International credit risk evaluator Fitch Ratings considers the new regulatory framework for the mining industry in Mexico, announced a few days ago, will “paralyze” the activity that contributes 2.5 percent of Mexico's GDP.
“Mexico’s new mining law will negatively affect mining activity in the country by curbing exploration, shortening concession lengths, raising operational continuity concerns and re-energizing community negotiations,” Fitch Ratings reported in a statement.
The new law reduces the mining concession from 50 to 30 years. According to Fitch, the concession requirements are the same for each stage of exploitation, resulting in a higher regulatory burden for early-stage projects. This includes the filing of future mine closure plans, when such details are hard to come by before exploration takes place.
Although the new law will apply to new mining concessions, Fitch highlighted “how the law applies to new discoveries within current concessions remains uncertain.”
With the mining concession, a concession for the use of water must also be obtained. However, “the government can revoke the mining concession if it believes that local human water consumption is at risk, increasing uncertainty and administrative operating requirements. The law also imposes higher reporting standards, including monthly reports of daily water usage.”
According to the new law, mining is not a priority economic activity, so there will be no expropriation of surface or forced leases. In addition, the owners of the land will be entitled to at least 5.0 percent of the profits of the mining company.
Fitch also highlighted that the laws related to the mining industry were approved in an alternate seat of the Senate, without the presence of opposition legislators, who have mentioned that they plan to challenge the laws by questioning the approval process before the Supreme Court of Justice of the Nation (SCJN).