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Analysis

2021: A Year Full of Challenges for the Mining Sector

By Paloma Duran | Wed, 01/19/2022 - 17:38

Mexico's mining industry must consider the multiple challenges it faced in 2021 if it wants to have a better 2022. Experts believe the sector will perform better this year as new projects are expected to start commercial production and more states attract investors. However, most challenges, especially the electricity reform, will remain.

In October, President López Obrador announced that he had sent his energy reform to Congress, which includes a proposal to restrict lithium reserves and their exploitation to the public sector. López Obrador added that the lithium concessions already granted will remain active if they show that they are already exploring and close to production. The president said that of the eight current concessionaires, only one meets the new requirements, which is believed to be Bacanora Lithium. The debate and vote on the reform was scheduled for 2021 but it was later pushed to April 15, 2022.

In December, López Obrador announced that if legislators do not approve his electricity reform, there is another plan to ensure the exploitation of lithium does not go into private hands. “If the legislators decide to act against this initiative, which would be contrary to the national interest, we have a Plan B for lithium. We are already preparing in case this happens. Do not be excited if the reform is not approved, because lithium will remain in Mexico." The new plan is being overseen by MORENA Deputy Lidia García Anaya and seeks to nationalize lithium without prohibiting concessions to the private sector, with most of the profits going to the Mexican state.

Experts believe the reform is unlikely to pass, as other initiatives have previously been blocked for not allowing free competition. However, most agree that López Obrador's statements are sending the wrong message to the entire industry. In addition, experts say the Mexican government needs the private sector to boost the lithium industry in the country, as the government lacks technology and experience, which are necessary as the country's deposits are in hard-to-extract clay deposits.

Although the reform has not been approved, the sector is already feeling its effects. According to CAMIMEX, the reform is an obstacle for the mining sector to move toward greater sustainability since the cancellation of permits would prevent it from accessing clean energy sources. Experts believe that the reform would force companies to reduce their use of renewable energy, worsening their ESG performance and making them less attractive to investors. Major companies like Torex Gold have said that the government-led uncertainty is the enemy of investment. As an example, due to the reform proposal, the company's plan to build an 8.5MW solar plant is on hold until there is greater clarity regarding the reform.

Other major obstacles have held back the development of mining projects in Mexico, chief among them the delay in permits. Pablo Méndez, President of the Chuhuahua Mining Cluster (CLUMIN), told MBN that SEMARNAT has denied various requests for mining projects, generating distrust among authorities in this type of megaproject. Furthermore, he highlights that many permits have been denied as mining is still labeled a dirty industry. “The greatest challenge that the mining industry faces is not related to the permissibility of the authorities but to the current stigmatization that exists on mining activities in our country, which, unfortunately, is generally unfounded,” says Méndez.

Tonatiuh Herrera, Deputy Minister of the Environment, disagrees, saying that SEMARNAT did not stop granting permits. Rather, authorities are now asking that companies comply with higher standards. “We need to have strict evaluations. Environmental and safety requirements must be met in their entirety, without discussion.” Herrera said that it is true that SEMARNAT has a backlog of evaluations that it needs to fix. However, miners have a duty to present responsible projects.

The biggest mining controversy regarding permits in 2021 was the situation of Minera Cuzcatlán. In October 2021, the company requested SEMARNAT extend its environmental permit to continue operating. However, the request was denied, with the government agency saying the project was not environmentally responsible. After months of demands from workers, residents of nearby communities and company representatives, as well as studies that confirmed that the operation complied with all environmental regulations, its approval was granted.

Another project that was affected due to new permitting standards was Juanicipio, belonging to Fresnillo and MAG Silver, which was delayed as state-owned electric utility CFE could not tie the project to the grid on time. CFE announced that as the approval to complete the tie-in to the national power grid could not yet be granted, the mill commissioning timeline would be extended by half of year. No further information on the permit has been provided. However, its commissioning was scheduled for 4Q21, so it is expected this year.

Some companies have also announced that their projects were delayed in 2021 due to lack of funding and the COVID-19 pandemic. However, most have forecast a successful 2022, as they have ambitious exploration and production goals. For Instance, Altaley Mining will start soon mineral exploitation and SilverCrest in 2Q22. In addition, GoGold Resources will continue with its exploration campaign, while Candelaria Mining and McEwen Mining have announced that they will soon be making decisions that will have a significant impact on their projects.

Overall, 2022 is on track for greater success as new projects will start producing, increasing the country's annual output. Furthermore, according to experts, the great geological potential of Sonora, Guerrero and Oaxaca has attracted more attention from investors, creating an opportunity for new exploration projects. In addition, the mineral boom is expected to benefit the energy sector. According to the German Agency for International Cooperation (GIZ), mining in Mexico could be the industry with the highest demand for green energy. The study identified three main industrial sectors with the highest demand for green hydrogen: mining, chemical production and building materials production. Of these three, mining is expected to have the highest levels of energy consumption.

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The data used in this article was sourced from:  
MBN, BNamericas
Photo by:   RitaE
Paloma Duran Paloma Duran Journalist and Industry Analyst