AMLO’s tough permitting stance risks mine closure, job losses

Korea Resources’ (Kores) Boleo mine in Mexico could be shut down due to President Andrés Manuel López Obrador’s (AMLO) tough stance on mining concessions and permitting, prompting a potential political showdown and warnings of a serious economic blow for thousands of families.

AMLO said his administration rejected an application by Kores subsidiary Minera y Metalúrgica del Boleo (MMB) to expand mining at the Baja California Sur (BCS) state primary copper mine.

MMB began production at Boleo in 2015, following a string of delays and cost overruns.

“A short time ago they were requesting a permit for the Boleo mine, saying they are going to close it [if it cannot be expanded] and they need a permit for 300ha, 400ha, and I told them no, that we cannot continue handing out these concessions,” AMLO told a press conference.

The president has taken a tough stance on permitting and concessions in the mining sector, pledging to halt new mining concessions, claiming swathes of the country were handed out to mining companies too easily under his predecessors.

A string of environmental applications have been rejected under his left-wing Morena party administration.

ECONOMIC BLOW

But the Boleo decision sparked public criticism from BCS governor Carlos Mendoza Davis.

Mendoza, of the conservative PAN party, urged the government to reconsider, warning the decision will see the mine closed this year with the loss of more than 1,000 jobs.

“I express my concern about the announcement by the federal government about the rejection handed to MMB for the expansion of its operations, which could cause the closure of the company, causing economic and social repercussions for the families of BCS,” Mendoza said on Twitter.

The company applied for an environmental permit in 2019 to expand the area available for surface mining over an additional 446ha, within the company’s existing mineral concessions, he said.

The mine employs 1,283 workers and supports 478 jobs indirectly, representing 12% of all employment in Mulegé municipality, Mendoza said.

It also has commercial relations with around 4,000 suppliers and is an important contributor to the BCS economy, the governor added.

“To deny the permit to expand operations, the mine will close permanently this year, which would mean serious economic harm for thousands of families and the social stability of Mulegé and the north of BCS.

“I call, respectfully, on the federal government to reconsider the decision,” he added, saying MMB has shown itself to be an environmentally responsible company.

CHALLENGING HISTORY

The permit rejection – which has yet to be announced by the environment ministry – follows a long history of setbacks at Boleo, and rumors of a potential sale of the asset.

The copper-cobalt-zinc project suffered a string of delays due to technical challenges and labor shortages during development, while costs spiraled after major overruns were identified in 2012.

The problems continued after production began in 2015, with lower than expected output.

Camrova Resources, which has a 6.91% stake in MMB, said in 2017 that Boleo is expected to achieve only breakeven cash flow, according to an updated life-of-mine plan.

Output was forecast at 528,000t copper cathode, 20,000t cobalt and 270,000t zinc sulfate over 15 years.

MMB does not regularly report production and the company did not immediately respond to a request for comment submitted through its website.

ANY BUYERS?

Following a string of disastrous investments, state-run Kores plans to dispose of most of its overseas mining assets over the next few years, Moodys said in March.

“Kores is exposed to heightened environmental risk, because of its ownership of sizeable mining assets with weak asset quality in Mexico and Madagascar,” the ratings agency said.

While prospects for a sale of Boleo will be bolstered by current high copper prices, with the red metal trading close to an all-time high at around US$4/lb, the permit rejection will hamper chances of a deal.

Camrova has so far been unable to sell its stake in the asset.

ANALYSIS

AMLO’s policies have focused on improving conditions in Mexico’s poorest communities, while the president has been an outspoken critic of mining companies, particularly foreign-owned firms.

But at Boleo his tough stance on concessions and permitting threatens to harm the communities he has pledged to protect.

AMLO faces a difficult choice – to perform an embarrassing U-turn on his decision to block the permit or cause significant economic damage to thousands of families, risking a public backlash.

But opinion over mining is divided in BCS, a key tourist destination and a state renowned for its natural beauty.

Plans by Invecture Group to build an open pit gold mine overlapping with a nature reserve at Los Cardones were met with protests in the state, with AMLO happy to block the development soon after taking office in late 2018.