On 8 May 2023, the Mexican President published a decree that amends, adds and repeals various provisions of the Mining Law, the National Water Law, the Ecological Balance and Environmental Protection Law, and the General Law for the Prevention and Integral Management of Waste, in relation to mining and water concessions.
Under the current federal government administration, no new mining concessions have been granted and the geographical area under concession has been reduced to 8% of the entire national territory. This situation, together with the federal government's lack of attention to this sector, may have serious repercussions in the years to come.
In case your company is affected by the above-mentioned reform, please consider that it is possible to challenge the unconstitutionality of it through an amparo before the respective federal district court. This amparo must be filed within the 30 business days following the reform’s effective date, therefore, should have been filed by 20 June 2023. As such date has now lapsed, affected individuals or entities may file an amparo claim within 15 business days following of the first act of application of the referred provisions.
It is important to mention that it is possible to request an injunction (suspension provisional, definitive) of the claimed acts so that the company will not be forced to apply the provisions that will be challenged for their unconstitutionality. In case of securing the injunction requested, the company does not have to comply with the obligations set by the reform.
In more detail
Below, we generally analyze the reform:
- The scheme of open land and first applicant has been eliminated and the concession granting scheme suffered revisions so that it will only be through public bidding. This prohibits mining companies from applying for new concessions. Bids must be called by the Ministry of Economy. Although this may seem fair, the current federal administration has demonstrated in many other industries and sectors that the terms and procedures of public bids and tenders are not observed, and in many cases, the government ends up awarding contracts directly and arbitrarily. The reform does not provide a basis for developing programs that consider the inventory of areas suitable for bidding, nor the periodicity of such bids. The current rate of concession granting gives the impression that the federal government would not have much interest in calling for such bids, considerably impacting the number of mining projects being developed by private companies hence decrease in the exploration activities.
- The preferential nature of the mining activity was eliminated. Consequently, the right of the concession holders to expropriate the underlying land for mining exploitation, derived from such preponderant nature, is eliminated. The law reform provides that this right be replaced by a temporary occupancy or easement agreement between the concession holders and the owners or holders of the land rights. The consideration, terms and conditions for the use, enjoyment and affectation of such land must be negotiated and agreed upon by the parties, but no mechanisms, parameters or objective and clear criteria are established to set the basis for how the terms should be agreed upon and negotiated.
- The duration and extension of mining concessions is reduced from 50 to 30 years, which may be extended on a one-time basis for 25 years. This measure restricts productive investment for mineral exploration and exploitation, generates uncertainty and may prompt potential domestic and foreign investors to move elsewhere. Mining operations can take five to 10 years just to begin their production phase; limiting them to 30 years, with a single extension, would make many projects unviable. In addition, this modification jeopardizes the concessions already granted. This would constitute indirect stripping of current concessions.
- The granting of mining concessions is conditional upon the availability of water, as well as upon the previously obtained water concession for mining. Given the current lack of water resources in several states, the reform creates a new type of water concession for specific use in mining, which will be subject to availability and will have a duration of 30 years with the possibility of one extension up to 25 years.
- The transfer of mineral rights will now have to be approved in advance. Unlike before, now the transfer of a mining concession will require the authorization of the Ministry of Economy. This could have negative implications because of the time that this agency may take to authorize the transfer, affecting private investment and M&A activity.
- New causes for cancellation of mining concessions were introduced, causing great legal uncertainty as some of these are very open to interpretation and lack objective and quantifiable parameters.
- Mining exploitation is limited to the minerals or substances specified in the concession title. This limits the ability to exploit other minerals found within the mining concession.