused significant hardship for all of our employees, contractors, host communities, suppliers and customers. We will continue to honor our commitments, comply with the law and the CBA and work to protect the long-term value of Peñasquito,” said Tom Palmer, CEO, Newmont.

What Does the Future Hold?

While the future remains uncertain, experts assure mining performance will depend to a great extent on the 2024 elections, although greater stability is expected regardless of the winner. “We believe that the next government will follow the same path, as the same political party will likely win the election. We do not expect a radical change, but stability. Mexico will continue to be attractive to investors. We work for clients from five countries in Latin America and Mexico is doing better compared to those other countries,” said David Vizcarra, Founder, Vizcarra Consultores MX.

The sector is also expected to grow as new projects come to life in 2024. Lucas Mining's Tahuehueto project, located in Durango, is expected to reach commercial production in 1Q24.  Grupo Mexico's Buenavista Zinc project in Sonora is in its start-up process, which was planned to be completed in 4Q23, but has been postponed to 1Q24 due to technical adjustments. Sonoro Gold's Cerro Caliche is expected to start operations in August 2024, while Endeavour Silver's Terronera is scheduled to start production in 4Q24.