Mining in Mexico

Mexico has a mining history extending almost 500 years and is among the world's largest metal producers. Although best known for its production of silver – over 10 billion ounces have been produced and it was the second largest silver producer in the world in 2010. The country also mines significant quantities of copper, gold, lead and zinc.

The geological potential remains strong. The country's terrain is one of the most tectonically active and complex in the world. Orogenesis has pushed up mountain chains all across Mexico, including the Sierra Madre Oriental, Sierra Madre Occidental and Sierra Madre del Sur. These three regions have formed some of the key metallogenic areas. Gold and silver mineralisation is commonly linked to the two belts of hydrothermal veins and gaps that stretch out underneath both sides of the Sierra Madre Occidental.

That potential has attracted more than 250 private exploration companies to Mexico, with operations concentrated in the northern states of Sonora, Zacatecas and Chihuahua.

As mining is an important contributor to the country's economy, the industry benefits from a well-structured and supportive regulatory framework.

Under the Mexican constitution, minerals are part of the national patrimony. Exploration, exploitation and beneficiation of minerals have preference over any other use of land. The law permits up to 100% private ownership in exploration, development and production of mineral substances.

Concessions are required to explore for and exploit mineral potential. Concession holders are required to negotiate with the surface land owner to access the land under which the concession is located.

Exploration concessions are granted for six years and are not renewable. There are no limits for mining concessions. Production concessions are awarded for 50 years and are renewable for a similar period. All concessions may specify required levels of capital expenditure and minimum environmental, health and safety standards.

Regulation for the mining sector is overseen by the Secretaria de Economia, while environmental permitting responsibility resides with the Secretaria de Media Ambiente y Recursos Naturales (SEMARNAT).

Mexican environmental regulations have become increasingly stringent over the last decade as a result of international agreements that Mexico has ratified, including North American Agreement on Environmental Cooperation (parallel to NAFTA), the United Nations Framework Convention on Climate Change and the Convention on Biological Diversity.

Mining companies must obtain environmental impact permits from SEMARNAT prior to any mining and exploration activities, and such activities are subsequently subject to several environmental permits from different offices with SEMARNAT, including water extraction, wastewater discharge and tailings disposal.

There are no taxes or levies imposed specifically on the mining industry. Companies are subject to standard corporate income tax rates, which are determined by the federal government.

Mexico's long history of mining and an extensive natural resources sector provide a skilled workforce, although the growth of the mining industry in recent years has lead to some scarcity of trained workers. Under Mexican law, it is permissable for unionised employees to engage in work stoppages and other industrial actions for disputes with their own employers or in sympathy with unionised employees of other companies who are engaged in a dispute, despite the absence of any dispute with their own employer.

President Felipe Calderon has made combating organised crime a priority of his administration and has deployed the Mexican military to several Mexican states where Fresnillo plc has operations, including Zacatecas, Durango and Sonora, to assist or replace local and state police. Military and police have been increasingly successful in carrying out operations to remove top cartel leaders. Nonetheless, the Group has enhanced security measures at all facilities and is taking additional precautions to safeguard its personnel, who are the top priority.

While we believe that media reporting has exaggerated the extent of the security threat, we reognise the potential to our business and have put in place policies and procedures to protect our personnel, operations and assets. The security situation has no significant impact on the Group's performance or production, although the measures we have taken do influence the way we operate and explore.