MEXICO – MINING REGULATION
Mexico, officially the United Mexican States, is a federal republic consisting of 31 states and a federal territory and having a population exceeding 120 million. It is shaped like a mermaid’s tail whose upper body rests in the United States and whose tail gently sweeps to the southeast and encircles the Gulf of Mexico. It also borders the Pacific Ocean to the southwest, as well as Guatemala and Belize where the tip of its southern tail touches Central America. According to the World Bank, Mexico hosts the second largest economy in Latin America (second only to Brazil). As with Canada, Mexico benefits enormously from the large, prosperous market to its north, which not only consumes its products, but also invests in its manufacturing sector.
Mexico is the tenth largest oil producer in the world and the largest silver producer in the world. Mexico is also a substantial producer of copper, gold, lead and zinc. According to USGS (United States Geological Survey - 2012), Mexico, as well as being the world’s leading producer of silver, is a top-ten producer of lead, bismuth, fluorspar, celestite, sodium sulphate, wollastonite, cadmium, diatomite, molybdenum, zinc, barite, graphite, gypsum, salt, and copper. It is also a top producer of gold, phosphate and iron ore. In short, its mineral industry is extremely important to the country.
Given historic restrictions on FDI into its natural resources sector, the status of the Mexican mining industry is probably still somewhat understated as against its potential. In this regard, under previous mining legislation, mining companies were subjected to a minimum 51% of national ownership and, with respect to some concessions, 66%. Mexico began to change this in the 1980s, but it took some time to eliminate the complex web of regulations that applied to the sector. Today, the mining law merely requires mining companies to be incorporated (and domiciled) in Mexico and the Foreign Investment Law permits foreigners to own 100% of Mexican mining companies; as a result, FDI is a major driver of the sector.
PRINCIPAL LEGISLATION AND REGULATOR
The main Mexican regulations in the mining sector are: the Constitution, which confers ownership over all minerals to the state, as well as the Federal Mining Law (1992, as amended); the Federal Mining Regulation (2012); and the Foreign Investment Law. Under the law, all minerals found in the Mexican territory are owned by the state and the federal government has the power to regulate the sector. The Mining Secretariat is the responsible body for granting and monitoring mining concessions. However, other government bodies also have discretionary powers over the mining industry, such as the Environmental Ministry and the Water Commission. To optimize the utilization of the Nation’s mineral resources and generate basic geological information about the national territory, the Ministry receives support from the Geological Service of Mexico.
GRANTS AND MINERAL TITLE
Individuals who have Mexican nationality, including companies formed and domiciled in Mexico, may develop mining activities through mining concessions, which grant the right to explore, mine and perform other development activities. They are granted for a term of 50 years, starting from the date of registration in the Public Registry of Mining and they may be extended for an equal amount of time if the holders continue to meet the criteria set out by Law. Concessions for exploration and mining allotments will be granted upon free land to the first petitioner in time. In the case of allotments that are cancelled, mining concessions may be granted through a bidding procedure before the land is declared free. Concessions shall be granted to the person who evidences compliance with the requirements established in the Law and who presents the best economic bid in such circumstances. Mining concessions, as well as the rights derived from them, may be freely transferred to any third party.
Mining concession holders have the right to sell all mineral substances mined and freely transfer and encumber their rights. With respect to surface rights, titleholders have the right to access their property for mining purposes and may also compel the expropriation of land. Obligations of a concession holder include the requirement to:
- file work assessment reports outlining the work completed in the past year, which must reflect minimum investment amounts based on the age of the concession and the number of hectares within the concession, as provided in Article 59 of the Federal Mining Regulation; the minimum investment amount increases each year based on CPI; pursuant to Article 31 of the Federal Mining Law, relief is possible from the investment requirement for a maximum of three years per decade;
- file production reports (irrespective of whether or not the mine is producing) after the 6th year of a mining concession;
- pay mining duties, which are payable based on variable rates set by the government based on the age of the concession and its size (no. of hectares) – these rates adjust annually based on CPI;
- submit reports concerning technical, statistical and accounting matters; and submit a report when the concession has expired.
In addition, when acquired through public bidding, submit semi-annual reports on works carried out, file production levels and make the additional payments that are required.
Before engaging in mining activities, environmental approval from the Ministry of Environment and Natural Resources (SEMARNAT) must be obtained. An environmental impact study (EIS) must be completed in order to secure such approval. Mining operators may request from the Secretariat a right of temporary occupation or an easement over the land for mining purposes. The Secretariat shall grant the surface right if both the landowner and the mining operator have reached a prior agreement. Where agreement has not been reached, the Secretariat may determine the applicable compensation or commence expropriation proceedings in appropriate circumstances (Arts. 50-53, Federal Mining Regulation).
Effective as of January 1, 2014, the Federal Duties Law (Ley Federal de Derechos) was amended to provide for an annual mining royalty (derecho especial de minería) of 7.5% of the income derived from mining operations. Holders of gold, silver or platinum mining concessions must pay an additional mining royalty (derecho extraordinario de minería) equivalent to 0.5% of gross revenues from the sale of such minerals. As mentioned above, holders of concessions obtained by public bid must pay a further royalty (prima por descubrimiento) or an economic consideration (contraprestación económica) to the Mexican Geologic Service (Servicio Geológico Mexicano), which is determined by the Ministry of Economy at its discretion.
See Mexico – Environmental Regulation.