Mexico, the world’s main silver producer, is quickly becoming a key player in the gold market driven mainly by an exploration boom at the Guerrero Gold Belt (GGB), an emerging gold mining district in the south of the country.

Relatively high gold prices during 2012 compelled companies to start mining more aggressively in the challenging terrain of Mexico’s mountainous areas.

To date there are several gold deposits along the 55km mineral belt, including Goldcorp’s (TSX:G, NYSE:GG) Los Filos Mine; Torex Gold’s (TSX:TXG) Morelos deposit, Newstrike Capital’s Ana Paula Project, and Esperanza Resources’ Cerro Jumil deposit.

Current compliant gold resources in the area are estimated to exceed 15 million ounces and keep steadily growing.

Richard Whittall, director, president and CEO of Newstrike Capital.

For Richard Whittall, director, president and CEO of Newstrike Capital (TSXV:NES) —the company that coined the nickname for the area— the factors that explain this boom are simple.

Low operating costs is one of them, but Whittall says there many other reasons to pursue mining in the country, such as the vast reserves waiting to be exploited.

“To date, over nineteen million gold ounces have been discovered in Guerrero and when one considers that Mexico is also one of the best mining jurisdictions in the world, it simply makes sense to operate in a country where there is such a long history of mining,” says Whittall.

Matthew Piggot, a mining analyst with Thomson Reuters GFMS, said in August that the nation – which made Bloomberg’s Top 10 list of gold producing countries for the first time in 2011– may have “mega” gold deposits still untouched.

Cheap, but safe?

Although the executives acknowledges that the issue of safety is a concern for many, he thinks that after 18 years exploring in the region, his company has a sense of how to conduct our exploration programs in Mexico without putting its people at risk. “It all starts and stops with community relations and understanding that we operate as a guest in the country,” he says. “We think Mexico is safe, otherwise we would not be there.”

Newstrike Capital prises itself for never having had the local community opposing its mining activities. In fact at Ana Paula, the company’s flagship project, 30 of the 45 people who work there are members of the local community.

According to the Mexican Chamber of Mining (Camimex) gold production in the Latin American nation hit a new record in 2011, reaching 88.6 tons of the precious metal, which was nearly 22% more than in 2010. The figure gave Mexico the highest growth rate in the world in terms of bullion production and the organization predicts 2012 will mark another record high.

Other than the Guerrero belt, all that gold is coming from the northern part of the country, which has traditionally been the main contributor to Mexico’s total gold production.

Newstrike CEO says the company, which has three contiguous projects, will likely remain focused on Guerrero as it has only explored 0.5% of its mineral claims and he believes there will be many more significant gold discoveries in the area for many years to come.

Next acquisition target

“[The company] benefits in this type of gold environment in two ways. First, having just made a significant gold discovery, we might be the next big gold mine in Mexico, albeit a few years away. Secondly, the large cap gold producers are making staggering amounts of money at today’s gold price and all of them have a requirement of replacing their respective annual production,” says Whittall.

If Newstrike’s discovery proves to be a significant gold discovery, the executive predicts his company will become a target for many of the world’s largest gold companies.

The Vancouver-based company’s team was responsible for discovering the deposit next door, Torex’s Morelos project.

“We sold another deposit back in 2003 [Los Filos], in which we were partners with Teck Resources. Goldcorp bought that and it’s now the largest gold mine in Mexico until Peñasquito gets up and running. We’re exploration people, and we are going to continue on that path,” Whittall concludes.