Mining industry warns that Mexican reform could hit brakes on exploration

The reforms to the mining law approved by Mexico's senate on Friday, without the presence of the opposition, would be a serious drag on exploration by giving the State control of these activities, according to industry players.

The new legislation, which was sent to the executive branch and is awaiting publication in the official gazette, reduces the maximum length of mining concessions to 80 years from 100.

The text also says that exploration activities are reserved for the State through geological service SGM or via allocations to entities of the federal public administration.

"From the outset, the big question is whether the SGM will have enough financial resources to match the amounts that private parties have been investing up to now," a mining industry executive told BNamericas on condition of anonymity, warning that the law will put the brakes on this fundamental mining activity, which will be reflected in lower production down the road.

Luis Humberto Vázquez, president of the mining engineers, metallurgists and geologists association (AIMMGM), recently told BNamericas that leaving exploration in the hands of the SGM was one of the "most serious" aspects of the original bill due to its possible impact on the mining industry. He stressed that he did not see it as feasible because "the SGM doesn't even have the capital that this activity requires."

Armando Ortega, president of the Mining Task Force of the Canadian Chamber of Commerce in Mexico (CanCham), agreed with the AIMMGM president that the lack of funds will be the main constraint of SGM.

"As the private sector, we have nearly US$700mn for exploration. On the other hand, the government doesn't have a budget, and that is assuming that the treasury provides the funds and that they are used," Ortega was quoted as saying by newspaper Reforma.

"It's a very delicate problem because the government wants total control by saying they will explore and where. Without exploration, there is no future – there is no mining," he said, adding that the new rules could fall afoul of the country's trade agreements. 

Unlike the original proposal submitted to the lower house by President Andrés Manuel López Obrador, the bill approved in the senate stipulates that non-extendable five-year exploration agreements may be entered into with individuals who have information regarding the existence of minerals in unassigned lots of land. It also establishes that if minerals are found on these lands, individuals can obtain a concession if they make an offer that is equivalent to at least 90% of the highest proposal made, assuming they also meet the legal requirements.

“The fact that exploration results are going to be tendered to the highest bidder suggests that small-scale mining will have few opportunities unless it involves exploration in small areas,” the anonymous mining industry source told BNamericas.

“We will have to see what the regulation [which must be published within 180 days from the publication of the law] says about associations for exploration to find out how and through what mechanisms. Right now, it's all speculation."