BASHAM NEWS

Mining Industry Reform in Mexico approved by Congress.

In the early morning of April 29, 2023, the Mexican Senate approved amendments to the Mining Law, the National Waters Law, the Ecological Balance and Environmental Protection Law and the General Law for the Prevention and Integral Management of Waste, regarding mining and water concessions, establishing relevant changes and obligations for private parties (the "Mining Reform").

The most relevant changes proposed are detailed below:

1. MINING LAW ("LM")

Modifications and Additions to the LM
Mining Concessions, Allocations and Reserves  
Before the Mining ReformAfter the Mining Reform
Currently, mining concessions and assignments are granted on free land to the first applicant in time for a mining lot.It is proposed to modify the process for granting concessions to migrate to a public bidding scheme.  
[.......]A prohibition is added regarding the granting of concessions when the area does not have water availability, is located in protected natural areas or when the population is put at risk.  
[.......]In addition, it is established that in all cases public tenders must ensure the best economic conditions for the State and guarantee the implementation of actions to prevent and control air, water, soil and subsoil contamination.  
Of the Rights Conferred by Mining Concessions and Allocations  
Before the Mining ReformAfter the Mining Reform
It is provided that the concessionaires have several rights, including, among others: (i) the disposition of the land covered by the concession title; (ii) the use of the water coming from the mines for the exploitation and benefit of the minerals or substances obtained from the mines; and (iii) to obtain preferential concessions on the water of the mines.It is proposed to repeal such rights.
[.......]It is established that mining concessions cannot be the object of a guarantee for the fulfillment of the obligations of their holders.    
Term and Extension  
Before the Mining ReformAfter the Mining Reform
At present, mining concessions are granted for a term of fifty yearsThe term of the mining concession is extended for an equal period, provided that it is requested five years prior to the expiration date of the concession.  It is proposed in the reform that mining concessions be granted by thirty yearswhich may be extended twice, each time for a period of two years. twenty-five years (the second with competition, giving priority to the concession holder) for a maximum total of 80 years.
Occupation of Premises  
Before the Mining ReformAfter the Mining Reform
Currently, the occupation of land over mines can be by (i) expropriation, (ii) temporary occupation or (iii) constitution of easements.  As a result of the Mining Reform, the figure of expropriation is eliminated and only temporary occupation or the constitution of easements is maintained.
Cancellation of Mining Concessions and Allocations  
Before the Mining ReformAfter the Mining Reform
Currently, there are certain grounds for termination of mining concessions, including, among others: (i) withdrawal of the concession holder; (ii) substitution due to any modification to the surface that covered the mining concessions; or (iii) by judicial resolution.The amendment proposes to add several causes for cancellation of mining concessions, including, among others, (i) failure to pay the corresponding contributions for two consecutive years; (ii) failure to start the corresponding work within one year after the concession was granted; (iii) lack of reports on possible damages or risks to the ecological balance; (iv) failure to have permits from other authorities; (v) failure to have the corresponding closure or waste management programs; and (vi) failure to have the water concession for mining in force.  
Fines  
Before the Mining ReformAfter the Mining Reform
For non-compliance with the provisions of the Mining Law, fines under this law range from $10,374.00 M.N. (approximately US$550.00), to $207,480.00 M.N. (approximately US$ 10,920.00).The applicable fines are modified to, as the case may be, range from 1% of the infringer's total annual income plus $518,700.00 M.N. (approximately US$27,300.00) or 4% of the infringer's total annual income and $1,037,400.00 M.N. (approximately US$54,600.00).  
Offenses  
Before the Mining ReformAfter the Mining Reform
[.......]The amendment adds a section of crimes, establishing penalties, as the case may be, ranging from five to ten years of imprisonment and a fine equivalent to 5% of the total annual income of the offender plus $1,037,400.00 M.N. (approximately US$54,600.00), or 5 to 15 years and a fine equivalent to 5% of the total annual income of the offender plus $1'244,880.00 (approximately US$65,500.00). The conducts foreseen are, among others: (i) the extraction of minerals without being the holder of a mining concession; (ii) the alienation or traffic of minerals and metallurgical derivatives without having the corresponding concession; (iii) the presentation of false documentation to obtain a concession.

2. GENERAL LAW OF ECOLOGICAL BALANCE AND PROTECTION OF THE ENVIRONMENT ("LGEEPA")

Amendments and Additions to the LGEEEPA
Before the Mining ReformAfter the Mining Reform
[.......]It is proposed to prohibit the granting of authorizations for mining activities in Natural Protected Areas ("NPAs").  
Currently, the Ministry of the Environment and Natural Resources ("SEMARNAT") may require the granting of insurance or guarantees when activities may cause serious damage to ecosystems. An additional obligation is introduced to have a Mine Restoration, Closure and Post-Closure Program The Company must submit a mandatory guarantee to SEMARNAT. Failure to comply with the program will be grounds for forfeiture of the guarantee.
In this sense, the reform imposes as an obligation to the now concessionaires to present, within 365 calendar days after the entry into force, a letter of credit to guarantee the possible damages caused, as well as the authorization of the Mine Restoration, Closure and Post-closure Program. Within said term, the removal of deposits or sites for final disposal of earth, tailings dams, slag, established in ANP, wetlands, vessels, watercourses, federal zones, protection zones or in places that affect or may affect population centers, productive zones or ecosystems must be carried out.

