Mexico's mining industry has been thriving in the last few years, and investment in new projects has been continuing at a strong pace even with the sell-off in commodity markets. A major silver producer since the days of colonial rule when Guanajuato and Taxco became the jewels of the Spanish Empire, Mexico has consolidated its position as the number one producer of the precious metal. Fresnillo Plc, which in 2008 was spun off from Industrias Peñoles and listed on the London Stock Exchange, is Mexico's biggest silver producer, thanks mainly to its massive Fresnillo and Saucito mines.
Even though Mexico claims the number 1 ranking in the silver market, the value of its gold exports is sizably larger. The country exported US$1.18bn of gold in the first quarter of 2016, versus US$446mn of silver. Indeed, Mexico's gold output has doubled in the last decade, driven by major greenfield developments including Goldcorp's Peñasquito mine. Iron and steel exports in the same period totaled US$467mn, while copper exports were US$456mn. Mexico is also the world's second-largest producer of bismuth.
Though Mexico is not a major base metals producer, the country's outlier, Grupo México, has been a major copper company since it took over US rival Asarco in 1999. The company's billionaire owner, Germán Larrea, has overcome major debt concerns following the Asarco takeover and has emerged from the commodities super-cycle as one of the world's richest men. Grupo México owns Buenavista del Cobre, the copper mine with potentially the world's biggest reserves. The mine, previously called Cananea, has overcome a recent history of fractious labor relations and the company is close to completing a US$3.5 billion expansionthat will make the mine – which sits just 35 miles south of the US border – one of the world's largest copper operations with output of more than 500,000t/y.
The Sierra Madre mountains in Mexico, part of the same range that provides massive mineral wealth from the Andes in South America to the Rockies in the north, are still largely unexplored and other opportunities lie in wait for new entrants to the industry. Other companies are opening up old mines as the advancing state of mining technology allows companies to reassess ore grades and left-over tailings deposits. Mexico attracted hundreds of junior exploration companies during the high price cycle, mostly focused on gold and silver, and ended up with a larger ratio of exploration to development spending as could be observed in other countries in the region – and a lot of new discoveries. While price drops in recent years have halted many exploration and development projects, there are signs that companies are returning their attention to exploration as prices have picked up in the year to date.
El Gallo mine. Credit: McEwen Mining
But although it holds the status as the fifth best global mining investment destination according to consultancy Behre Dolbear, Mexico still has work to do to quell investors' fears of crime and lawlessness. A spate of violent incidents at Mexican mines rattled the foreign investment community last year and had tangible effects on the development of some projects as contractors and their employees prefer to work in areas considered safer.
Mexico's mining industry constitutes a relatively small chunk of the economy, generating 5.5% of GDP in 2015 – less than half of mining's share of GDP in major mining jurisdictions like Chile and Peru – and employs just 345,000 in a country of 122 million. Mining isn't even the country's main extractive industry, with Mexico's massive oil industry about to enter a new chapter as it loosens the monopoly of the state-owned producer, Petróleos Mexicanos (Pemex), though the state has consistently supported mining.
And although Mexico was one of the big winners of the super-cycle, attracting billions in exploration and development spending and indeed seeing production increase significantly, the country's mining sector is struggling to keep up the pace. Chile surpassed Mexico in 2015 for exploration spending, knocking the North American country out of the regional first place, and overall mining sector investment has fallen significantly from its 2012 peak (despite a mild recovery in 2015).
Mining-specific taxes introduced in 2014 also served to slow exploration and other investment somewhat, but the situation owes primarily to external factors – lower metal prices, reduced access to capital and general uncertainty that has led the global mining industry to hit the brakes. In the context of tough financing and investment choices, the migration of mining money to "safer" jurisdictions means Mexico must take a hard look at the challenges investors face in the country.
Original Article: http://www.bnamericas.com/en/intelligence-series/mining/mining-in-mexico-poised-for-a-rebound/
