Héctor Herrera
Partner
Haynes and Boone
/
Insight

Political, Financial Stability Ensures a Healthy Future

Mon, 10/22/2018 - 13:31

Geopolitical volatility can be both a blessing and a curse: it can lead to higher gold prices while an event like the Mexican presidential elections could swing policy against an industry such as mining and players must weigh their options. “Volatility around the world is benefiting metal prices as well as funds in various stock exchanges,” says Héctor Herrera, Partner at Haynes and Boone. “However, the country also needs to take into consideration the impacts of the 2018 presidential elections on investment and the exploitation of mineral resources in Mexico.”
The wildcard Andrés Manuel López Obrador from MORENA, or AMLO as he is more commonly known, sailed to victory on July 1 with 53 percent of the vote. Despite his unequivocal win, the effects of his leadership on the mining industry are much less clear. “He has not announced a stance on the mining industry but clues can be derived from his nationalistic outlook on hydrocarbons,” says Sánchez. “His view on oil could easily spill over to the mining industry. He has publicly stated his intentions of controlling natural resources and reviewing the concessions that have been granted to oil companies.” The lawyers believe nationalizing natural resources in the country would be a grave error and this would be the least favorable scenario for the mining and hydrocarbons industry.
The entrance of a left-wing presidential candidate could also imply a shift of power among nonprofit organizations in the country. “Many nonprofit organizations have political interests that are not related to environmental and social concerns,” says Sánchez. “Left-wing parties have historically given leeway to these types of organization. In effect, a left-wing president would give them more influence and visibility.”
He says this can be seen through PRD’s frequent attempts to implement mining law reforms that tie the granting of concessions to the completion of environmental studies and social licenses. In Sánchez’s opinion, it is absurd to ask companies to invest in these types of concessions before they can ensure the availability of the land. “These kinds of laws have been tried and tested in many other countries and have failed because it is impossible to condition investment on environmental and social approval,” he says.
To protect investors from the risks associated with a new presidential term, the Peña Nieto administration is incorporating the country into the International Centre for Settlement of Investment Disputes (ICSID), an international arbitration institution for legal dispute resolution and conciliation for global investors. According to Sánchez, this tool will help investors protect themselves against any attempts by the government to implement laws that are unconstitutional. “Investors can use ICSID in Mexican courts to protect their investments and this will help retain investment in the country in case of volatility,” he explains. “It also protects the country against any negative consequence from the NAFTA renegotiations.”
Overall, the partners say the law firm’s clients are positive about the growth of the industry in Mexico but are concerned about the political aspects of the country. To establish a healthier mining industry, the partners recommend creating more fiscal equality between the mining sector and other industries. “The mining industry faces some of the strictest and highest fiscal requirements at a municipal, state and federal level in comparison to other sectors,” says Herrera.
Along with legal inequality, mining companies also struggle to access capital, which is creating a reliance on international banks. “The financial schemes that are offered by national banks such as FIFOMI do not fit the needs of junior mining companies,” Herrera says. “They often request details such as the property size when companies are still in the process of finding the capital to acquire land in the first place.”