AMLO mining concessions pledge sparks investor jitters

A pledge by Mexican President Andrés Manuel López Obrador (AMLO) not to grant new mining concessions is undermining investor confidence in the sector, industry insiders warned.

The left-wing Morena party president caused jitters with a repeated promise to halt the awarding of mining concessions, stating that contracts covering 80Mha – or 40% of the country – have been handed to miners since 1983.

"We will maintain these concessions, we’re not going to cancel them, but now we’re also not going to continue issuing new mining concessions, because a lot have been handed out," AMLO said in a press conference in Zacatecas state earlier in August.

Concessions were handed out for financial speculation rather than mining, with the vast bulk of the land not in production, the president claimed in a press conference last Friday. "This ends now," he said.

INVESTOR CONCERNS

While AMLO has yet to announce new legislation to put this pledge into action, investors are worried, Trevor Turnbull, head of gold and precious metals at Scotiabank, told BNamericas.

"Mexico is every bit as good as it was from a jurisdictional point of view but investors are nervous about it," Turnbull said in a telephone interview.

"The government has a way of making silly statements. They say we’re not going to cancel concessions, but we don't see the need for mining companies to need more.

"That's a pretty ugly thing to say and demonstrates that you don't really get how the industry works," he added.

Although Scotiabank is not particularly concerned that damaging legislation will be forthcoming, investors disagree to an extent, according to Turnbull.

Recent poor production and cost performance by Mexican miner Fresnillo have fed into investors' fears over rising risk in the country, despite the fact the issues relate to technical challenges at the company's older assets, the analyst said.

But there is no evidence of the government planning new legislation that will hurt miners on the ground, Turnbull added.

That view is shared by Darrell Rader, CEO of Mexico-focused explorer Minaurum Gold.

While AMLO has been an outspoken critic of the sector's environmental and social record, comments in his daily press conferences must be taken with a pinch of salt, Rader told BNamericas.

"If you’re talking for an hour-and-a-half off-script a lot of things are going to come out that don't end up being policy," he said.

DUE PROCESS

Despite his populist, anti-establishment views, the president has surrounded himself with industry leaders to advise on potential policy changes, according to Rader. And due process must be followed.

"The president cannot just make laws by making certain statements. If there is a change coming down the road, and I don't know of any, legislation has to be passed, and this takes quite a while," Rader said.

"In Mexico I'm very confident in the stability of the mining industry. We have found it a very cost competitive place to work."