Is Mexico’s resource El Dorado in danger? Important news for you!

Last Updated: 20. Februar 2024By

As you may have already noticed, pressure on the mining sector has been increasing in many Latin American countries in recent years. Mexico is also affected by this.

Mexico as a resource El Dorado: First of all, the North American country is rich in important resources. Mexico is the world’s largest producer of silver. The big players on site include Fresnillo, Pan American Silver, and First Majestic Silver. In addition, Mexico has large deposits of gold, copper, lead, zinc, and various other metals. In the picture you can see the most important mining products of Mexico based on their value volume:

Source: Investing News ( )

No wonder that mining is an important anchor of the local economy. In 2021, according to the National Institute of Statistics and Geography (INEGI), the metal sector contributed 9.62% to the industrial gross domestic product and 3.06% to the overall GDP. Mexico is also an important supplier of raw materials to the United States, especially in terms of agricultural products, but also in terms of important metals. As a result, many foreign companies are active in the Mexican market.

New laws since 2023: President Obrador fights the mining industry For decades, the industry in Mexico had benefited from rather liberal mining laws. But now there is a paradigm shift. Last year, the government under Andrés Manuel López Obrador passed reforms for the mining sector. These provide for a reduction of mining concessions from originally 50 to now 30 years. In addition, authorities now only issue water permits under stricter conditions. This means that companies must take into account the environmental rights of local communities to a greater extent.

Last but not least, there has been a public bidding system for all concessions since 2023. Previously, there was a priority procedure. The bids increase the complexity of approval procedures, their duration, and thus the risk for mining companies. The government justifies the stricter regulations mainly with the environmental impacts of mining.

Government pushes for ban on open-pit mining But the left-wing President Obrador is not satisfied with this. A few days ago, the politician proposed another, much more far-reaching change. According to his own statements, the president has submitted a constitutional reform to parliament to significantly restrict open-pit mining activities in Mexico.

Specifically, Obrador envisions that no permits for new open-pit mining projects may be granted in Mexico. At the same time, Environment Minister María Luisa Albores emphasized that many of the concessions already granted were associated with significant risks to the environment. Therefore, the government has ordered the creation of five new nature reserves to render existing concessions invalid.

For the industry, a legally regulated ban on open-pit mining would be another bitter pill to swallow. Of the approximately 250 mines currently in operation in Mexico, 97 are classified as open-pit mines and 152 as underground mines. The most important open-pit projects include „Herradura“ by Fresnillo, „Peñasquito“ by Newmont, and „Pinos Altos“ by Agnico Eagle Mines. In fact, since the Obrador government took office in 2018, the Ministry of Environment has hardly issued any permits for new open-pit mining projects. Now this refusal could be enshrined in law.

Mining industry protests The criticism from the mining industry did not take long to materialize. The head of Mexico’s largest mining company, Grupo México, Germán Larrea, pointed out that most open-pit projects nowadays are environmentally friendly, as they use state-of-the-art facilities. In addition, flora and fauna near the sites can be restored in the long term (via Mexico Business News, MBN).

Ralph Shearing, former CEO of Altaley Mining, stated according to MBN that a ban on open-pit mining is unnecessary and would cause massive damage to the industry. Shearing pointed out the enormous economic benefits of mines for the regions and local communities.

My conclusion for you The fact that Mexico now also wants to tighten the screws on the mining sector even further is of course not good news for many resource stocks. However, this is not set in stone yet. First, parliament would have to approve the president’s proposal. Second, elections will take place in Mexico later this year, which could change the political landscape again.

The mining industry will now have to lobby with all its might to publicly highlight the economic importance of the sector for Mexico before the election. The fact is: the Mexican government cannot completely do without mining. The industry is too important for the economy.