3. NATIONAL WATER LAW ("LAN")

Modifications and Additions to the LAN
Before the Mining ReformAfter the Mining Reform
[.......]The reform proposes the inclusion of three new assumptions to revoke concession titles and discharge permits, the most relevant being: When an economic, social, environmental or any other kind of imbalance is caused; and When the Restoration, Closure and Post-closure Program provided for in the LGEEPA is not complied with.  
[.......]The "Use of National Waters in Mining" is added to regulate the procedure for requesting a concession of national waters for use in mining, the obligations of the concessionaires, and the limits of the concession.
Currently, the assignment of concession title rights is allowed, without limitations, except when they are located in the same aquifer or basin and others indicated in the LAN. It is foreseen that the assignment of rights will require authorization when their characteristics are modified.  The transfer of rights, for mining use, to use or exploit national waters for any other use is prohibited.
In the granting of concessions, the National Water Commission ("....CONAGUA"In its decision it does not consider the water concentration of individuals, but rather the availability of the basin and aquifer, among other factors.  The reform includes the prohibition to grant concessions for mining use when:   The applicant intends to concentrate more than 30% of the total annual average availability volume of the basin or aquifer.   Concessions on watercourses or vessels and their federal zones for the final disposal of mining waste.  
Currently, concessions to use, exploit or take advantage of national waters shall not be less than 5 years or more than 30 years.  The proposed reform provides that national water concessions for use in mining will be valid for the same period of time as the duration of the concession.
The LAN provides that concession holders are required to submit a report every two (2) years containing the chronological analysis and indicators of the quality of the water they discharge, without fines for non-compliance with this obligation.The proposal is intended to impose a fine of between $161,834.00 M.N. (US$8,520.00) and $674,115.00 M.N (US$35,500.00), to anyone who fails to file with CONAGUA the annual report of discharges for use in mining.

4. GENERAL LAW FOR THE PREVENTION AND INTEGRAL MANAGEMENT OF WASTE ("LGPGIR")

Amendments and Additions to the Mining Law
Before the Mining ReformAfter the Mining Reform
Currently, the LGPGIR prohibits the location of landfills outside NPAs, unless otherwise established in the declarations of such areas.The reform proposes to prohibit the final disposal of mining and metallurgical waste in PNAs, wetlands, watercourses and federal zones of national waters or places where the path that the waste would follow in the event of a rupture would affect populations.  
Hazardous wastes are transferable to industries for use as inputs in their processes, as long as they are authorized by SEMARNAT.The proposed wording refers that mining and metallurgical wastes are the permanent and non-transferable responsibility of the person holding the mining concession.
Transitional Regime
The Transitory Regime contemplated by the Mining Reform indicates that all those procedures and/or appeals that are in process will be carried out in accordance with the provisions in force, that is to say, in accordance with the current legislation. The foregoing, provided that they do not oppose the provisions of the reform itself. It is also foreseen that all those concession applications that are in process will be rejected so that they may be requested in accordance with the new provisions. Regarding the requests for extensions of concessions that are in process, the Transitory Regime states that they will not be extended for those concessions that have been granted on ANP and/or for the exploitation of mercury. On the other hand, the Transitory Regime refers that those concessionaires who are holders of a national water concession must request within 90 (ninety) calendar days following the entry into force of the reform, the change of industrial use to mining use.  

The bill will be sent for enactment and publication by the Federal Executive in the Official Gazette of the Federation during the following days.

We believe that the approval and entry into force of the Mining Reform may affect present and future concessionaires. Such effects may be challenged by means of an indirect amparo proceeding or other means of defense, as the case may be, as of its entry into force or against its first concrete act of application. Within such means of challenge and until the constitutionality of the reform is resolved, we consider it possible to obtain the suspension of its application.

The lawyers of the mining, environmental, regulatory and administrative areas of the firm are at your disposal to attend any matter related to the above.

A T T E N T A M E N T,

JUAN CARLOS SERRA
serra@basham.com.mx  
ADOLFO ATHIÉ CERVANTES
aathie@basham.com.mx
PABLO NOSTI HERRERA
pnosti@basham.com.mx
DIANA RANGEL LEÓN
drangel@basham.com.mx    
CAROLINA NOGAL GÓMEZ
cnogal@basham.com.mx
PABLO CHEVEZ GALLEGOS
pchevez@basham.com.mx    
FERNANDO OSANTE KRETCHMAR
fosante@basham.com.mx
RODRIGO ALFONSO RUISEÑOR NÚÑEZ
aruisenor@basham.com.mx