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Government actions ratcheting up uncertainty for Mexico’s miners

Bnamericas Published: Wednesday, October 14, 2020
Government actions ratcheting up uncertainty for Mexico’s miners

The scrapping of a key government post and a freeze on concessions have dented investor confidence in Mexico’s mining sector, according to an analyst.

Mexico’s government abolished the mining undersecretary role as part of an austerity drive on September 1, while President Andrés Manuel López Obrador (AMLO) has repeatedly said his administration will not issue new mining concessions, claiming swathes of the country were handed to mining companies too easily by his predecessors.

Both moves have sent the wrong messages to the industry, Alan Zamayoa, an analyst at UK-based Control Risks, told BNamericas.

UNDERSECRETARY ROLE

The decision to scrap the mining undersecretary role has widened the gap between Mexico and other major Latin American mining jurisdictions in terms of government representations, according to Zamayoa.

“Certainly it’s not a good message, because in the region you see countries like Peru that have a minister or secretary just focused on mining,” he said in a telephone interview.

The role will be absorbed by other departments of the economy ministry, and economy minister Graciela Marquéz Colín has pledged a seamless transition.

But the other departments lack the specialized sector knowledge the undersecretary had.

“It’s going to be a learning curve for them,” Zamayoa added.

The scrapping of the post – a key point of contact between mining companies and government – drew strong criticism from industry groups, along with praise for Francisco Quiroga Fernández, who held the role.

“[Quiroga] was one of the more pragmatic officials within the AMLO administration. He used to mediate between the companies, the other voices within the government, and also communities,” according to Zamayoa.

“Of course there were issues, but Quiroga was like a firefighter that could put out the fires between the different people involved in the industry.”

CONCESSIONS FREEZE

AMLO has insisted his administration will not give out new concessions.

“We will maintain these [current] concessions, we’re not going to cancel them, but now we’re also not going to continue issuing new mining concessions, because a lot have been handed out,” the president told a press conference in Zacatecas state last year.

Concessions were handed out for financial speculation rather than mining, with the bulk of the land not in production, he added. “This ends now.”

The president is likely to stick to his guns on the issue, according to Zamayoa.

“That is one of the clearest things AMLO has said since the beginning of his administration, that his government is not going to give more concessions, and there are not going to be any further concessions. I would expect he is going to stick to his word on this front.”

If any new concessions are granted, these are more likely to be given to Mexican mining companies rather than foreign miners, which AMLO has claimed have received a lot of concessions under previous presidents, the analyst said.

ANALYSIS

The government’s actions have increased uncertainty for mining companies, according to Zamayoa – but many other sectors in Mexico are also facing challenges.

In addition to the scrapping of the undersecretary role and concessions freeze, mining companies have a number of other causes for concern.

Relations with the president have come under strain, with AMLO consistently criticizing the industry’s social and environmental record, most recently accusing foreign miners of treating Mexico as a garbage dump.

A number of disputes between mining companies and tax authority SAT have also broken out in recent months, with Coeur Mining and First Majestic Silver mulling possible international arbitration, while the senate is due to debate a possible nationalization of the country’s emerging lithium mining industry.

Uncertainty is widely seen as weighing on investment in Mexico’s mining sector, with changes to policies required to spur spending which is already under increasing strain as a result of the COVID-19 pandemic, according to industry chamber Camimex.

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