In brief

On 28 March 2023, the Mexican President introduced a bill to Congress, containing a decree that amends, adds and repeals various provisions of the Mining Law, the National Water Law, the Ecological Balance and Environmental Protection Law, and the General Law for the Prevention and Integral Management of Waste, in relation to mining and water concessions.

Mining is a priority activity for a country’s economic growth, as it provides the minerals and raw materials needed for different industrial sectors. Mexico is a mining country by nature, as it has resources of major worldwide importance that can and should be exploited in a sustainable manner. If approved as proposed, this initiative would hamper the development of the sector by restricting the exploration, exploitation and processing of these minerals.

In more detail

One of the main reasons countries grant mining concessions to private companies is the lack of resources and technology to adequately perform mining. The amendments proposed in this initiative could critically affect mining activity in Mexico, causing a serious lack of legal certainty in several aspects and marking a significant setback for the sector, which is already stagnant according to the information contained in the preamble of the initiative itself.

Under the current federal government administration, no mining concessions have been granted and the geographical area under concession has been reduced to 8% of the entire national territory; this situation, together with the federal government’s lack of attention to this sector, may have serious repercussions in the years to come. A country that does not explore is destined to cease to be a mining country, thus compromising its economic future. Not only would it mean that Mexico would cease to be a mining power, but it would also seriously affect the generation of direct jobs and added value to other sectors of the economy such as construction.

Below, we analyze the proposed reforms in the initiative that we believe pose a serious risk to mining in Mexico:

1. The scheme of open land and first applicant is to be eliminated and the concession granting scheme will suffer modifications so that it will only be through public bidding. This prohibits mining companies from applying for new concessions. Bids must be called by the Ministry of Economy. Although this may seem fair, the current federal government has demonstrated in many other industries and sectors that the terms and procedures of public bids and tenders are not respected, and in most cases the government awards contracts directly.

The initiative does not provide a basis for developing programs that consider the inventory of areas suitable for bidding, as well as the periodicity of such bids. The current rate of concession granting gives the impression that the federal government would not have much interest in calling for such bids, considerably impacting the number of mining projects being developed by private companies.

It also establishes that when a piece of land subject to bidding is located in an area inhabited by an indigenous community, the winning bidder must enter into an agreement with that community to obtain the use of the land and pay them at least 10% of the profits obtained from the mining activity — a high and disproportionate threshold that would most likely not withstand a constitutional review.

In addition, it establishes that the Ministry of Economy may grant allocations to federal public administration agencies without the need to submit to a bidding process, thus violating the constitutional principles of economic competition and free competition.

2. The preferential nature of the mining activity is eliminated. Consequently, the right of the concession holders to expropriate the corresponding land for mining exploitation, derived from such preponderant nature, is eliminated. The initiative proposes that this right be replaced by a temporary occupancy or easement agreement between the concession holders and the owners or holders of the land rights. The consideration, terms and conditions for the use, enjoyment and affectation of such land must be negotiated and agreed upon by the parties, but no mechanisms, parameters or objective and clear criteria are established to set the basis for how the terms should be agreed upon and negotiated.
3. The duration and extension of mining concessions is reduced from 50 to 15 years, which may be extended on a one-time basis for the same period. This measure restricts productive investment for mineral exploration and exploitation, generates uncertainty and may prompt potential domestic and foreign investors to move elsewhere. Mining operations can take five to 10 years just to begin their production phase; limiting them to 15 years, with a single extension, would make many projects unviable. In addition, this modification jeopardizes the concessions already granted. This would constitute indirect stripping of current concessions.
4. The granting of mining concessions is conditional upon the availability of water, as well as upon the previously obtained water concession for mining. Given the current lack of water resources in several states, the initiative creates a new type of water concession for specific use in mining, which will be subject to availability and will have a duration of five years with the possibility of extensions for the same term.
5. The transfer of concession titles will now have to be approved in advance. Unlike the current Mining Law, which states that the transfer of the ownership of mining concessions will be legally effective before third parties and the Ministry of Economy upon its registration in the Mining Public Registry (without the need of a prior authorization), the initiative establishes that the transfer of mining concessions will require the authorization of the Ministry of Economy. This could have negative implications because of the time that this agency may take to authorize the transfer, affecting private investment and mergers and acquisitions.
6. There is a substantial increase in the causes for cancellation of mining concessions, causing great legal uncertainty as some of these are very open to interpretation and lack objective and quantifiable parameters.
7. Mining exploitation is limited to the minerals or substances specified in the concession title. This limits the ability to exploit other minerals found within the concession land that are not contemplated in the title.

The above amendments would entail a major regime change; it would be a real –and adverse- game changer for the mining industry. It would appear that based on inaccurate and misleading information, the federal government is trying to recover all the previously authorized concessions and to prevent the issuance of new ones. Violations of the USMCA could also be noted since, among other possible transgressions of the legal order, the initiative gives preference to the para-state entities of the federal public administration (through the allocations) over all others.

The reduction of the term of concessions to 15 years and the elimination of the possibility to extend existing terms could be considered forms of expropriation, as they limit and subject the transferability and disposition of concessions to a prior authorization. Also, the transitory regime of the initiative establishes that requests that are in progress will be dismissed, thus disrupting a petitioner’s rights.

It is also important to mention that the initiative breaches several constitutional principles, such as the principle of economic leadership of the state, since — far from favoring development and investment, as well as job creation — this reform hinders growth, the principles of economic competition and free concurrence. Similarly, it creates entry barriers to trade, protecting those who already have a concession from competition and establishing discriminatory treatment of those concessionaires who cannot access a new one, compared to those who already have a concession and are exploiting it.

Since this initiative has not been classified as preferential, its approval will not be fast-tracked like the last reform to the Mining Law in the case of lithium. However, it could become law sooner than expected, without the discussions and debates that such a reform should merit.