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Thursday, September 6, 2012

Mexico and the Risks of Using International Corporate Structures

Mexico has some of the world’s largest reserves of key minerals. According to estimates by Mexico’s Ministry of Economy, in 2011 investment in the mining sector may have reached $4.73 billion, making Mexico the world’s ninth largest mining producer.

A significant percentage of the mining companies operating in Mexico have foreign capital and are headquartered in Canada or in the US. The use of international corporate structures is not an uncommon practice in the mining induustry, as well as in many others. Unfortunately, few of these companies are aware of the implications of doing so.

Last week, for instance, ...

Delaware’s Supreme Court upheld a Court of Chancery decision which held that Americas Mining Corporation, the subsidiary of Southern Copper Corporation’s controlling shareholder, and affiliate directors of Southern Peru, breached their fiduciary duty of loyalty to Southern Peru and its minority stockholders by causing Southern Peru to acquire Grupo Mexico’s 99.15% interest in Minera México, S.A. de C.V., a Mexican mining company, at an unfair price (Grupo Mexico is owned by Mexico's third wealthiest man). In the final judgment, the Court awarded more than $2 billion in damages and more than $304 million in attorneys’ fees.

Whether a similar outcome could have been obtained in Mexican courts is doubtful. While having a foreign parent company has certain undisputed benefits, Mexican companies planning on taking advantage of cross-border corporate structures shall consult with attorneys licensed to practice law Mexico and in the US (or the corresponding foreign jurisdiction), and with the required practical knowledge of the laws at play to help them make informed decisions and prevent, to the extent possible, unwanted results.

Mauricio Leon de la Barra is an international law attorney licensed to practice law in Mexico and California, and has more than 15 years of experience representing clients in business and real estate transactions and litigation involving international, U.S. and Mexican laws.