Solutions for Improving Concession Management

Sánchez-Mejorada Velasco y Ribé has long been one of the prominent law firms in the country’s mining sector, serving as an advisor to the Mexican government for the drafting of federal legislation, including the current Mining Law, and in the privatization of stateowned enterprises. This kind of experience makes Sánchez-Mejorada, Velasco y Ribé one of the leading authorities on the management of mining concessions. “When it comes to mining concessions, I do not think that the people who are operating in the current industry understand how important it is for them to circulate,” states Rodrigo Sánchez-Mejorada Velasco, one of the firm’s partners. “Our mining law is based on a free enterprise system that allows concessions to be freely transferred. One of the requirements for this is that certainty over the validity of those concessions is provided where their obligations are easy to meet and to check. Right now, however, if a small miner owns a large concession and wants to sell it to a larger mining company, it will face great difficulty in making sure that the concession is in good standing.” According to Sánchez-Mejorada Velasco, the legal problems surrounding concessions go deeper. A certification that proves the validity of a concession can take months to obtain. Furthermore, the free transfer and free marketability of mining properties has been severely hampered by the fact that the national mining department is refusing to register royalties in the public registry of mines. This has impacted the industry in terms of certainty over the transferability of mining concessions in good standing.

The government’s intractability on tax issues regularly leaves mining companies in limbo in terms of understanding their tax liabilities on new concessions. The difficulty of switching tax liabilities from old concessions to new concessions has left companies in arrears, which might eventually lead to new concessions being cancelled. “If that risk is evident to investors who are considering a new concession, it will be difficult for them to have enough confidence to invest,” states Sánchez-Mejorada Velasco. “Fortunately, there was a recent influx of personnel in the mining bureau that seems to be keen on changing this state of affairs.”

Sánchez-Mejorada Velasco believes that the first step that mining agencies must take in order to improve the registry of concession ownership is educational. “Many of the people working at the mining bureau have little experience on the ground. They may not fully realize what the real operating environment looks like and how their work affects the industry. They should take courses that allow them to understand mining economics, the operational procedures within a mine, and the benefits of mining for the Mexico. They need to start seeing mining companies as clients and treat them as such. This would make them understand the relevance that their everyday duties have in the development of the sector.” He continues by stressing that the government should be the one educating its mining personnel on the needs of the industry, but that only the necessary political will can accomplish this result. “Many of the problems come from erroneous interpretations of people with limited knowledge of law,” he adds. “Another thing that impresses me is the level of technological underdevelopment in which the mining bureau finds itself. If the bureau was fully computerized, then companies could pay their duties and file their assessments works online.” It is clear that this kind of efficient infrastructure could only serve to improve the mining bureau’s internal practices.

In order to enhance the way in which the industry works, it is important to understand what can be changed and what cannot. “The first thing I would do is pass an administrative reform to fix the mining authorities and modernize their processes through technological advancements,” states Sánchez-Mejorada Velasco. “It is very important to enhance the way mining concessions are administered since they are the most valuable assets for mining companies. I would also use the influence of the mining authorities to demonstrate that the royalty was a mistake, and then reduce the tax to a more rational rate. This would be complimented by an easier system to administer the tax; there is no need to complicate it. Net profit interests are always preferable and are better than net smelter returns. If this is done, mining companies will be less able to play around with the profitability of their operations to modify their tax liabilities.”

Another concern for concessions is that, under Mexico’s national assets law, the government has broad powers to cancel any concessions in the name of public interest. This means that the federal government has the power to revoke a mining project without having to change any laws. It is also empowered to apply all kinds of sanctions derived from the environmental laws. Nevertheless, SánchezMejorada Velasco thinks that this would only happen if such faults were recurrent at the same concession. As it stands, concession holders naturally have to abide by environmental laws, but if they fail to do so, they are more likely to be punished than have their concessions removed.