Mexico mining industry takeover & Ban on open-pit mining
In today's video, we dig into Mexico mining law and the recent changes made in 2023. These legal changes are significant because Mexico is one of the few tier one jurisdictions for mining companies and, if all of the legal changes get cemented permanently into law, Mexico may stop being a preferred location for mining operations.
Although the 2023 Mining Reforms have now been passed into law, there are at least 500 legal cases disputing these reforms. Mexico doesn’t allow class action law suits so each aggrieved party has to file their own suit.
My objective in this presentation is to answer two questions:
- Is it okay to invest in mining companies in Mexico?
- Will Mexico ban open pit mining?
As an investor with a Portfolio of Silver and Gold mining stocks, these questions are relevant to how I manage my existing holdings and how I invest going forward.
Mexico mining industry - Different perspectives
As I was performing research for this video it occurred to me that there are multiple perspectives on mining in Mexico. Each of these perspectives color how an individual views the 2023 Mining Reforms and whether the new laws should remain in place:
- Investors in physical silver
- Existing mining companies
- Prospective mining companies
- Environmentalists
- Native peoples
- Citizens living in close proximity to mining operations
Investors in physical Silver
I'm primarily an investor in physical Precious metals and Silver in in particular. You could say that I'm a huge Silver bug. From my perspective, it is OK if they stop all mining in Mexico. That only helps my position because the value of the metal that I hold would increase due to the reduction in supply.
Twenty-four percent of the Silver mined in the World comes out of Mexico. Stopping this production, or even curtailing it significantly, would almost certainly drive the price of Silver higher.
Existing mining companies
As operators of existing mines, it is understandable that they would want to see the Mexico mining industry remain unchanged. The legal changes made in 2023 will reduce their profits and potentially put their entire operation at risk.
This perspective became clear to me when listening to a mining company CEO speaking to his investors and prospective investors. He was trying to minimize the impact of the Mining Reforms – essentially telling investors that the Reforms would not affect business operations. Given his position, this perspective makes sense - without investors his business will wither and die.
Prospective mining companies
Based on my research prospective mining companies in Mexico will be most impacted by the 2023 Mining Reforms.
Their business model is to go into Mexico, identify a prospective mining concession and obtain clear, unencumbered title to the concession. With title in hand, they can then start the exploration process that will hopefully lead to a successful and profitable mining operation.
The 2023 amendments to existing mining laws effectively nationalize the exploration phase of mineral mining in Mexico. This means that prospective mining companies can only participate in the development and extraction phases.
Environmentalists
Environmentalists, at least the extreme ones, have a perspective similar to myself as an investor in physical Precious metals. They would like to see the entire Mexico mining industry shutdown.
While their perspective is understandable, it is rather short-sighted.
The modern high-tech world that we live in depends on the extraction of resources from the ground – no resources, no tech – the relationship is fairly simple.
For example, Silver locked up in rock in the ground doesn't do much for us. However, if we pull that Silver out of the ground and refine it, we can then use it for Silver solder in electronics, silicon wafers in solar panels, high-performance batteries, etc.
Silver is the most conductive metal on the planet as well as the most reflective metal on the planet. Its uses are manifold and there aren’t any good substitutes to use as an alternative.
Native peoples
It doesn't matter which country we choose to talk about, Native peoples tend to get the short end of the stick, so to speak. This unfortunate reality is no different in Mexico.
As a result, it isn’t surprising that the Native Peoples in Mexico have a unique perspective on the 2023 Mining Reforms. Basically, they want a seat at the table. They want to benefit from the minerals that are mined in the lands that they consider to be theirs.
Citizens living in close proximity to mining operations
Mexican citizens living close to mining operations have another perspective.
They want to benefit from the high-paying jobs available at the mine but they don’t want their water supplies to be poisoned, and they don’t want to go thirsty because the mining operation is using up all of the available water.
I found these different perspectives on the issue of mining in Mexico to be interesting. As I show in the video, the 2023 Mining Reforms are beneficial for some and detrimental for others, depending on their perspective.
