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Tax Reforms Need Clarity

Joel González - ALN Abogados
Managing Partner

STORY INLINE POST

Sat, 10/28/2017 - 17:10

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Q: How do you feel the fiscal reforms affected Mexico's attractiveness as a destination for mineral exploration?

A: Exploration is a crucial area for us and we work with numerous Canadian junior exploration companies with projects in the Durango-Sonora-Chihuahua gold-silver belt. We have been working with Agnico Eagle for the last five years as general counsel for all the company’s projects in Mexico. We started working with Agnico Eagle on a tax rebate case and we subsequently began an audit on all its land tenure and concessions. From then on, we became like a full-service firm for Agnico Eagle.

The reform had a well-documented negative impact on exploration companies because it delayed the deduction of expenses, which was the biggest issue. For mine operators that have been paying the royalty, the rules have not been clearly defined and applied. We still have some amparos pending against the royalty so we have not yet seen clearly how this will evolve after the supreme court issues its resolution. The point is that companies are challenging whether the tax reform is constitutional or not. The mining fund involves a committee made up of the three levels of government, the community and the company so the viability of bringing the funds to the municipalities with mining projects is not yet clear.

Q: To what extent have you seen an improvement in the mechanisms used to enforce the regulatory changes?

A: Unfortunately, I have seen no improvement in this area. Since the industry is lacking these mechanisms, mining companies have no guarantee that court rulings will be upheld and enforced. The government should work with the private sector to develop mechanisms that allow greater certainty in the mining environment and reduce the risk mining operators assume working in Mexico. In land tenure, we work very closely with the community from the beginning of the project and we try to involve the mining companies with these consultations so all parties are clear about the needs of the mining communities. Afterward, we take time to explain to each party how the agreement will work and what benefits they can expect. The agreement is then taken to court, not to file a claim but to create a precedent that reinforces the judicial recognition we require from the agreement. It is uncommon for companies to want to do so but it provides an additional layer of certainty.

Q: How would you assess the efficiency of the SGM and its handling of the mining concessions?

A: SGM has a lot of information and it has worked a great deal in the last few years to provide more data. It has a new database of projects and it has invested a great deal of money in technology and infrastructure. This is extremely helpful for companies coming from abroad to see the mining potential of Mexico. In terms of the technical part of SGM, there are no problems. The mining regulation bureau is the one involved with mining applications related to regulatory compliance for mining concessions. That is where the difficulties lie because of the lack of infrastructure and human resources. Most likely, budgetary restraints mean the process to approve applications can be slow.

Q: What are the firm’s expectations for 2017?

A: We want to develop our business in other states. We are particularly strong in Sonora, Durango and Chihuahua but we see a lot of potential for other states in the south such as Jalisco and Nayarit. These are states with a great deal of small mining operations and there is a lot of exploration projects springing up right now. There is a lot of mining potential in states such as Michoacan, Oaxaca and Guerrero but social problems are constant so the industry is still not viewed in a positive light. In the northern states, we have been blessed with communities that are far easier to negotiate with than those in the south.

The structure of the communities in the south is far more complex. Oaxaca, for example, is not the largest state but it has around 570 municipalities. This means a lot of work for mining companies, since a mine concession can require several agreements over land use, making things complicated.

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