Exploring the Sierra Madre of Mexico for gold and base metals.
Mineral exploration is a process whereby intellectual, natural and financial capital is converted to an orebody with measured parameters. Mining is a process whereby the orebody is converted into products and sold to create financial capital. Increasingly, mining companies are having to do this in a way that limits the impacts on living capital, and ensure that part of the new wealth generated contributes to local communities as well as their own shareholders.
|Material||materials, natural resources||tools, buildings, infrastructure|
|Financial||money||financial instruments, securities, property rights|
|Living||carbon, nitrogen, water, air||soil, living organisms, land, ecosystem services|
|Intellectual||ideas, knowledge||words, images, maps, computer programs|
|Experiential||action||embodies experience, wisdom|
|Cultural||song, story, ritual||community|
Exploration requires the opportunity to conduct surveys over vast tracts of land and to visit, examine and evaluate large numbers of mineral occurrences in the search for the rare, economically viable deposits. It is a dispersed and transitory activity characterized by uncertainty and ambiguity, with the greatest uncertainty being that any individual project will become a mine. It is not until late in the exploration process that the scale, dimension, mining method, recovery techniques and overall economic viability become known.
There is no certainty who will operate the orebody once it is defined. A junior company may sell to Property to a major company for development of a mine, or it may pass through the hands of many major and minor players before circumstances are appropriate for mine development. Furthermore, exploration projects tend to proceed episodically with periods of intense activity separated by periods of little or no activity.
Commodity-related industries are directly responsible for 24% of global GDP and indirectly responsible for another 31% of global GDP via industries that are consumers of commodities such as manufacturing, automotive or food processing industries. Direct participants in the mineral commodities markets include mineral exploration, mining, drilling, mineral processing, and service companies. Prices for mineral commodities are set by global markets and are highly cyclical. High prices encourage new capacity, and new capacity lowers prices. Usually, the price of a commodity is set by the cash-cost of the marginal producer in the market. If there is a demand increase, and no additional supply is introduced, then pricing disconnects from the floor of marginal pricing, and a phenomenon called "fly-up" pricing occurs. Producers earn about 80% of their new wealth during these highly anticipated events. If demand reduces, then the marginal producer may be forced out of business unless all participants take some capacity out of the market to support the price. If the marginal producer is forced out, then the floor price is depressed to lower levels. In all cases, it can take years to re-balance supply and demand due to the long time required to bring on new supply, and reluctance to shut down new supply once it is started.
The environment of commodity businesses is challenging. Specifically, infrastructure and equipment are highly capital intensive, markets grow with GDP at best and might decline for several years, sales price and cost structure is unpredictable, products are not easily differentiated, and the time required to see a return on investment can be longer than a decade. Given the above, factors that encourage development of new capacity in metal mining are: (i) large, high grade ore deposits where production plans can be optimized within price cycles, (ii) stable political jurisdictions with enforceable mineral tenure, tax and labor laws, (iii) access to water and energy, (iv) infrastructure and (v) access to surface land.
In Mexico, mining concessions may only be granted to Mexican individuals domiciled in Mexico, or companies incorporated and validly existing under the laws of Mexico whose objects are the exploration and exploitation of minerals. There are no restrictions on the nationality of the shareholders of Mexican-incorporated mining companies, however, those companies with foreign shareholders must be registered with the National Registry of Foreign Investments of the Ministry of Economy and file quarterly and/or annual reports. Mining concessions are Contracts with the Federal Government to pay taxes and complete work according to specific terms and conditions. In particular, holders of mining concessions must:
If any of these fundamental obligations is breached, the Government may elect to cancel the concession and make the mining rights available to the general public.
In 2014, the Federal Government started collecting royalties from mineral producers. While viewed as ill-timed by many mining companies, the royalties are mostly returned to the communities affected by mining (at the municipal level), and are designated for local schools, clinics, public hydraulic works and roads. This new tax structure should allow the mining companies to focus on their core business (activities permitted under Mining Law), and finance local government to work out the social benefits and impacts from mining. Responsibility for mitigating environmental impacts remains with the mining company under the supervision of SEMARNAT and other Government agencies.
Granting of a mining concession does not grant to its holder any right over the surface land where the concession is located, and ownership of real property itself does not grant to the owner the right to explore or to exploit the mineral resources that may exist therein. However, there are several legal mechanisms in Mining Law that provide for access, possession, occupation and even ownership of surface land that might be considered essential for the performance of mining work.