Comprehensive reform bill impacting the Mexican Mining Industry

The Reform Bill contemplates fundamental changes for the country's mining industry and its close correlation with environmental and national waters legislation in Mexico, a change in the scheme for granting mining concessions to establish a single "public tender" mechanism, as well as a reduction in the term of mining concession titles from 50 to 15 years. Although the Reform Bill has not yet been discussed in the respective Committees within the Legislative Branch, it is relevant to point out some of the main considerations it contemplates. 1. With respect to the Mining Law, the amendments intended to be made through the Reform Bill are the following: A. First, the regulatory burden for obtaining mining concessions is increased, specifically through: • New requirements for public tender procedures to grant mining concessions, which would be the only mechanism for obtaining a concession. • Stricter standards and new authorities involved in the verification visits carried out on the properties subject to or related to mining concession titles. • An extensive catalog of criminal conduct is added and fines for breaches of said law are increased. • New and very broad grounds for revocation of mining concession titles are established. B. Second, the rights of holders of mining concessions are limited and/or suppressed, specifically: • Mining concessions will have a duration of 15 years and may only be extended once. This point is undoubtedly one of the most abrupt changes of the Reform Bill, since current legislation contemplates a 50-year term for such mining concessions, which may be extended for an equal term. • Holders no longer have the right to dispose of the land located within the concessioned surface, nor may they exploit and/or use the waters coming from the concessioned mines. • The preferential obtaining of a concession over the waters of the concessioned mines is eliminated. • The "free land" scheme is eliminated (adding multiple zones that may not be subject to concessions). • The possibility of mining concessions being used as collateral for the fulfillment of the obligations of their holders is suppressed. C. On the other hand, the Reform Bill expands the obligations of holders of mining concessions, specifically: • Environmental care must be ensured through multiple measures, such as: submitting waste management programs, notifying the authority of any incident that endangers the ecological balance, submitting a letter of credit guaranteeing possible environmental damage, and having a Mine Restoration, Closure and Post-Closure Program. • When the land subject to the concession is inhabited by an indigenous or Afro-Mexican community, a prior, free, informed, culturally appropriate and good-faith consultation must be carried out and, where applicable, an agreement must be entered into with said community. It is important to note that such commitment was already recognized by the Mexican State in Convention 169 of the International Labour Organization. • In various scenarios, the following must be prepared and provided to the authorities: (i) social impact studies (which must be submitted once a favorable ruling in the mining concession tender is obtained), (ii) Mine Restoration, Closure and Post-Closure Programs, (iii) letters of credit guaranteeing possible damage caused by mining activities, and (iv) waste management programs. 2. In relation to the National Waters Law, the Reform Bill also makes amendments (closely linked to that indicated in point 1) to the following provisions: • The figure of a water concession for specific use in mining is established, which will be subject to water availability and will have a duration of 5 years (with the possibility of extensions). • The assignment of rights of water concession titles for specific use in mining is prohibited. • The granting of concessions for mining use is prohibited if the applicant intends to concentrate more than 30% of the total volume of the average annual availability of the basin or aquifer in question. • New and very broad grounds are established for the revocation of water concession, assignment and discharge permit titles, including on the basis of supervening facts or acts of public, general or social interest, or that cause economic, social, environmental or any other type of imbalance. 3. With respect to the General Law of Ecological Balance and Environmental Protection and the General Law for the Prevention and Comprehensive Management of Waste, the Reform Bill seeks to amend certain provisions whose purpose is to: • Prohibit the granting of authorizations for mining activities in Protected Natural Areas. • Implement the new figure of the Mine Restoration, Closure and Post-Closure Program, whose purpose is to establish a program to remove deposits from areas subject to concessions that affect or may affect the ecosystem or contribute to environmental pollution, which will be processed before the Ministry of the Environment and Natural Resources. • Establish that mining and metallurgical waste is the permanent responsibility of the holder of the mining concession. In the event that this Reform Bill is approved, the entry into force of the decree will imply a substantial change in the concession regime regarding mining and water and possible effects on fundamental rights. For example, new concession applications pending resolution will be summarily dismissed. Persons who currently hold valid concession titles will have to comply with additional obligations, such as obtaining an additional letter of credit guaranteeing possible damage, as well as submitting additional authorization applications to the Ministry of the Environment and Natural Resources. The sixth transitory provision of the Reform Bill states that concessions granted prior to the entry into force of the decree will have the duration provided in the respective title, but the additional obligations indicated in the preceding paragraph must be complied with. On the other hand, persons interested in obtaining concession titles will have to reassess the economic implications of this bill, in light of the limitations it imposes and the differentiated treatment with respect to parastatal entities holding concessions. These possible effects could be in violation of fundamental rights established in the Constitution and in international treaties, such as the right to equality, the guarantee of non-retroactivity of the law, and freedom of commerce. It is important to analyze the specific situation of each interested party in order to determine the appropriate mechanisms to protect their interests. In addition, in the case of foreign investors, any legal strategy must be designed in such a way that it does not imply waivers of rights regarding the international protection of investments, such as an eventual investment arbitration. For additional information, please contact our partners of the Energy and Natural Resources Industry Group: Edmond Grieger, Partner: +52 (55) 5258-1048 | egrieger@vwys.com.mx Ariel Garfio, Partner: +52 (55) 5258-1008 | agarfio@vwys.com.mx Adrián Magallanes, Partner: +52 (55) 5258 1077 | amagallanes@vwys.com.mx

PDF