The Mexican mining sector is dynamic and competitive, generating wealth and welfare. It faces significant challenges as it evolves towards socially and environmentally responsible methods that can allow it to become a stronger core activity for the prosperity of the country and its inhabitants.
Today, the Mexican industry devoted to the extraction of mineral resources continues to occupy a central place in the national economy. We know it has been a productive activity with a leading role throughout our history and now has become one of the most dynamic, productive and competitive industries in our country. Mining activities contribute 1% of GDP and an overall participation of 4%, combined with mineral processing. Furthermore, it employs over 351,000 workers and is the fourth generator of foreign currency.
This industry has gone through several stages of evolution, which have enabled it to develop and grow by adapting to the needs that our development has required at several junctures. Currently, we are entering a new phase, which poses particular challenges. This stage—still in the process of consolidation—includes the following features: new fiscal conditions in the sector; the formation of mining clusters; the regional reconfiguration of the country, strengthening the south and west in relation to mining activities; consolidating perspectives for social responsibility and sustainable development; strengthening the multinational sector of Mexican companies; the closer relationship with the hydrocarbon industries brought about by the energy reform; and, of course, the strategic rethinking of mining policy, including a realignment of priorities in terms of exploration of the national territory, funding for the industry, investment promotion and modernization of procedures and paperwork related to the activity. (For more details on this, see the 2013-2018 Mining Development Program.)
This whole process is coming together in the reconfiguration of a more modern and mature mining sector. For this process to be consolidated, the industry must face and solve challenges brought about by new circumstances. The agenda includes, among other issues, innovation, efficiency, scientific and technological development; an initiative on transparency; the deepening of environmental commitments, and productive articulation for generating higher value added products.
In order to meet these challenges, it is essential to consider that, broadly speaking, the mining sectors composed of companies, the public sector, associations and social organizations, the workforce and communities in mining settlements. Therefore, this new phase also includes a renewed strategic vision of public policy and governance, such as a more horizontal government that shares responsibility with traditional and emerging actors of civil society. Only from this perspective will it be possible to provide a comprehensive agenda for building Mexican mining in the 21st century.
The challenge of competitiveness
Mexico, as an emerging economy, provides a competitive general framework. It is currently the 15th largest economy in the world and the second in Latin America; it provides high stability in its macroeconomic indicators, including a record level of international reserves close to 200 billion dollars, in addition to a strategic geographical position as a global platform for exports.
This context enhances the competitive advantages of the Mexican mining industry, allowing it to position itself as one of the most attractive destinations for investment. According to the 2014 Behre Dolbear Report, Mexico ranked as the fifth country with the best conditions for investment in the mining industry and, according to SNL Metals and Mining, the country was the first recipient of exploration investment in Latin America and the fourth worldwide.
One of the advantages of Mexico as a mining country is its vast geological potential. It is upon this foundation that our country has been able to consolidate as one of the leading producers of minerals on a global scale. It is the largest producer of silver in the world, the second producer of bismuth and fluorite, and the third in celestite and wollastonite.
This stock of resources is enhanced by the work of the Mexican Geological Survey, in terms of exploration, cartography and systematization of geological information of the territory, making the availability of this data another advantage of our country. It is worth noting that 100% of the national territory is covered by 1:250,000 scale maps, and 37.9% at 1:50,000. Also, a total of 25,315 mining concessions covering an area of 24.8 million hectares (12.6% of the national territory) are registered. Seven states concentrate 72.4% of these concessions and 66% of the concession area. In the latter, the states of Sonora and Coahuila stand out, with a participation of 17% and 11%, respectively, followed by the states of Durango and Chihuahua, with 9% each.
The Canada-based Fraser Institute recognizes this information internationally. Every year it publishes a global survey on the perception of investors regarding the territories and advantages for investing in mining activities. In the 2014 report, Mexico ranked as number 33 out of 122 jurisdictions, with a score of 67.6 out of a maximum of 100 possible points.
In the context of our closest competitors in terms of attracting investment, Mexico ranked as the third country with the best conditions for investment, behind Chile, which had a score of 77.2, and Peru, with 69.6. As a reference, it is important to consider that the best placed country in the global arena was Finland, with a rating of 83.8. From these results it can be concluded that our country offers competitive advantages in some of the variables that are evaluated, but undoubtedly has a big challenge ahead to improve other key aspects to ensure a better environment for the investor, and for the performance of the sector’s productive activity.
In addition to its potential and its geological information, Mexico is well positioned in the assessment of environmental regulations, regulatory duplication and inconsistencies, uncertainty about existing regulations and infrastructure quality. By contrast, the topics showing a significantly lower evaluation are security, the fiscal system, the legal system and protected areas. These are some of the challenges that the Mexican mining sector faces for development in the 21st century in order to consolidate its dynamism, its ability to attract investment, create jobs, generate foreign currency and economic benefit, while becoming a strong, modern and competitive industry, committed to sustainable development and growth.
