Mexico’s government already faces the threat of international dispute settlements over its energy reforms and proposed ban of GM corn. It now wants to radically change the rules of the game for its huge mining sector.
Mexico is the world’s largest silver producer, accounting for roughly one out of every five metric tons of the precious metal mined in 2021. It is also among the top ten global producers of 15 other metals and minerals (bismuth, fluorite, celestite, wollastonite, cadmium, molybdenum, lead, zinc, diatomite, salt, barite, graphite, gypsum, gold, and copper). For the past 31 years the country has functioned as a veritable paradise for global mining conglomerates, serving up some of the laxest regulations in Latin America. But that could all be about to change.
The Mexican parliament’s lower chamber on Monday (April 17) began debating a proposed overhaul of the country’s mining law. Also under debate are proposed amendments to the National Water Law, the General Law of Ecological Equilibrium and Environmental Protection, and the General Law for the Prevention and Integral Management of Waste. This comes just two months after Mexican President Andrés Manuel Lopez Obrador (aka AMLO) signed a decree handing over responsibility for lithium reserves to the energy ministry, after nationalizing the country’s lithium deposits in April 2022.
The main objectives of the reforms are threefold, Mexico’s Economy Minister Raquel Buenrostro told a private meeting of legislators on Monday (April 17): to restore state control over Mexico’s mineral and water resources; to regulate the granting, maintenance, supervision and termination of mining concessions; and to protect human rights, the environment and human health.
What Makes (Made?) Mining in Mexico So Special?
One thing that sets Mexico apart from most, if not all, other resource-rich countries in Latin America is the extreme preferential treatment it grants to the mining industry. In the country’s 1992 Mining Law, mining activity took precedence over all other industries and activities. Article 6 of the law reads:
The exploration, exploitation and beneficiation of the minerals or substances referred to in this Law are public utilities and will have preference over any other use or utilization of the land, subject to the conditions established herein, and only by a Federal Law may taxes be assessed on these activities.
Thanks largely to this bizarre four-line paragraph, the claims of the mining industry on Mexican land have had greater import than not just all other industries but all other human activity. For the next 31 years Mexico’s federal government has been bound by law to act against the interests and rights of both private landlords and local communities in order to guarantee mining companies access to the lands upon which a concession is granted.
“No other mining law on the continent grants preferential access over any type of land use,” Jorge Peláez Padilla, a professor of law at the Autonomous University of Mexico (UNAM), told the investigative journalist website Contralinea in 2013. The result has been rampant expropriations of private — and in some cases communal or even protected park — land, for the sake of private mining operations.
The duration of the concessions granted can also be uncommonly long. The 1992 Mining Law allows concessionaires to explore or exploit Mexican land for 50 years, and up to one century if the interested party requests an extension.
The law was the brainchild of Carlos Salinas de Gortari, who served as president of Mexico between 1988 and 1994. As I wrote in my 2014 WOLF STREET piece, Slimlandia: Mexico in the Grip of Oligarchs, in those six years Salinas set Mexico’s economy upon a path of rampant privatisation, deregulation and liberalisation:
During his… presidency Salinas not only signed up to NAFTA, but he also embarked on a privatization spree, selling off mines, banks, railways, electricity networks and, of course, Telmex, the national telephone company. Salinas relied on a relatively small group of Mexico’s oligarchy to supply him with campaign (and perhaps personal) funds, in return for the sale of state assets at favorable rates and terms…
Just as happened in Yeltsin’s Russia, the “liberalization” and privatization of Mexican markets has given rise to a new über-caste of oligarchs. More than half of the 11 Mexican tycoons featured on Forbes’ 2012 Rich List (who between them controlled a total wealth of $129.7 billion) are or once were owners of former state-run enterprises. They include owners or important shareholders of mines (German Larrea and Alberto Bailleres), telecoms companies (Carlos Slim, Ricardo Salinas Pliego and Emilio Azcárraga) and banks (Roberto González Barrera, Alfredo Harp Helú and Roberto Hernández Ramírez).
Unhappy Miners
Unsurprisingly, mining companies, both Mexican and foreign, are not overly happy about the prospect of losing the preferential regulatory treatment to which they have grown accustomed. The Mexican association of mining engineers, metallurgists and geologists (AIMMGM) warned in a statement that the proposed reforms represent an existential threat to the industry by drastically altering the procedures for obtaining mining concessions, the exercise of investors’ rights and compliance with regulatory obligations, as well as the penalties for failing to do so.
“This could generate large-scale capital outflows from a mining industry that directly employs over 400,000 people and generates more than 2.5 million indirect jobs,” it said.