Mexico mining industry overview
These are the key topics discussed in the video.
Why mine in Mexico?
What is the extent of mineral extraction in Mexico?
How has mining law changed in Mexico
Proposed changes to mining law in Mexico
Potential impact of ban on open-pit mining in Mexico
Executive summary of the video presentation
- Mining laws in Mexico changed dramatically in 2023
- These changes increase the cost and risk of mining in the country
- There is potential for additional legal changes that may include a ban on open-pit mining
- The Mining Reforms are being challenged in the Mexican legal system
- The legal changes affect new exploration more than existing operations
- Investment in the Mexico mining industry has dropped by 60% since the Reforms were passed into law
Why mine in Mexico?
1) That's where the metal is
If you want to mine Silver, Mexico will probably be near the top of your list based on the amount of Silver that has been mined there in both historic and modern terms.
Mexico is the largest producer of Silver in the World by a wide margin. The country is also a significant producer of Gold, Copper, and Zinc.
This is the primary reason Mexico Silver mining companies choose to operate in the country.
2) Less regulation
The second reason for mining in Mexico is that there is less regulation of the chemicals and pollutants that are commonly used in the mining industry.
In the United States there are 675 different pollutants regulated, in Canada the number is 346, while in Mexico it is only 104.
3) Cheap labor
It would probably be more politically correct to speak of ‘less expensive labor’ but, regardless of the term you choose to use, labor costs are lower in Mexico than in either Canada or the United States.
What is the extent of mineral extraction from Mexico?
Mexico produces:
- 24% of global Silver supply (#1 producer - China is #2 at 13.2%)
- 2.7% of global Gold (#6 producer)
- 3% of global Copper (#11 producer)
- 7% of global Zinc (#5 producer)
The Mexico mining industry generates 2.4% of Mexico’s GDP. Analysts expect the country’s GDP to drop by 1% due to the 2023 Mining Reforms.
How has mining changed in Mexico?
This timeline shows the changes that have occurred in the Mexico mining industry in recent years:
- 2018 President Obrador, commonly referred to by his initials, AMLO, stops granting mining concessions after taking office
- 2022 Lithium Reforms – Mexico nationalizes Lithium and establishes a state-owned company to manage the exploration, mining, and refining of the strategic metal
- 2023 Mining Reforms – these changes to Mexico mining law are the focus of the video presentation
- 2024 ban on open-pit mining (?) – AMLO proposed this radical change in February, 2024 and President-elect Claudia Sheinbaum has stated that she intends to implement all of the reforms that AMLO has initiated
These changes, when viewed together, show a trend towards more government control and regulation of the mining industry. They also demonstrate a potential trend towards nationalizing all mineral resources in Mexico (keep in mind that petroleum resources were nationalized in 1938).
How has the Mexico mining industry changed?
This is a high-level list of the most significant 2023 Mining Reforms:
- Restrictions on the granting of new mining concessions
- Shortening of the duration of mining concessions
- Separation of water concessions from mining concessions
- Restricting mining concessions to a single mineral
- Allocating 5% of net profits to native peoples
- Reducing the ability to pledge a mining concession as an asset to secure financing
- Making mining companies criminally liable for accidents and injuries
- Adding provisions to cancel or revoke mining concessions
These reforms have been enacted but there is still a great deal of uncertainty about them. For example, one of the changes requires that a new government agency be created, but that agency hasn't been created a full year after the law was enacted.
As investors and potential investors, uncertainty is not a good thing. If you are uncertain about the future of mining in Mexico, you're not going to make an Investment. This is true for both mining companies and for individuals who invest in mining companies.
Wrapup
In the video we walk through each of the changes listed above and discuss them in-depth. We finish by answering the two questions that we started with:
- Is it okay to invest in mining companies that operate in Mexico?
- Will Mexico ban open pit mining?
Watch the video for an in-depth discussion of the 2023 Mining Reforms and to discover whether Mexico will ban open pit mining.
https://satoritraders.com/blog/mexico-mining-industry-takeover-ban-on-open-pit-mining
