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

A new mining regime blindsided Canadian juniors in Mexico on Apr. 29 after the Mexican Senate rushed through a contentious bill that experts say will deter investment. 

Under the new mining law, companies must deal with an increased burden of pre-consultation, impact studies and water concessions, among other regulations. The new law also requires financial commitments (bonding) that will be difficult to meet for junior explorers. It also allows authorities to cancel exploration concessions after two years if no work is completed on them. 

The “aggressive” move by the government is “extremely damaging” to Mexico’s mining industry, says mining entrepreneur Ross Beaty, who’s made a career of investing in high-risk jurisdictions across Latin America, including Mexico. “It’s a very significant negative to Mexico’s previously good investment climate for mining.” 

It also comes just a month after Mexico nationalized its lithium sector, although the country doesn’t have any producing mines. 

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 rebuked as recently as Apr. 26. 

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

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. 

Investments ‘at risk’ 

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.” 

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 only a one-time 15-year renewal possible. 

Applications for new concessions filed up to Apr. 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.” 

He says 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 the move, which in his view, 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. 

Jobs impacted 

Under the new rules, 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. This, says Mexico’s national mining chamber, Camimex, could cost the country some US$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. 

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

Toronto-based miner Torex Gold Resources (TSX: TXG), which has operations in Guerrero state, says that while it was still reviewing the full impact of the amendments, it had not yet seen any indications they would be applied retroactively.  

“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 sent to The Northern Miner. 

“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.  

As recently as the week before the reforms passed, Canada’s Minister of International Trade, Mary Ng, expressed concerned that they could affect Canadian investment in Mexico’s mining sector, as well as North America’s supply chain resiliency and competitiveness. 

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