Canadians respond to Mexican investment changes

Many major Canadian mining companies have opened offices in Mexico in response to a series of changes instituted by the Mexican government to make the mining industry more attractive to both foreign and domestic investors.

Because of the changes, investments in and growth of the industry during 1990 far surpassed projected levels.

Most major U.S. mining companies have joined their Canadian counterparts in opening Mexican offices.

While the changes designed to encourage investments are far-reaching, the opening of the industry to foreign investment is probably the most dramatic. Alfredo Elias Ayub, Mexico’s undersecretary of mines and basic industries, explained that foreign companies can now participate 100% in exploration activities without a prior permit.

“We are also allowing 100% foreign investment in exploitation activities without previous permit for 13 years after the startup of commercial operations,” he said, explaining that on the 13th year of operations the foreign company would be obliged to comply with Mexico’s foreign ownership rules which stipulate 51% Mexican ownership.

“We feel this will be attractive to foreign investors because most investments have a payback period of 5-7 years after commercial operations begin. Then the foreign company can stay with 49% ownership.” Foreign companies can also invest through a 20-year trust.

Elias Ayub said most of the large foreign companies that have invested in the Mexican mining sector since the new regulations were issued are involved in exploration activities. The majority of those involved in commercial operations are doing so through joint venture projects with Mexican companies. These changes designed to attract investments also include elimination of a long-maligned mining tax and the government’s decision to relinquish vast tracts of national mining reserve land for use by private-sector mining concerns. The new regulations also make the Mexican mining sector far more accessible to foreign mining companies.

According to Elias Ayub, domestic investment in the mining industry grew from $230 million during 1989 to $655.5 million last year, a figure which includes some foreign investment through joint venture projects. Total accumulated foreign investment in Mexico’s mining industry reached $560 million at the beginning of 1991.

As a result of the regulatory reforms and increased investment, the industry grew by 7.7% last year after stagnating at a 1% annual growth rate for the past several years because of economic recession, fluctuating world prices and restrictive mining regulations that discouraged investment. The total value of the country’s mineral production last year was $2.76 billion; 1990 exports were valued at $1.79 billion.

According to Elias Ayub, one of the most important factors in the revitalization of the mining sector was the elimination of a 7% mining tax adopted when world silver prices were at their peak.

Last year, Elias Ayub said, the Mexican government negotiated with the country’s four largest private-sector mining concerns on the tax. The four companies, which represent 70% of overall national production, agreed to invest $2.42 billion in the mining sector during the next five years if the tax was eliminated. The government agreed and the industry leaders pledged to invest the first $460 million last year. They more than kept their bargain, investing $655.5 million.

Besides eliminating the tax, the government decided to relinquish its control over large amounts of national mining reserves which were not being adequately developed. Of the five million hectares controlled by the government, Elias Ayub said some three million will probably be made available for private mining operations, both national and foreign. Some 1.5 million hectares have already been made available for private use. To further promote productive use of mining lands, he said, “we have made it very expensive for a company to accumulate land and not use it. So companies have also been freeing up land they are not using.”

The process for application and approval of new permits and concessions has also been streamlined. “It used to take five years to get approval for a new mining concession,” Elias Ayub said. “This has been shortened to take 6-7 months, which is standard worldwide.”

In the past, he explained, because all of the country’s mining records were handled manually, it could take up to two years just to verify whether or not a piece of land was free. “We are now computerizing all the mining history and all the information on mining land and concession. Soon it will take only a few months to verify this information. This makes it much easier for new companies to enter the industry,” he said.

In another change, companies which hold mining concessions are now allowed to sell them without prior permit. The sale simply has to be registered with the National Mining Registry.

Additional changes include increased access to geological information and credit for investors. In the past, he explained, it was difficult for the private sector to get access to geological information.

This information has now been made public and is being published on a regular basis in English, Spanish and French. Two major lines of credit, amounting to $1.38 billion, have also been established to encourage new investment in the industry.

Mexico is one of the principal world suppliers of 14 minerals and metals: silver, zinc, celestite, bismuth, barite, flourite, sodium sulphate, graphite, antimony, arsenic, mercury, cadmium, lead and molybdenum. The country also mines large

deposits of copper, manganese and iron ore. Zinc and copper have replaced silver as the country’s leading mineral products during the past two years.