Mexico Update: Addressing Legal Challenges, Minimizing Risks For Mining Companies

Q:  What are your recommendations for mining companies that aim to acquire a new concession and what challenges could they face?

A: My first recommendation would be to obtain a mining concession that is in fulfillment of its legal obligations and confirmed the legal status that has based on the official information of the Mining Public Registry. The rights derived from the mining concession might be obtain from another concessionaire that has already been discovered or registered by another company. Second, based on the legal status of the mining concession, the new concessionaire shall comply with all mining obligations established on the Mining Law, the basic are the payment of the surface or mining taxes, the drafting and filling of proof of works, environmental authorizations, comply with the obligations derived from the agreements entered with other parties to have access to the mine and keep updated the information about the operation of the mining concession. Moreover, companies should also pay attention to termination clauses in case the mining consultant does not comply with payment or its duties.

Another important factor to consider that as a part of the background of the mining concession could be past disagreements that probably will not appear or has not been registered. Therefore, I recommend that as a result of the Due Diligence, carried out to analyzed all the agreements entered since the past 10 years, the official answer issued by the Mining authorities confirming the legal status of the mining concession,  and the information about  negotiations with the third parties that perhaps are not in written form to fully understand the legal status of the mining concession and the terms and condition to be negotiated  for the agreement to obtain the rights of the mining concession and with that minimize the legal risk that could arise related to the past.

Q: How do you explain the Mexican mining landscape to foreign companies and what are their main concerns?

A: The nationalist sentiment promoted by the government has increased uncertainty around investments in mining concessions. This has heightened concern among foreign companies regarding their assets. Our clients want to know what could happen if they acquire the rights of the mining concessions or if they want to invest in the Mexican mining sector with the best technology and there is a percentage of Mexican investment in the agreement, will have the same opportunities that the big Mexican mining companies has it. They also want to know why Mexican companies are having more opportunities to obtain new mining concessions. We explain that the government policy promotes the national investment in certain resources as the mining sector, the Mexican legal framework is clear and protect the foreign investment.

Q: What do you think would have happened to mining investments in Mexico over the past year if mineral prices had not increased?

A: Our clients likely would have sought financial advice regarding investments in another Mexican industry. Four years ago, when the Energy Reform was enacted, hydrocarbons were the leading industry in Mexico. Today, we are lucky that mining has strengthened. Mexico continues to promote the industry and the sector is improving its allure, especially since large lithium deposits were found in Sonora.

Q: Is the legal framework in Mexico both powerful and independent enough to protect mining companies?

A: Absolutely, and also allowed to the parties to resolve the conflicts derived from their negotiations through arbitration procedure. Many mining companies are adding to their agreements the arbitration procedure because dealing with the Mexican courts can be very complex and take long time to resolved. Today, foreign investments have double protection. Generally, if there is a controversy over the agreement, the conflict will be taken to arbitration and companies are backed by international treaties that protect their investments in case the Mexican government does not respect the rights of the company’s concession. Based on the statistics published by the mining companies in Mexico have added this clause to their agreement through a new amendment, which enables them to resolve disputes through arbitration. I believe the highest-profile disputes will be settled through arbitration, followed by the federal courts and treaties such as the T-MEC, that enable companies to have that extra protection.

Q: Do you believe that expropriation represents a serious risk and what can companies do to protect themselves?

A: The law has a procedure in place in the case a mining concession from a Mexican or a foreign company is expropriated. In my opinion, the main concerns with the rights of the mining concessions and the right to have access to the surface or land where is located the mine it is essential to comply with the legal provisions and with the obligations derived from the corresponding agreements such as the rights of ejidos and the company’s obligations to these communities because several ejidos have complained to the government about their situation and the treatment they have received in the past 10 years. Therefore, agreements with ejidos regarding the exploitation of concessions has to be carefully elaborated and must avoid any problems that could occur in relation to these communities. As an integral legal advice that we provide to our clients, the understanding of the important role that ejidos play, it is recommendable to designate special personnel to visit the community and identify its needs and requests in order to allow the company to operate the mining project. Subsequently, we reach an agreement between both parties that guarantees a constant communication with communities and the company’s engagement in projects such as improvements of infrastructure, water system, services, hospitals and schools. All the negotiation that will carry out with the ejido shall be approved by the corresponding ejido authorities and comply with the legal procedure established on the regulation.

Q: What can companies do to ensure that they receive their permits as soon as possible?

A: Several companies believe that because they are using advanced technology they do not have to apply for a permit; however, they shall comply with the environmental legal provisions and the other regulation to perform the exploration or exploitation of the project to avoid the legal risk of the cancellation and the administrative sanctions from the authorities. Therefore, to save time, we recommend starting with the requested documentation before any kind of activity begins. Second, identified the procedures to be followed to obtain the corresponding local and/or federal authorizations, licenses, permits from the environmental authorities to develop on time the mining project.

Q: Why should foreign companies work with international and local law firms?

A: The use of both local law firms and international firms is the best option to have a better overview of the company’s investment. For example, if an international company wants to invest in Mexico, it will trust its lawyers more. However, it is likely that these firms will not have the experience and knowledge that national firms have in matters such as ejidos and environmental permitting. My recommendation is to count on both because they can complement each other regarding information and the expertise to provide  an integral legal advice for the success of the mining Project.

By Citlali Pérez, Jáuregui y Del Valle, S.C., Mexico, a Transatlantic Law International Affiliated Firm. 

For further information or for any assistance please contact mexico@transatlanticlaw.com

Disclaimer: Transatlantic Law International Limited is a UK registered limited liability company providing international business and legal solutions through its own resources and the expertise of over 105 affiliated independent law firms in over 95 countries worldwide. This article is for background information only and provided in the context of the applicable law when published and does not constitute legal advice and cannot be relied on as such for any matter. Legal advice may be provided subject to the retention of Transatlantic Law International Limited’s services and its governing terms and conditions of service. Transatlantic Law International Limited, based at 42 Brook Street, London W1K 5DB, United Kingdom, is registered with Companies House, Reg Nr. 361484, with its registered address at 83 Cambridge Street, London SW1V 4PS, United Kingdom.