On May 08, 2023, the Mexican Congress enacted significant amendments to the Mining Law, and several other mining-related laws, which imply a profound shift in the legal landscape governing the mining sector and bring a substantial rebuild that affects multiple aspects of how mining concessions are granted, managed, and regulated, which reflect the government’s broader aims of increasing state control over mining resources.
Reduction of Concession Duration and Renewability:
One of the most significant changes introduced by the amendments is the reduction in the duration of mining concessions from 50 years to 30 years, and the possibility of renewal of these concessions to a single additional term of 25 years, which is likely to have profound implications for both domestic and international mining companies, as it reduces the certainty and stability that long-term projects require.
Mining projects, particularly those involving exploration and development, often span several decades from initial discovery to full production, and the previous 50-year concession validity term allowed companies to plan and execute extensive exploration and investment programs, knowing they had enough time to recover their investments; therefore the new 30-year limit may discourage long-term investments, particularly in projects that require significant capital expenditures and lengthy development timeframes. Moreover, the possibility of renewing a concession is now more restricted, as it depends on compliance with several stringent regulatory and operational requirements.
Obtention of New Mining Concessions:
The transition from a first-come, first-served system to a public bidding process for the allocation of mining concessions represents a substantial shift in how mining rights are granted in Mexico, as under the previous system, companies that invested in exploration and identified promising mineral deposits were generally able to secure the rights to those areas, encouraging private investment in the exploration phase.
The new public bidding system requires all potential concessions to be offered through public auctions, where companies must submit bids that include both financial terms and detailed plans for meeting social and environmental obligations, then the government will evaluate these bids based on a set of criteria that prioritize the economic benefits to the state, as well as the bidder’s ability to comply with environmental and social standards, which undoubtedly introduces a higher level of uncertainty for mining companies, as the need to compete in public auctions could lead to increased costs for securing concessions and may deter companies from investing in early-stage exploration if there is no guarantee of being awarded the concession.
Restriction on the Types of Minerals Covered by Concessions:
Under the new law, mining concessions now specify the exact type of mineral to be extracted; previously, a single concession covered all minerals found within a deposit, which allowed companies to optimize their operations by extracting and processing a variety of minerals simultaneously.
Under the new regulations, companies must clearly define the specific minerals they intend to extract at the time of applying for a concession, and if additional valuable minerals are discovered later, the titleholder must obtain approvals to exploit them, adding layers of bureaucratic complexity and potentially delaying operations.
Enhanced State Control Over Exploration Activities:
The amendments grant the Mexican Geological Service (SGM) exclusive rights to conduct mineral exploration, which effectively nationalizes the exploration phase of projects, limiting the role of private companies to the development and extraction stages, and retains state’s greater control over the discovery and management of the nation’s mineral resources.
This approach raises concerns about the state’s capacity to conduct exploration on the scale and with the expertise of private companies, as exploration is a highly specialized and resource-intensive activity, requiring advanced technology, skilled personnel, and significant investment, and the exclusion of private companies could lead to a slowdown in the discovery of new mineral deposits, as state agencies may lack the resources and incentives to pursue exploration as effectively as the private sector.
Social, Water, and Environmental Obligations
The new legal framework enhances social and environmental obligations for mining companies, as titleholders are now required to conduct social impact studies and consult with indigenous communities before granting a mining concession. These requirements are in line with global trends towards greater corporate social responsibility, but they also add layers of complexity and cost to the process of obtaining and maintaining mining concessions.
Additionally, the amendments to the National Waters Law introduce a new category of water concessions specifically for mining activities, with a maximum duration of thirty years, renewable for an additional twenty-five year period, which are subject to stringent conditions, including constant monitoring of water quantity and quality, and the installation of telemetric measuring devices, which, if breached, can lead to the revocation of the water concession, further complicating the operational environment for mining companies.
Moreover, the amendments to the Ecological Balance and Environmental Protection Act (LGEEPA) prohibit any mining-related activities in protected natural areas and mandate the filing and maintenance of a Restoration, Closure, and Post-closure Program.
Industry Reaction and Legal Challenges
The hurried legislative process through which these amendments were passed has been a point of contention. Industry representatives and opposition parties have criticized the lack of meaningful dialogue and consultation during the development of the amendments, as the swift approval of the amendments, which took just over a month from proposal to publication, is seen as indicative of the administration’s populist approach, prioritizing political objectives over the concerns of the mining sector.
In response to these changes, several mining companies and industry associations have filed legal challenges, including amparo trials, to contest the constitutionality of the new laws, arguing that the amendments infringe upon the rights of titleholders and impose disproportionate burdens on the industry.
The long-term impact of these amendments on Mexico’s mining sector remains uncertain. While the government claims the new laws will promote sustainable development and protect natural resources, critics argue that the increased regulatory burdens and reduced incentives for private investment could hinder growth and innovation.