Governance and competitiveness: challenges FOR mining in Mexico
The structural reforms that have been taking place in our country since 2013 are a boost for transformational change, whose main objective is the transition to a more productive economy in order to drive growth and development. One of them is fiscal reform, which has had and will continue to have a fundamental impact on the mining sector. For many years—including those of the longest and most beneficial boost in metal prices in the first decade of this century—the mining industry worked without special obligations for taking advantage of the nation’s resources, in sharp contrast with the reality of most mining countries.
Approved rights seek to boost the evolution of the sector towards a higher stage of development, committed to and responsible for the prosperity of the nation. In this regard, it is noteworthy that mining operations in Mexico, despite the conditions of the world minerals markets, remain profitable thanks to the competitive advantages of the country that, in addition to the above, include competitive operating costs. The new tax regime will allow a better distribution of the benefits of using the subsoil between communities where mining activities take place.
Article 271 of the Federal Law of Rights guarantees the use of resources for mining rights when the goal is social, environmental and urban development of the mining municipalities, including schools, preservation of natural areas, water treatment and public transportation, among others, which will be decided through regional (state) committees, with the participation of society, business and government.
Thus, the new tax system will not only lead to a better distribution of wealth, but also social participation in the decisions that determine how that wealth is used. Therefore, it also provides an opportunity to create channels of communication and joint work with businesses, communities and local authorities, which can and should be used to create better conditions for cooperation and growth.
Additionally, it is important to consider that the document “General Criteria for Economic Policy for the Initiative of the Law on Income and the Budget of Expenditures of the Federation for the Fiscal Year 2015” does not include modifications to the fiscal framework, in fulfillment of the commitment established in the Tax Certainty Agreement of February 27, 2014, in the sense of not proposing new taxes or increasing existing ones, or eliminating tax benefits for any taxpayer.
To address another major challenge, that of security, a joint effort is also being conducted between the authorities and businesses in order to provide timely solutions for the problems the industry is facing. The Ministry of Economy, through the General Coordination of Mines, has created working groups comprising mining companies and the Federal Police, which through the Gendarmerie is strengthening the presence of security forces in each state to protect the productive sectors of the economy. Also, a safety task force was formed between the authorities of the Federal Police and the mining companies. At the head of this effort is the Gendarmerie Division, in coordination with the Investigation Division and the Territorial Deployment Commission. The aim is to use the available federal police force in four areas: on-site presence, intelligence, information sharing and communication channels.
On the issue of the legal system, the 2013-2018 Mining Development Program seeks to modernize institutional regulations for the sector and improve the paperwork processes related to mining concessions. In this regard, there have been efforts to launch a simplification of procedures, and improve their attention based on strengthening and improving the digital infrastructure of the Information and Mining Administration System (SIAM). These activities include work focused on the comprehensive review and updating of digitized processes and mapping, strengthening information consultation processes on SIAM’s website (including Digital Mining Cartography), filtering migration processes and diagnostics, and validating the quality of the information available to users.
Similarly, protected areas are also part of a general policy for boosting sustainable, environmentally-friendly development. This implies a harmonious development that meets the needs of economic growth, social development, respect and care for nature, and involves establishing clear rules that provide certainty to productive activities, in general, and to the companies investing in the mining sector, in particular. The General Coordination of Mines of the Ministry of Economy, in a combined effort with the Ministry of the Environment and Natural Resources (Semarnat) and the Mining Chamber of Mexico (Camimex), is pushing for a necessary balance to achieve the comprehensive development this nation requires.
These are just some of the areas in which the Mexican government is working to support the mining industry in our territory. The mining sector is a key element of the national economy and a pillar of economic and social development. Therefore, the Mexican government is committed to supporting its expansion and growth within a framework of social and environmental responsibility, to promote and develop the best conditions to strengthen their productivity and competitiveness, while ensuring certainty and investment security.
Despite global market conditions for minerals, mining investment in the country has maintained its vitality. In 2014 almost 5 billion dollars were invested, and Camimex estimates that this year investment will reach 5.4 billion dollars. That is, between 2013 and 2015, the mining industry will have invested about 17 billion dollars in our country. Additionally, the sector is characterized as a big exporter and, consequently, has a positive trade balance. Trade of mining-metallurgical products achieved a surplus of over 8.4 billion dollars in 2014.
Mexican mining has recovered its position in the world’s most important investment capital market, the Toronto Stock Exchange. After a momentary dip, as a result of a certain level of uncertainty among investors, Mexico was repositioned as the principal destination in Latin America of capital flows into the mining sector, funded through that market. In 2014 total investment for mining projects in Mexico reached 1.1 billion dollars, surpassing the figure for 2013 and even 2012. The total number of projects financed in 2014 were 166, compared with 76 in Peru, 52 in Chile, and 45 in Argentina, to mention the main ones.
It is true that the sector has several pending tasks in order to overcome its challenges, but by working together, through dialogue and mutual respect, they will gradually and progressively be resolved.