The US ratings agency Moody’s cautioned last week that the proposed measures could present a number of credit risks to Mexico’s mining sector. “If approved as proposed, the changes will be credit negative for the mining sector, increasing the regulatory burden on producers and raising the risk of early termination of their current concessions,” said a Moody’s Investors Service report.
Besides eliminating the Mexican Constitution’s preferential treatment for mining exploration and exploitation, the AMLO government’s proposed mining reforms would, among other things:
- Shorten the length of mining concessions from 50 years to a maximum of 30, with a first term of 15 years and the possibility of a single renewal. Currently, 11% of mining concessions are for up to 100 years. With regard to existing mining concessions, the reforms provide that their current term (50 years) would remain unaffected.
- Tighten rules for water permits and require miners to disclose the environmental and social impacts of their operations. The recipient of a new concession in an area with an existing population would also have to pay a minimum of 10% of the profits obtained from the mining activity to the local community.
- Ensure that licenses can only be granted through public tender and letters of credit. The reforms propose eliminating the current “first come, first served” approach to granting mining concessions. Instead, to qualify for a new concession, an applicant would have to compete in a public bidding process. If chosen, it would then have to provide a letter of credit guaranteeing compliance with the measures established in the corresponding Social Impact Study.
- Expand the grounds for cancelling licenses, including lack of planning for closure and handling of waste.
- Allow for the suspension of activities if workers or communities are found to be at risk.
- Ban mines from using unauthorized water sources or from digging deep wells that threatening water for others. Concessions to use local water supplies would be subject to availability and would be valid for five years.
- Ban the granting of mining concessions on protected parkland. Currently around 7% of all mining concessions are on protected land, according to a recent government report.
- Restrict licenses to a specific mineral instead of any type of mineral discovered within the boundaries of the licensed territory, as is currently the case.
- Make Illicit extraction and trafficking in minerals and failure to protect workers criminal offences.
In total, 11% of Mexico’s territory (20,853,928 hectares) has been licensed for mining exploration and exploitation. Of that, some 188,320 hectares are actually being actively mined by a grand total of 874 mining projects, according to a study carried out by the non-profit civil organization CartoCrítica. More than 80% of those projects operate without reporting the damages they cause or the pollutants they emit into the water, air, or land as a result of their operations, according to the study. Also, many do not report the volumes of minerals they extract from each project or how much water they use.
“Given the potentially toxic nature of contaminants associated with metal mining, such as cyanide and heavy metals, these results are especially alarming,” said Manuel Llano, a geographer with CartoCrítica.
The AMLO government’s new mining reforms are supposed to change this. The president insists that the reforms are not about expropriating mining companies’ assets but rather looking after the environment. But they also represent a rebalancing of power between the government and mining companies. They also form part of a growing resurgence of resource nationalism, not just in Mexico but across Latin America, that could have major repercussions for global supply chains, as I wrote about in February last year, in Resource Nationalism on Rise in Latin America, As Fever for “White Gold,” aka Lithium, Grips the World:
More and more governments in Latin America want greater control over the increasingly valuable raw materials that underpin their economic models (as well as the so-called “green” energy revolutions being pursued by governments in North America, Europe, China and elsewhere), which is perfectly justifiable and long overdue. But in so doing they are pitting themselves against some very powerful interests.
They include the US and Canadian mining conglomerates that hold a combined 87% of licenses in Mexico as well as their investors. According to the president of Mexico’s Mining Chamber (Camimex ), Jaime Gutiérrez , if the initiative is approved in its current form, Mexico will lose more than $9 billion in investments, with direct repercussions on 70 economic sectors, including the automotive, pharmaceuticals, chemicals and construction industries.
In recent months the Biden administration and US military have been disarmingly candid about their designs on Latin America’s natural resources, particularly lithium, of which Mexico has abundant deposits. Meanwhile, tensions between the US and Mexican governments continue to rise on a number of fronts, including, most recently, the fentanyl trade, with some Republican lawmakers ominously calling for direct military intervention in Mexico.
Both Washington and Ottawa have already threatened to take Mexico to dispute resolution settlement over the AMLO government’s energy reforms and proposed ban on imports of GM corn. Now, the AMLO government wants to radically change the rules of the game for Mexico’s hugely lucrative mining sector, which is a major source of industrial metals and other minerals for global manufacturers.
In other words, one can expect fierce resistance to the proposed reforms as they make their winding way through the legislative branches. In Mexico, every attempt will be made to dilute their impact while the US and Canadian governments will no doubt escalate the threats of reprisals on Mexico’s economy. The question is (and this is well above my pay grade): given how integrated Mexico’s economy is with the economies of its two northern neighbors, could those reprisals end up backfiring just as EU sanctions on Russia have?
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Western mining firms sad for having to abide rules they would face in Western countries. Boo Hoo…
Maybe. When I was traveling out west the access road to a Colorado National Forest campground was blocked by a mining claim with posted signs and no mining seemingly taking place. In the US miners– including from other countries–also get very favorable treatment.
