There are few subjects that receive as much resistance as due diligence in the procurement of rural land for mining operations. Often seen as time-consuming and complicated, it is, nonetheless, an essential step in securing land rights and preventing legal conflicts. Land regulation in Mexico is a complicated matter whose regulation favors rural communities. And issues, especially regarding the validity of land use agreements, can jeopardize business operations. Proper due diligence can help detect and correct these issues. In this post, we will provide an overview of due diligence, what we look for during the execution and the specific aspects that differentiate due diligence in land procurement from other types.
In its most basic terms, due diligence is nothing more than an investigation. An in-depth fact-finding mission that should expose all critical points and output all necessary information for the deal. Due diligence should allow investors to evaluate the legal risks and make informed decisions based on facts and findings. It should allow businesses to correct any deficiencies and take preventive measures before the deal closes.
Due diligence is essential in land procurement deals to generate information about the land, its owners and any other matter of fact issues directly affecting it. Unlike other due diligence processes, e.g. in M&A deals, most of the information and documentation will need to be generated by the team. This means that a considerable amount of time and energy will be focused on investigation. On-site visits, interviews, and the assessment of professional surveyors are as necessary as document review.
The first step in any due diligence process is defining the scope of the project. The scope can be influenced by several factors: whether it is a new project or an acquisition; the perceived risks; the project’s location; the type of land rights being acquired; the amount of information previously available, etc. Additionally, the parties should determine whether any other additional activities will be carried out, for example, environmental issues, security issues, or any other administrative regulations.
The goal of the due diligence process is to obtain all the necessary information to secure land rights and prevent future conflicts. Additionally, it should identify any legal, regulatory and compliance concerns. Furthermore, it should consider soft issues, such as cultural aspects and security risks that may affect the agreements. The following is a list of the main points that the due diligence process should cover:
⁃ Identify the land accurately and its’ rightful holders or owners;
⁃ Identify all communities within a predetermined radius that may have claims on the land;
⁃ Identify whether any indigenous groups lay claim on the lands;
⁃ Identify any irregular settlements;
⁃ Produce any and all records related to the establishment of the common land and its rightful holders;
⁃ Review of all Public Registries;
⁃ Review all relevant maps and location plans;
⁃ Review boundary marks;
⁃ Include on-site inspections with aerial surveillance, satellite imagery and its comparison with official records;
⁃ Identify pending and threatened litigation or pending government actions;
⁃ Identify any previous orders, decrees, injunctions, judgments or rulings;
Physical Inspection of Site
Many law firms will not carry out a physical inspection of the site. Some will state that an in-office review of documents is sufficient. Others believe that any issues would have been uncovered during exploration. This is a mistake. A physical inspection of the site is essential in order to detect all kinds of possible threats to business operations. We recommend including professional surveyors and other experts in the legal team to aide in detecting irregularities in boundary marks, conflicts with official records, maps or plans. Irregular settlements and any nearby communities must be reviewed. Any signs of conflict between communities must be looked into. Aerial surveying and satellite imagery are advised. All information should be confronted with public records.
Public Registries
As stated previously, generating information is an essential step in the due diligence process. This will inevitably mean visiting public registries. In some cases, the only way to check the documents establishing communal land is to visit the National Archives. In others, the information may be more easily accessible. The goal is to obtain a full history of the path of ownership of the land and review proof of title. Location plans should be compared with public records, relevant maps, and plans. Mining operations should keep certified copies of all public records —if possible— in case any legal issues arise.
Court Visits
It may not be possible to identify all pending legal cases. Nevertheless, the most effective way of finding out if there are any unresolved cases is by visiting the courthouses, taking a look at the court dockets, and interviewing the officers of the Court. Mexico does not have a unified docket system or search system. Furthermore, Mexico has Federal and State Courts, as well as Agrarian Courts that act independently from the Judicial branch of government.
Soft Issues
We have included two of the most common soft issues impacting business operations in the due diligence activities. Although not strictly legal, they may affect business operations more than any other issue, and mining operations should be aware of both before closing any land procurement deal. The first refers to the cultural aspects of the communities involved and the second to the impact of organized crime in the region.
Cultural Aspects
Mexico is a multicultural country with 68 recognized indigenous groups and more than 3000 communities. Even within non-indigenous groups, the cultural differences between regions are significant. It is important to recognize these differences when negotiating land procurement agreements. Failure to recognize the cultural differences, the communities idiosyncrasies, as well as past patterns and behaviors, are likely to result in protests, complaints, and resistance.
Organized Crime
The subject of organized crime is too complex to deal with in this post. For our purposes, it suffices to say that organized crime can have a direct impact and threaten business operations. The recent news of Pan-American Silver’s Chihuahua mine closure, as well as Mexico’s two largest business councils’ (COPARMEX and Consejo Coordinador Empresarial) request to the President to take action on violence, shows how much organized crime can impact business.
Although more in-depth due diligence may be carried out in regards to security threats, the due diligence process should at least review public records, check the nearest public security posts, interview local residents and local authorities, identify common practices like roadblocks, land control by organized crime groups, armed confrontations, etc.
Once the previous activities are complete, the next step will be to address any deficiencies and follow up on any issues that may have come up. This may include obtaining additional or missing documentation, locating individuals, or dealing with incomplete General Assembly minutes. Once this process is finished, due diligence is complete and the deal may proceed to the next step.
Although time-consuming, due diligence is an essential part of successful land procurement deals. A team of legal experts aided by professional surveyors and other experts can detect issues that could endanger business operations. The complexities of Mexico’s land regulations and its preferential treatment of rural communities may put businesses in an unfavorable position if litigation is involved. Business’ should incorporate a legal team during other studies, such as technical reports, environmental and land studies.