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).
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?