As for Mexico, first the Spanish Conquistadors turn it into a warren of mine shafts and now the NAFTA conquistadors. All this budding nationalism must be a real threat to Acela.
given how integrated Mexico’s economy is with the economies of its two northern neighbors, could those reprisals end up backfiring just as EU sanctions on Russia have?
I hope so…. there is no need to treat Mexico as a threat to USA Democracy just because their Sovereign interests conflict with private vested interests.
Why must USA policy always first defer to any other nation as hostile when private corporate profit interests are threatened… why not work together as friends instead of threatening conflict. How is a legislator threatening another country in any way supporting his oath to uphold the constitution.
Did not the founders of our country warn of meddling in others business?
Because USA policy is written by private corporate interests. Founders!?! Lol.
I don’t see any outcry about the harm being done to the miners – only the potential damage to owners of the mines. It seems that people count for less than profits – what a surprise.
As for the drug problem, I would say that most, if not all, of the problem, lies with the Americans who use drugs. Military force didn’t stop the poppy production in Afghanistan or the coco production in Columbia. The least expensive solution to the drug problem would be treatment, jobs, and education for drug users. Unfortunately, this solution doesn’t sound as dramatic as proposing using force against a neighboring country. There are some problems that cannot be solved by guns, but some of those problems can be at least lessened by treating people humanely.
I have to correct that for you, most of the problem lies with the Americans who make money selling drugs to Americans. There is considerable evidence that the drug trafficking that was part of Iran Contra was, is and continues to be a huge funding source for our intelligence community.
For instance just like securing the oil fields was priority one in the Iraq invasion, turning the poppy fields that had been seized and/or destroyed by the Taliban back to the war lords was practically the first act in Afghanistan tells you much about the priorities the American invaders had. America doesn’t really try to take out drug production, much of the time “we” are just picking which criminal cartel we wish to deal with.
Even let them run whole nations sometimes:
https://en.wikipedia.org/wiki/Manuel_Noriega
Would be interesting to see a comparison between the controls Mexico seeks to establish and existing regs in the ‘first world.’ Proposed changes seem unremarkable policy-wise.
Most of the changes seemed quite reasonable, but a couple of them seemed counter-productive.
For example, the first one (“shorten the length of mining concessions from 50 years to a maximum of 30“) would likely results in the premature closure of productive mines. That strikes me as foolish, as it would force mining companies to move production to new mines after 30 years, which would result in damage to communities and the environment in new places. If there are still viable mineral deposits at the existing mines, wouldn’t it be better to simply keep digging where the damage is already done?
And similarly, the next to last one (“restrict licenses to a specific mineral instead of any type of mineral discovered within the boundaries of the licensed territory“) could result in mining companies opening new mines in new places to dig for minerals that are already present at their existing mines. Permitting multiple minerals per mine could reduce the total number of mines in production.
maybe they based this on the average productive life of a mine?
The term of the concession would run out, not the viability of the deposit. Renegotiating terms, auctioning rights, nationalizing the project or some other outcome would be likely and lucrative on a developed economic mineral deposit. It could however make the concession holder think harder about committing to the often enormous initial capital outlay.
Minerals more often than not show up in ore with with passengers. Sometimes complex metallurgy creates added extraction costs. Sometimes (in a copper-gold deposit for example) the gold on it’s own might not be viable economically but since the economics of the copper are solid the gold can be extracted as a nice bonus or even push the copper deposit into economic viability.
This proposed rule in practice might be cumbersome but it would allow the licensor to impose different environmental regulations, say, or different royalties on minerals extracted from the same concession.
The second point is actually very relevant. Rare earth metals are quite volatile in value, and deposits are often near one another. Currently, it would be relatively easy for amining company to get a concession for one more plentiful lower value material, only to find physically small deposits of highly valuable rare earth metals ‘coincidentally’ 10 years later.
I wonder how much of lithium’s current value is making its way to Mexican public funds, for example.
I am not sure how concession work in terms of taxation and royalties. I would guess that re-negotiating royalties every 15 years is reasonable. There are also opposite problems with concessions: they cover a lot of unused territory, with potential loss of production.
” …they cover a lot of unused territory, with potential loss of production.”
Grassroots exploration work can cover very large areas. It is an expensive often fruitless multi-phased endeavor.
My own experience operating mineral explorers included in a couple of cases flying airborne mag surveys over large, geologically prospective concession areas in the hopes of finding a single magnetic anomaly (hopefully a kimberlite pipe) to investigate further. It was financed by “junior” explorers from either the AIM or TSX-V exchanges. Disreputable penny stocks.
