Shares in Mexican miners and companies with operations in the country were severely hit this week, as leftist President-elect Andres Manuel Lopez Obrador is expected to approve proposed legislation that could restrict mining activity in the country.
Early this week, parliament members belonging to the National Regeneration Movement (MORENA) party tabled bills to include environmental and indigenous community protections in the proposed revision of Mexico’s mining code.
MORENA and its allies hold majorities in both houses of Congress.
The new set of suggested rules already included tax hikes, but this week’s events increased investors’ worries over the future of existing operations, especially if conditions were breached.
“We believe Mexican mining equities will decouple from fundamentals for the foreseeable future given the heightened uncertainty around the regulatory framework for mining operations in the country,” Morgan Stanley said in a note to clients quoted by Expansión.
Local miners Industrias Penoles and Grupo Mexico’s shares fell for a third straight day on Thursday in the local exchange, while Mexico-focused Fresnillo shares (LON:FRES) closed almost 10% lower yesterday on the news and it was falling again on Friday (-2.87% to 779.4p by 1:20 pm local time).
Other possible changes to the mining code include allowing the Ministry of Economy to name certain zones as not viable for mining, and to revoke permits and existing concessions deemed to have a negative social impact.
The incoming government is also considering empowering certain Mexican agencies with overseeing the social and environmental impact of mining activities.