By: Luis Gerardo Ramírez Villela
In the Mexican mining sector, cross-border financing from foreign financial institutions – particularly Canadian ones – has long been common, given that banking institutions in Mexico are unfamiliar with this type of financing and are often uncomfortable with the guarantees required.
This, coupled with the fact that the resources of the Mining Financing Trust (Fideicomiso de Fomento Minero) (FIFOMI) are severely limited by the federal government, meaning that one of the most frequent ways to finance mining projects is through financing from foreign financial institutions.
Loan agreements establish general terms and conditions, as in any contract with a domestica banking institution, except for basic issues such as currency, interest rate, and execution procedure; these are typically subject to foreign conditions and international arbitration rules.
As collateral mechanisms, mortgages and pledges are typically required. Therefore, real estate, mining concessions, and all assets to be offered as collateral must be free of any liens or encumbrances and be up to date on all their rights payments.
These collateral includes, but is not limited to, the following: (i) mortgages on real estate, (ii) mortgages on current and future mining concessions, (iii) pledges without transfer of possession on the shares of the mining company, (iv) pledges without transfer of possession on the assets of the mining company, and (v) bonds from shareholders or subsidiaries.
Currently, there is an option whereby both real estate and mining concessions can be offered as collateral through their transfer to a trust agreement, thus expediting the process. However, these structures must be analyzed in a case-by-case scenario to determine which would be the best option for the lender.
Legal advisors must review all the information to create a file containing the necessary documents for the banking institutions' lawyers to review as part of their audit process.
Additionally, an independent legal opinion must be provided regarding the validity of the loan documents and the guarantees provided, thereby securing the loan.
It should be noted that the instruments for the granting of collateral must be granted or ratified before a Notary Public and registered in the Movable Assets Registry (Registro Único de Garantías Mobiliarias) maintained by the Ministry of Economy (Secretaría de Economía) in favor of the creditor and/or with the Public Registry of Property (Registro Público de la Propiedad) corresponding to the location of the property.