It’s pay to play by either, spending for audited work on the property or paying cash” in lieu of” to the government to maintain the concession (within a strict time frame). “Majors” like BHP and Rio Tinto to drop a name will partner with a junior explorer to off set risk at the earliest stages of exploration. No company retains an interest in a property with no potential beyond the earliest stages unless they’re running a promotion/pump and dump.
Any ground that remains in the claim/concession after that is likely prospective for further exploration and prevents independent juniors from creating an “area play.” Paying for ground that you don’t expect to work is bad business.
There’s a saying among exploration geologists, “Every ten years the ground is new.” Meaning that technology, geophysics metallurgy, what have you, advance. It’s why we see tailings being mined at old mine sites better recovery tech. As well as mineral scarcity being a thing with all the low hanging fruit having been picked and commodity prices reacting accordingly.
What do you do when you find yourself playing a game where the rules have been written so that you can never win but will always lose? You tear them up and write more fairer rules. Yeah, those mining companies will moan and bitch but what are they going to do? Move those mines out of Mexico? I had no idea that Mexico had so much mineral wealth and the country should properly benefit from it. I mean, once it is gone it is gone and you can hardly grow any more. They’ll chuck a fir in DC. Maybe old Joe will order an invasion of Mexico to occupy the places that the Cartels have their bases in – which will just happen to be located where those mines are.
Neocon are edging to pull their own SMO south of the border, as AMLO has been annoying them for some time now.
It would be a humanitarian nightmare, but there would be a certain grim amusement to watch the Imperial Military lose a war against a nation that barely has an army.
Ah, but which way would the Narcos go? Remember Pancho Villa? His history in the Guerra Contra Diaz and after is instructive. [The United States was heavily involved in the Mexican Revolution.]
The Americans could quite possibly win all the “battles” and still lose the “war.”
(I wonder how Latin America would react to American Marines occupying the Mexican gulf oil producing regions and facilities?)
How much were recent interest rate increases inspired by uppity latins?
Destruction by any means possible is likely.
Operation Gringo 2.0…
If I were Mexico, I would worry about becoming the next Guatemala.
I take no position on the 1992 law. In Mexico all sub-surface rights belong to “the people”- meaning the government. From the time of the Mexican revolution to recent times the big issue was oil. The Mexican government expropriated the existing oil production after the revolution. The result was more short-term profits for the government to use, a decision by investors to look elsewhere for opportunities and after 1973 a slow decline in oil investment. The free trade era changed that and Mexico began to treat minerals the way the US does, lease the land for mining and take a cut of the profits.
If Mexico goes the “renegotiate existing mining rights” route it will be treated the same as other “Don’t make long-term investments here” places. Mexico and much of the less developed world is faced with the same problem; how to encourage outsiders to invest in cows that can be milked.
I’m sure china will be happy to help…
plus, “the free trade era”…That’s a joke, right?
He told us who he was, believe him.
Mexico has its own currency. There is no need for foreign investment.
Start training locals in whatever skills are needed.
if the minerals are there, and the world needs them; they will be mined.
who needs a “free trade era”, if all that did was oppress a population, and make way for the oligarchs to steal everything from the people?
“everything belongs to the people”…. that is funny…. how can people get so lost in “what the rules say”, and ignore what is actually happening?
Missing some text here:
Gratzie mille, Diptherio. Rather than missing text, it’s text that shouldn’t have been there (“That could be…”).
I think the “the mining companies will just leave” argument is hilarious.
The ore is there. You can’t just dig a hole in any old place and find silver, selenium, lithium, etc. ores. Go ahead and change the rules because the ore isn’t going anywhere without someone mining it first.
It’s the same old story of the US Financial System that’s gone into every Latin American, Mexico, Indochina, Africa and impoverished those countries with purported IMF Loans and the World Bank (owned by the US.)
The US buys off the wealthy and their government officials in those nations, granting them special privileges on Wall Street, and the entire US financial markets.
The US then goes in, stripping those lands of their mineral riches, the US doesn’t have at home.
It forces those nations to produce food crops then are exported to the US at rock bottom prices, while US corporations jack up the prices before putting them in US grocery stores. A very profitable win-win for US marketeers and the wealthy few from that land. A NO-win solution for the native populations with an immense level of poverty and indebtedness they are forced to live with.
Why should we wonder why many non-Western nations are running away from the US’ Financial System of bribes, blackmail, via total destruction of their lands and their people?
Largely agree, but I’d like to point out that it’s generally not that the US is seeking to strip a country of mineral riches it doesn’t have, the US is a large country with lots of mineral resources. Rather it is more profitable to strip global commodity minerals in countries without strong labor and environmental protections. Cheap disposable labor, cut corners on safety, no cleanup costs. Don’t worry though, it’s a race to the bottom and we’re picking up steam.