Canadian Lawyer InHouse

october 2014 24 INHOUSE the United Kingdom, don't provide some form of stabilization. But Mexico has yet to spell out whether or not energy companies will have any form of recourse. And there are already a few worrying signs. Alexander points out that the exploration and produc- tion contracts include specifi c clauses for "administrative rescission." "In other words the government will have the right to terminate the oil company in certain circumstances such as where there is an unjustifi ed suspension by an oil company of its operations, where the oil company has made an assignment of interest that was not approved by Mexico, or where the oil com- pany failed to comply with its exploration and or development obligations," he says. On top of that, the Mexican legal system is sure to present diffi culties to any fi rms that don't trod carefully, a lesson many Canadian mining companies have learned the hard way. ThE ThIRd RAIL – LANd OwNERShIP Canada has long been a dominant player in Mexico's mining industry. Around 75 per cent of total foreign investment in the mining sector comes from Canada, and Canadian gi- ants like Goldcorp Inc. and Teck Resources Ltd. have had a presence in the country for many years. But despite their success, many fi rms have tripped up when it comes to the is- sue that has long been the third rail of Mexi- can politics — land ownership. Ever since the Mexican Revolution a cen- tury ago spurred a massive redistribution of land from a tiny elite to the masses, small landowners, known as "ejidos" have commu- nal rights and privileges unique to the Mexi- can system. This has often brought them into confl ict with foreign mining companies. "Some companies are having quite severe problems in Mexico due to the lack of un- derstanding of the cultural dimension," says Cruz Rico. In 2012, Excellon, a Canadian silver min- er, had one of its mines blockaded by ejidos for 99 days. Earlier this year, the Ejido Car- rizallillo led a strike that shut down mining activities at a Goldcorp mine for 33 days. "You have to keep in mind that when you're getting mining rights, you're getting rights for the underground, but you're not getting rights for the surface," says Cruz Rico. Groups as small as 20 individuals can claim rights to a certain parcel of land. While companies can be granted mineral rights over a block of land for up to 30 years, these leases often break down after only a few years because of confl icts with ejidatar- ios. The agrarian courts can even overturn leases and nullify con- tracts if they believe an agreement was not drafted correctly. "I have been involved with some cases where those legal requirements were not fulfi lled and the sector regu- lation was not observed, therefore any- body who was part of that group would be able to claim a breach of contract and would be able to ask that that contract be declared void," says Cruz Rico. "For that reason some companies and businesspeo- ple from Canada believe they are not get- ting the results that they were looking for." Cruz Rico says that some general counsel for mining companies believe once they've gotten a concession to operate a mine, have signed a lease and have obtained permits from federal, state, and municipal authorities, they've fulfi lled their obligations and don't need to continue talking with ejidatarios. "If I have the title, why should I start dealing with different actors," he says. "But the problem is that lease, maybe it wasn't properly signed, or they are not fulfi lling the specifi c regulations, and for that reason they fi nd this confrontation," he says. Carlos Solórzano, a lawyer with SMPS Legal, which has offi ces in Calgary and Mexico City, has seen this sort of situation unfold often. "Show me a failed venture in Mexico and I will show you a naive, if not negligent, business development team," he says. "A lot of mining companies reach an agreement and then forget about the community." Solórzano says oil and gas companies will experience similar challenges as mining companies have in Mexico. "One of the things that they're going to struggle with is the social component," he says. "Most of the operations are going to be remote areas where people have been neglected. So companies coming in will have to have very strong social policies that immediately have to deploy benefi ts to the community in order to gain that will that is required to have a smooth operation." Solórzano says he's seen many major Canadian mining companies struggle with issues around agrarian law because they the United Kingdom, don't provide some form of stabilization. But Mexico has yet to spell out whether or not energy companies will have any form of recourse. And there are already a few worrying signs. Alexander points out that the exploration and produc- tion contracts include specifi c clauses for "administrative rescission." "In other words the government will have the right to terminate the oil company in certain circumstances such as where there is an unjustifi ed suspension by an oil company of its operations, where the oil company has made an assignment of interest that was not approved by Mexico, or where the oil com- pany failed to comply with its exploration and or development obligations," he says. On top of that, the Mexican legal system is sure to present diffi culties to any fi rms that don't trod carefully, a lesson many Canadian mining companies have learned the hard way. rights over a block of land for up to 30 years, these leases often break down after only a few years because of confl icts with ejidatar- ios. The agrarian courts can even overturn leases and nullify con- tracts if they believe an agreement was not drafted correctly. "I have been involved with some cases where those legal requirements were not fulfi lled and the sector regu- lation was not observed, therefore any- body who was part of that group would be able to claim a breach of contract and would be able to ask that that contract be declared void," says Cruz Rico. "For that reason some companies and businesspeo- ple from Canada believe they are not get- ting the results that they were looking for." Cruz Rico says that some general counsel for mining companies believe once they've gotten a concession to operate a mine, have signed a lease and have obtained permits from federal, state, and municipal authorities, they've fulfi lled their obligations and don't need to continue talking with ejidatarios. "If I have the title, why should I start dealing with different actors," he says. "But the problem is that lease, maybe it wasn't properly signed, or they are not fulfi lling the specifi c regulations, and for that reason they fi nd this confrontation," he says. Carlos Solórzano, a lawyer with SMPS Legal, which has offi ces in Calgary and Mexico City, has seen this sort of situation '' '' you have to keep in mind that when you're getting mining rights, you're getting rights for the underground, but you're not getting rights for the surface. GUILLerMo crUZ rIco, cruz Herrara Ltd.

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