Mexico’s ‘shock’ new mining law hurts juniors most

The Senate unanimously and with little debate approved two constitutional reforms and a new mining law which the Mexican mining chamber and the Canadian federal government had as recently as April 26 admonished.

Mexico’s federal government is led by the Morena party under President Andres Manuel Lopez Obrador (AMLO), a charismatic populist elected in a landslide victory in 2018. Since then, no new mining concessions have been issued in Mexico.

Reuters reported over the weekend that Senators approved the laws in an accelerated process without opposition legislators present. Morena legislators convened outside the chamber’s usual voting location after the opposition occupied the chamber trying to prevent the session.

The reforms appear to be most damaging to junior explorers as they make it harder to obtain a new concession, says Joe Mazumdar, an analyst with the junior mining newsletter Exploration Insights. “Therefore, those not currently working in Mexico may think twice before entering this jurisdiction.”

The mining law reforms reduce Mexico’s attractiveness since companies now have to deal with an increased burden of pre-consultation, impact studies and water concessions, among other things. The new law also requires financial commitments (bonding) that would be difficult to meet for junior explorers.

Chief among the concerns regarding the mining reforms is a shortened tenure of mining concessions, reducing the duration from 50 years to 30 years, with a one-time 15-year renewal possible.

Applications for new concessions filed up to April 20 will be rejected without further action, while Mazumdar believes that those with granted applications will be grandfathered in.

Beaty argues that future investments are at risk. He explains that due to investment capital being mobile, he can’t see any Mexican or international companies wanting to invest new risk capital in the jurisdiction’s exploration and mining industries because of these new laws.

“They are hostile to the industry and utterly uncompetitive with other mining jurisdictions,” Beaty said. “It’s a real shock.”

Beaty believes that responsible mining by Mexican and foreign mining companies has been a massive boon to many communities in Mexico that rely on the jobs, demand for services and community benefits mining provides. “These will dry up because the new rules are so draconian and hostile to new investment,” he says.

He questions the motivation of the Morena party for doing this because, in his view, it will spell the end of mining investment in Mexico until the laws are modified to make them more competitive with other mining countries.

Mazumdar expects mining companies to argue the unconstitutionality of these reforms, given the nature of their rollout to the public. “I don’t think this will be a quick process but note that AMLO’s presidency is limited to one term, which ends in September 2024.”

The new law also tightens water extraction permits and requires some mining profits to be returned to local communities, among other modifications.

Another key change means mineral concessions will now be granted through public auction, and not via a first applicant priority process.

For all these reasons, Mexico’s status as a previously attractive mining jurisdiction is now diminished, the analyst says.

Jobs impacted

While juniors will be required to present more studies and work along with funds upfront to be held as bonds before obtaining the concessions amid the uncertainty of getting them due to the public auctions, Mexico’s national mining chamber, Camimex, has warned the reforms could cost the country some $9 billion in investments and up to 420,000 jobs.

“As far as I can tell, within 12 months, concession holders will have to provide financial assurances for the potential environmental impacts of the mining project, without knowing what kind of mining project it would be as the project would still be in the early exploration stages. Within 90 days, the concession holders may also have to change their water access via the National Water Commission from industrial use to mining use,” Mazumdar says.

While Mexican business conglomerate Grupo Mexico’s mining division had on April 27 indicated the change would not affect its operations, Mazumdar assumes that the adjustment’s impact on producers would be minimal.

Torex Gold Resources (TSX: TXG) says that while it was still reviewing the full impact of the amendments, it had not yet seen any indications it would be retroactive in its application. “As such, given that the tenure of Torex concessions has been granted on a 40- and 50-year basis, we see minimal impact to our operations in Mexico,” a spokesperson said in a statement.

“We are confident that discussions between industry and government will be ongoing as the government drafts the by-laws and directives, which will provide clarity on the operating parameters associated with the amendments,” said the mid-tier company, which operates the 290-sq.-km Morelos complex in the Guerrero gold belt.

As recently as last week, the Canadian Ministry of Commerce has expressed concern that the new mining legislation could affect Canadian investment in Mexico’s mining industry.

Minister Mary Ng said on April 26 that she was concerned that Mexico’s proposed mining reforms could affect Canadian investment in Mexico’s mining sector and potential impacts on North American competitiveness and supply chain resiliency.

Canadian mining companies, mainly listed on the TSX, present the largest group of foreign investors in Mexico’s mining sector. According to government data, Canadian direct investment in Mexico was valued at C$25 billion in 2021, making it Canada’s ninth-largest direct investment destination.