Image credits: Gobierno de México
/
Analysis

No Exploration, No Industry

By Daniel González | Mon, 04/26/2021 - 15:15

President López Obrador has been adamant about not authorizing new mining concessions to private investors during his administration. While many analysts have interpreted the president´s decision as a bold and favorable move for the nation’s sovereignty, the cost could be higher than most predict.

“We have not granted any mining concessions because it is not necessary,” said López Obrador in March while addressing journalists gathered at his daily press conference. “Our territory has 200 million hectares and 120 million hectares were granted (for concessions) during the neoliberal mining exploitation period. When will we finish exploiting 120 million hectares?” López Obrador has promulgated Mexico’s sovereignty since his election campaign. The approach has affected other strategic industries, such as the oil and gas and renewable energies, which are increasingly dependent on the government for their development.

The president’s address to journalists related to the conflict between companies like First Majestic and Americas Gold and Silver that have clashed with the government for various reasons. Among the bigger issues has been the president’s claim that miners are “not paying taxes,” despite the sector’s significant contributions to the country's industrial GDP. “The economic spillover from mining in Mexico is US$9.8 billion,” explains Fernando Alanís, President of CAMIMEX. “This sum includes taxes paid and the purchases that come from approximately 9,600 national suppliers. This is real money that boosts the economy,” said Alanís, who based his viewpoint on an independent audit by PwC. The report says that unlike other mining jurisdictions similar to Mexico, such as Chile or Peru, there will be a tax increase this year. “CAMIMEX asked PwC for a comparative study related to the tax burden in Mexico’s mining industry in relation to Canada, Chile, Peru and the US. The study showed that Mexico has the highest tax burden,” Alanís says.

According to Mexico’s Mining Law, mining concessions are granted for a term of 50 years, with extension options. For example, concessions granted by President Miguel de la Madrid in 1983 will expire in 2033, while those granted by President Enrique Peña Nieto in 2013 will be valid until 2063. It is important to consider the amendments to the Mining Law that worry many industry players, since they would allow the Mexican Geological Service to carry out social impact studies on concessions already granted, while the Ministry of Economy could declare exploration and exploitation zones null and void due to negative social impacts. “Although these consultations already exist in other countries, such as Peru, where they came into force in 2012, this measure implies a cost in time, which also increases uncertainty regarding the possible approval of the concession if a satisfactory agreement is not reached between the mining companies and the communities,” reported Moody’s in January.

In addition to a global economic recession that has affected world economies, the COVID-19 crisis brought an increase in the demand for minerals and metals in industries such as pharmaceuticals, which has turned its eyes to the world’s top mining countries, including Mexico, one of the world’s main producers of gold, silver and copper. During the López Obrador administration, no concessions have been granted. Important lithium reserves have also been discovered in the country and the government now wants to protect the metal. To shield these large deposits, the government intends to keep four concessions so the Mexican Geological Service evaluates lithium exploration in three states: Puebla, Sonora and Jalisco. “We are evaluating the best options for the use of these mines. Everything will depend on the results of the exploration,” said Francisco Quiroga, former deputy minister of mining in a press conference shortly before López Obrador reaffirmed his decision not to authorizing any concessions.

An article published on Mexico’s government website, reported the situation could get worse for the private sector, which has been responsible for the enormous success of Mexico's mining industry for more than a century. Claudia Gómez and Jorge Peláez, researchers working for SEMARNAT, state in their article that Mexico should “limit the rights granted to companies, take regulatory measures to prevent the existence of the current concession market, oblige concession holders to comply with their obligations and generate environmental inspection and surveillance processes,” among other actions. Now that Mexico has fallen off the list of Top 25 destinations for foreign investment, the authorization of mining concessions by the government would give the country legal certainty and confidence in attracting capital, while boosting an industry that has been strategic for Mexico´s economy for centuries, thanks to its ability to generate quality employment and its influence on the rest of the country’s market activities. “If there are no concessions, there is no exploration. And without exploration, the industry as a whole is in danger,” Alanís points out.

The data used in this article was sourced from:  
Gobierno de México, MBN, Ley Minera, CAMIMEX
Photo by:   Gobierno de México
Daniel González Daniel González Senior Writer