Understanding the Importance of the Modern Mining IndustryBy Paloma Duran | Fri, 05/07/2021 - 16:38
Q: What are the most important lessons you have learned over your years with the firm?
A: The most important lessons I have learned come from discovering the fascinating world of mining. Everything that does not come from oil or is not grown and harvested from the land, comes from the mineral products obtained from the mining activity. Mined ores are in everything we use on a day-to-day basis, and most people are not even aware of this when using their cars, mobiles, home appliances and many other products we daily use.
I have learned just how important mining is as a primary industry without which the manufacturing industry cannot exist and how it has evolved over the last 30 years I have been working in this sector. For example, three decades ago, when a foreign mining company arrived in Mexico, it was common for them to bring their own geologist to guide the exploration process. We quickly realized that there was a communication barrier when they wanted to establish a relationship with local communities and frequently it ended up being complicated. In addition, some mining companies used to install themselves in a location without fully informing the communities nearby at the beginning. Those companies used to start performing mining works and only later when the project was at a more advanced stage, they attempt to get their social licenses. This notion has changed dramatically. Today, a mining project cannot pass the conceptualization stage if companies do not sit down with community representatives from day one to let them know what the mining company will do in said location and how it can assist them and contribute to satisfy their own needs and improve welfare.
I have learned other important lessons that relate to the environment protection. For instance, 30 years ago, environmental restrictions were pretty much non-existent in our country. Environmental officials usually had very little knowledge about the mining industry and its effects. In order to obtain environmental permits at that time, there were normally very simple conditions to be complied with, such as no littering or contaminating rivers. Today, I can confidently say that we have a modern and environmentally friendly mining industry complying with very high standards and strict obligations as concerns the mining operations themselves and site’s restoration and rehabilitation.
Considering all these changes, we need to communicate this modern vision we have of a socially responsible mining industry that actively and constantly promotes the well-being of the environment, the workers of the mine and their families and of the neighboring communities.
Q: What is Pizarro-Suárez & Bandala specialty practice areas?
A: We specialize in corporate law and mining law, including preparation and negotiation of all kinds of mining contracts and to provide legal advice in all kinds of corporate and mining transactions. Our mining contracts include, among others, exploration, exploitation, options, joint ventures, mining operation, royalties, purchase and sale of mining concessions and assets, assignment of rights and all types of civil and commercial agreements. It is important to mention that we also specialize in contracts with suppliers and other third-party entities related to mining operations. Basically, we handle all types of contracts available in the mining industry.
Q: What do you recommend clients say to communities when they first meet?
A: Most of our clients are foreign companies. Contrary to popular belief, these companies willingly approach us to determine how they should conduct their business here. This allows us to implement preventive procedures, measures and strategies, meaning that before an issue occurs, we prevent it from ever happening. We always stress to our clients the need to properly communicate with neighboring communities since day one, to introduce themselves and establish a thorough dialogue about the mining project that could eventually become a producing mine. We also believe that communities should not view a mine as the solution to all of their problems. I have learned it is so important to be mindful of what you offer because local communities and individuals want you to keep your word.
It is advisable that the installation of a mine introduce a combination of direct and indirect local jobs and other businesses, instead of providing just money. Mining companies should help communities to develop these types of additional activities, so that when the mine life expires, the community is left with other viable economic activities and a good source of income that will continue improving their quality of life.
Q: What is one example of a successful case you have handled?
A: We have a client from Canada which through its Mexican subsidiary entered into an exploration and option agreement with Mexican partners and said agreement contemplated that should the option be exercised, both parties would then incorporate a new Mexican mining company as a joint venture vehicle.
The initial perception of many people in Mexico was that our client’s main purpose was to prepare an IPO, obtain its listing as a public company and start trading its stock in the Canadian Stock Exchange, so said people thought this is where our client’s financial gains would come from, leaving behind the business in Mexico sooner or later, which would eventually terminate the joint venture project and all the goals it initially pursued. Contrary to said belief, what ended up happening was that our client never listed its stock, it had a great performance and complied with all the investment commitments and any other obligations it had acquired pursuant to the contract, ultimately creating the new company which is currently operating successfully. That company is now taking care of its own workers and employees, keeping high quality standards in its operations, maintaining a very good relationship with the local authorities and having a relevant roll in the improvement of the neighboring communities’ quality of life, being a good example of how things should be done in the mining industry these days.
Q: What would you like to say to government officials regarding the mining industry?
A: Appreciating the positive impact the mines properly managed and conducted have on neighboring communities is truly fascinating. That is something that I wish we -as an important sector of the economy- could show government officials at the federal, state and municipal levels. We would like to invite them to visit as many mine operations they can and have them speak with the people employed by the mine, as well as with the community members and local authorities. We would like the government to understand the real impact a mine has on the lives of these people and the positive change in their quality of life due, not only to well remunerated salaries and wages being paid to the workers, but also in view of all the infrastructure and services a mine normally would need to put in place aimed at operating. Watching how a mining project changes people’s lives for the better is incredibly satisfying.
Q: What is your opinion regarding the actions taken by the federal government?
A: If we take into consideration a couple of illustrative examples such as (1) that according to information gathered by the Mexican Mining Chamber (CAMIMEX), in 2012 the investments in the mining sector were equivalent to US$8 billion, while in 2019 were of approximately US$4.6 billion and in 2020 were only of approximately US$2.8 billion; and (2) that according to the Annual Survey of Mining Companies 2020 made by the Fraser Institute, Mexico fell further down the rankings of the most attractive jurisdictions for mining investment, we may say that these are clear indicators that in the most recent years we as a country are not making sufficient efforts to promote and encourage mining investments. Statements such as the one we have seen in the news that the current federal administration is not willing to grant new mining concessions is not a good sign for anyone and specially for mining investors, when we need to actively promote and welcome domestic and foreign investments in this sector for a number of reasons.
Mexico is a country with a mining tradition of more than five centuries and still has great potential. As Mr. Fernando Alanís, President of CAMIMEX, has repeatedly said, it is considered that today, 70 percent of the country’s territory has not been sufficiently explored and has mining potential. It is important to realize that if mining is currently happening in 668 communities located in 212 municipalities and 24 states, with the aforesaid mining potential our country certainly has, this activity can benefit much more communities and municipalities. With these recent policies, the administration is pushing away any potential exploration project that could ultimately become a mining operation. Mexico ranks among the Top 10 world producers of 17 minerals. The mining industry currently represents 2.3 percent of the country’s national GDP and 8.1 percent of the industrial GDP and generate 379,000 direct jobs and 2.2 million indirect jobs. Mining is well known as an activity that -as no other one- is able to reach and benefit communities located in the most remote sites of our country. These mining operations often bring roads, electric power, water supplies, drainage, jobs, and most importantly, health and education services to these communities, which they would have never been able to receive otherwise. We need to redouble our efforts and communicate mining’s importance and the benefits it provides.
And last but not least, we need to clearly understand that if the mining industry suddenly ceased to exist, other industries such automotive, communications, construction, infrastructure, energy, and many others would not be able to continue operating. I do strongly believe that the government, miners and society should work shoulder-to-shoulder to become really acquainted of the importance of the mining sector in the national economy and what it can do for the benefit of our country. I hope that our efforts in communicating the importance of the mining sector will convince the federal government to change its present outlook and perception.
Pizarro-Suárez & Bandala is a Mexican law firm active in the mining sector during the last 15 years. For more than 30 years, Juan E. Pizarro-Suárez has provided legal advice to a significant number of international and domestic mining companies.