A Simple Guide to Unlock Natural Resources Potential

Mexico stands at a pivotal juncture in the global shift toward clean energy and supply chain diversification. With abundant natural resources and proximity to the US market, the country is uniquely positioned to become a key player in the North American energy transition. However, to fully capitalize on these opportunities, Mexican businesses must navigate complex regulatory landscapes, meet environmental, social, and governance (ESG) standards, and align with international investor expectations.

Nearshoring trends, exacerbated by the tariff turmoil with China, drive fundamental growth for Mexico. The geographic proximity to the United States and rich natural resources (both renewable and mineral) could position Mexico as a key partner for clean energy technologies.

The US Inflation Reduction Act (IRA) further amplifies Mexico’s potential role in the critical minerals supply chain. The IRA provides substantial incentives for sourcing critical minerals from trade partners like Mexico, opening avenues for Mexican producers to engage in long-term partnerships with US electric vehicle (EV) and battery manufacturers. 

IRA continues to be in effect, and while uncertainty may surround its long-term applicability, the fact of the matter is that it would be very difficult to repeal and will likely continue to be a source of projects for investment , which Mexico can capture and benefit from. The already established automaking industry could support a full establishment of a battery-making industry, powered by the vast renewable energy in Mexico.

Global markets have continued to evolve and expand in connectivity, reach, and intelligence into emerging markets. Mexico has, for some time now, remained at the forefront of the investor community interest, given the large scale of the economy, proximity to the United States, potential for renewable sources, liquidity of the currency and overall investment grade of the sovereign – when compared to other emerging markets Mexico still stands out.

However, to truly harness these opportunities, Mexican participants in the sector must consider key financing considerations that will significantly increase the success ratio for funding, both equity and debt, in public and private markets across the globe. 

First of all, due diligence requirements globally have increased as investors seek transparency and clarity. Global standards are now commonplace across sectors and participants in global markets must adopt standardization. Competing for international investors, Mexican enterprises must prioritize alignment and compliance with global ESG standards. Companies must ensure clear documentation of land rights, environmental permits, and community engagement practices. Implementing robust ESG frameworks not only mitigates risks but also enhances attractiveness to global capital. As a practical matter, ESG frameworks are now a “license to operate” and while the slowing of ESG has been noticed recently, the overall and long-term trend is very clear.

Secondly, not all capital is created equally. Different projects require different financing structures. Learning who to ask for funds and how to raise it may vary depending on several factors, including the risk profile of the project, the life cycle in which it operates, and the overall riskiness of the underlying resource. In a world with limited time and management’s bandwidth scarce, focusing on the right targets is critical.

For example, a large project financing may be suitable for large-scale mining projects with sufficient proven resources, allowing for risk-sharing among stakeholders, but earlier stage development would typically require equity partnerships and/or royalty and streaming agreements. 

On the flip side, brownfield assets with a track record, may benefit from corporate-style financing that can allow more flexible terms and tighter pricing than a regular project financing structure. 

The structure, and therefore the investor base, may vary significantly and a successful capital raise will be based on reaching the right target.

Finally, seeking best-practices from the global landscape will allow Mexican businesses to converse with international investors on the same basis, and therefore bridge the gap on the local nuance that every jurisdiction has. Typically,investors accustomed to natural resources understand  every jurisdiction is different, but will always attempt to bridge and understand that difference across one or another. Creating talent experts on Mexico’s landscape and regulation, and acknowledging the differences, allows for a common dialogue and increases significantly the likelihood of success.

In conclusion, Mexico’s abundant natural resources and strategic location present unparalleled opportunities in the evolving global energy landscape. By proactively adopting ESG standards, understanding diverse financing mechanisms, and fostering international best practices, Mexican sponsors can position themselves at the forefront of the North American clean energy transition. Embracing these strategies will not only attract global investment but also drive sustainable economic growth.

I’m a firm believer that fundamental trends will outpace short-term volatility. This can’t be truer than in natural resources, where investment horizons are long and require a number of milestones as projects mature. Sponsors must keep the eye on the target and understand the fundamentals that underpin the investment – not an easy task but one that usually pays off.