New Mining Law Will Affect Exploration the Most: Fitch Ratings
According to Fitch Ratings, the reform to the Mining Law will bring serious problems to the exploration and operational continuity of companies in the country. "The new Mining Law in Mexico will negatively affect activity in the country by slowing down exploration, shortening the duration of concessions, generating concerns about operational continuity and sparking new community negotiations," the rating agency asserted.
The agency pointed out that exploration will be the most affected activity in the mining sector due to the centralization of activities under the responsibility of the Mexican Geological Survey (SGM), which could result in public auctions of new concessions instead of a priority process for the first applicant.
In addition, concession requirements will become the same for each stage of exploitation, which creates a greater regulatory burden for projects in their initial stage. Despite these changes, large reserves, prospective concessions and diversified growth strategies should limit the effects on companies in the rating agency's portfolio.
Fitch noted that Grupo Mexico will be less affected by the exploration restrictions. Meanwhile, the shorter lifespan of a Peñoles mine, approximately 10 years, is not indicative of a higher risk as it possesses prospective concessions for its mostly underground mines.
On the other hand, there are concessions that have been reduced from 50 to 30 years, with a first extension of 25 years and the possibility of extending it for another 25 years, resulting in a maximum duration of 80 years. According to Fitch, this will affect new concessions.
Moreover, changes state that concession titles must be given to whoever obtains the corresponding competition ruling, after processing the environmental, labor, energy, social and any other authorizations and permits at the federal level, in addition to the corresponding water concession for industrial use in mining, in accordance with applicable regulations.
On Monday, the new provisions to the Mining Law, National Water Law, General Law of Ecological Equilibrium and Environmental Protection and General Law for the Prevention and Comprehensive Management of Waste were published in the Official Gazette of the Federation (DOF), coming into effect on Wednesday.