The steady rise of metal prices is sparking an increase in new projects and acquisitions in the mining industry globally but in Mexico, miners have reason for pause as the country’s presidential campaign takes off. “Volatility around the world is benefiting metal prices as well as funds in various stock exchanges,” says Héctor Herrera, Partner at Haynes and Boone. “However, (Mexico) needs to take into consideration the possible impacts of the 2018 presidential elections on investment and the exploration of mineral resources.”

As the leading candidates hit the stumps, industry leaders have identified three key areas of concern that could shift the industry’s prospects, depending on who emerges as the nation’s next president. These are nationalization of resources, the regulatory and fiscal framework and FDI.

The top four candidates – Andres Manuel Lopez Obrador (AMLO), Ricardo Anaya, Jose Antonio Meade, Margarita Zavala – denote a shift in choices for the electorate. After nearly a century of one-party rule, the 2018 choices represent coalitions of the four main parties, an independent candidate and a wide spectrum of stances.

To pain the picture of possibilities that could result from the July 1 vote, Mexico Mining Review has compiled the responses from the presidential candidates to the industry’s three main concerns. AMLO, who leads most polls and is running on the National Regeneration Movement (MORENA) ticket, is the most concerning given his nationalistic rhetoric.

RESOURCE NATIONALISM

Although the presidential candidates have not released public statements directly connected to the extraction of minerals, some industry insiders see a possible connection between the candidates’ perspectives on hydrocarbons and the mining industry that could be of concern. “(AMLO) has not announced a stance on the mining industry but clues can be derived from his nationalistic outlook on hydrocarbons,” says Jorge Sánchez, Partner at Haynes and Boone, in an exclusive interview with Mexico Mining Review. “His view on oil could easily spill over to the mining industry. He has stated his intention to control natural resources and to review the concessions that have been granted to oil companies.”

Over the past year, AMLO has made controversial statements in favor of the de-privatization of natural resources but as voting day draws closer, his rhetoric is starting to soften. For example, in 2013, when the Energy Reform was announced, Wradio reported that AMLO declared the changes made to Article 27 of the Constition were a betrayal of the country and should be reversed. However, in March 2018 he declared during a Banking Convention in Acapulco that he would not confiscate, expropriate nor nationalize anything, according to El Economista.

Runner-up Meade disapproved of AMLO’s earlier comments and stated in a private meeting with the Mexican Association for Hydrocarbon Companies (AMEXHI) in March that AMLO’s threat to undo the Energy Reform was a destabilizing statement because it could send the message to the industry that contracts are not respected in Mexico, reported Forbes.

On her official website, Margarita Zavala proposes taking advantage of hydrocarbons by improving the country´s infrastructure while continuing the transition toward renewable energy although she has yet to touch on these matters in her public speeches, reported El Financiero. But a personal relationship with the industry may have come to light in a fiscal report released by INE in April. It showed that Zavala received MX$5 million from Grupo Bal, a conglomerate that owns Industrias Peñoles, one of the biggest mining companies in the country.

While AMLO may have taken a strong stance against the privatization of resources, recent statements show a possible change of heart, which combined with Meade’s efforts to create certainty for investors and Zavala’s ties to the industry, minimize the possibility of the nationalization of resources.

FISCAL AND REGULATORY CHANGES

In 2014, the government implemented a fiscal reform that greatly increased the taxes mining companies must pay to the Mexican government. The possibility of an additional tax hike or change in fiscal policies could impact the competitivity of Mexico’s mining jurisdiction. “There is no doubt from my perspective that mining has become more challenging in Mexico over the last five to six years,” says Mitchell Krebs, President & CEO of Coeur Mining. “If Mexico wants to continue attracting foreign capital, it should re-examine its tax structure as it now stands out as being on the high end.”

For their part, the candidates are promoting stability and better administration of public expenditures. This month, Meade, in front of an audience of 500, stated his intention to improve fiscal processes, to facilitate tax collection and its correct application and to fight corruption that affects different levels of the government, reported Milenio. The fiscal reform may also not face any changes under his administration as a summary of his economic proposals shared by El Economista includes defending the reforms established by Peña Nieto.

Zavala is equally committed to fiscal responsibility. She supports México Mejor Futuro, organized by the Coordinating Business Council (CCE). The CCE requests that the public agenda for the private sector include the creation of a sustainable fiscal system and the strengthening of trade agreements.

For AMLO’s part regarding fiscal policies, El Economista reported that Abel Hibert, the candidate’s economic adviser, confirmed that AMLO wants to first review the assignations of public expenditures before cleaning up tax collection. “It is necessary to create a fiscal reform, but not only in the sense of tax collection but also a thorough review of the assignation resources,” he states.

FDI

Elections are times of uncertainty and investors fear that a newly-elected president with a perspective that greatly differs from the current administration could put at risk their investments, which could end up in FDI being directed toward other mining jurisdictions that are seen as more stable. “We want stability, so the first thing we would like from the new government is that the status quo is not disrupted too much and to see a continuation of positive business and economic policies,” says James Bannantine, President and CEO of Great Panther Silver.

In terms of creating an economic environment that makes investors feel safe, Meade told a press conference that he is the only one who can ensure stability. “I have no doubt that I represent stability for both small and large investments in Mexico,” he declared. “Entrepreneurs who seek a better horizon every day will benefit the most from this stability.”

On the other hand, Anaya stated on Tuesday that AMLO is bound to scare off investment as his attitude will push investors away and inhibit economic growth and employment, as reported by El Universal. And last week, according to El Economista, he made a public commitment to increase public and private investment in the country by 25 percent. “Increasing public spending by only 5 percent of GDP by 2021 will stimulate private capital so that together, private and public spending can reach 25 percent,” he stated.

Ultimately, change should also be seen as an opportunity for improvement. John-Mark Staude, President and CEO of Riverside Resources, says the new administration will have an opportunity to prove its commitment to the mining industry. “We are a public company and we need to go where the investors want us to and where what we find can be reasonably developed,” he said. “We are really trying to keep our operations focused on Mexico and we are hopeful about the elections and their ability to bring fresh opportunities and shine a spotlight on the sector’s potential.”

 
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