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Analysis

Changing Mining Landscape Post-Midterm Elections

By Paloma Duran | Mon, 06/14/2021 - 11:15

 The midterm elections are having a huge impact on the mining industry. President López Obrador has been left without a majority in Congress, which means that the government will not be able to fast-track initiatives in the sector. A change in policy direction is being observed and with it, greater stability and more investment is expected, MBN experts say.

What Happened in the June 6 Elections?

More than 93 million registered voters chose candidates for the more than 20,000 contested positions at the three levels of government. According to INE, voter participation was between 51.7 percent and 52.5 percent. At Congress, the preliminary results gave López Obrador’s coalition 279 seats divided among MORENA (197), PVEM (44) and PT (38). This is 53 seats short of a qualified majority that would have allowed the administration to fast-track initiatives like amending the Constitution.

However, MORENA landed a majority in terms of governorships. The party’s candidates won 11 of the 15 positions that were at stake, which means MORENA has now a majority in the executive power at the national level. Currently, the party has 17 of the 32 governorships. Senator Miguel Ángel Lucero Olivas, President of the Mining and Regional Development Commission of the Senate of the Republic, told MBN that with the elections MORENA is celebrating its triumph in several states, where it seeks to reduce impunity and corruption and thereby increase the country's attractiveness as an investment destination. The Senator explained that the election results will not affect the party since there were no serious composition changes in the Chamber of Deputies, which is relevant for the federal budget.

Governorships of Mexico’s main mining centers were at stake. Therefore, the future of the country's industry will also be highly influenced by the new governments and their position towards mining. The new governor of Chihuahua will be María Eugenia Campos, candidate of the PRI-PAN-PRD coalition, who has expressed her support for the mining industry and her willingness to fight uncertainty in the sector.

In Sinaloa, the winner was Rubén Rocha Moya, MORENA-PAS candidate, who has announced his willingness to improve conditions in various sectors, including mining, and to implement more responsible practices. In Sonora, Francisco Alfonso Durazo Montaño, candidate from MORENA-PT-PVEM-NAS, won the governorship. He has not said much about his plans for the mining sector but has emphasized his willingness to increase employment and further develop the state. In Zacatecas, the elected candidate was David Monreal Ávila of the MORENA-PT-PVEM-PANAL coalition, who has said that agriculture, mining, industrialization and tourism will be the four axes of his government to continue developing the state.

State of the Industry Before the Elections

Despite the country’s potential, the current environment has prevented the arrival of new projects and investments. Political factors, taxes, legal frameworks and security concerns are key to investors and obstacles are forcing them to look at other countries, reported CAMIMEX.

The Annual Survey of Mining Companies 2020 organized by the Fraser Institute showed that Mexico fell from the 38th to 42nd place as a destination for mining investment. In addition, the country fell from 61st to 51st place in attractive policies for investors. “We were very concerned about some of President Lopez Obrador’s proposals. If a government can unilaterally break existing contracts and nationalize an industry like oil, foreign investors will generally reduce or avoid investing in all Mexican sectors,” said Bradford Cooke, Founder and CEO of Endeavour Silver.

However, CAMIMEX experts have said that 2021 will bring a better outlook for the mining industry since COVID-19 is expected to have a lesser impact on the mining market and the national economy. During 1Q21, the Mexican mining sector reported high foreign direct investment (FDI) of US$1.05 billion. It is the second best first quarter the sector has had since 2014, when it attracted US$1.158 billion. According to the Ministry of Economy, mining FDI during 1Q21 was 176 percent higher than in 1Q20, when it only received US$381 million. This increase is mainly due to the fact that currently the mining sector has learned to operate despite the COVID-19 pandemic.

However, the COVID-19 pandemic has not been the only factor that has affected the sector and its investments. Instability and uncertainty have had a major impact and as a result, Mexican authorities have introduced new initiatives in an effort to improve the industry's situation. Minister of Economy Tatiana Clouthier reported that the Ministry has invited small, medium and large companies, as well as their corresponding associations, to find common solutions within a legal framework to reactivate initiatives that will benefit the mining sector. “We are working to provide a modern regulatory system that will reduce substantially the so-called bureaucracy. We need a better relationship with the private mining sector, where both sides trust each other,” she said.

What Will Happen After the Elections?

Results have been well received by investors and companies interested in Mexico, as they bring greater balance to the Chamber of Deputies. Mining companies can benefit from greater stability and thus a better platform to attract investment. “Today, Mexico is being seen again. In the early hours of the day after the elections, the financial markets saw a rebound due to greater economic confidence,” said Pablo Méndez, President of CLUMIN. Rene Espinosa, Plant Manager of Metal Finishing Co, said that the results of the elections have shown that Mexico has reliable institutions and a good democracy. “These types of events and results give a positive message to the industry, business partners and countries that have an interest in Mexico. Now, the country has the opportunity to be a strategic destination for large companies looking for a reliable territory." Cooke said that with the elections results, Endeavour Silver feels more confident to continue investing and building new mines in Mexico.

Ana Muñoz, Secretary of Women in Mining in Mexico, said the results have increased confidence in the government’s decisions. “It will no longer be so easy to make decisions without analyzing all the factors and actors involved. I think this will give investors more confidence.” She added that there is also a new opportunity for better dialogue with the authorities and greater support to continue establishing sustainable mining in Mexico, while emphasizing that the direction and future of the sector will be seen in the actions taken by the new governments in mining states like Zacatecas, Sonora and Guerrero, which will now be governed by MORENA.

José Luis Castro Insunza, President of CLUMISIN, said Sinaloa is currently in a state of uncertainty as a PRI governor leaves his seat to a MORENA candidate, which means there might be changes in state policies to align more with the federal agenda. Castro emphasized that if there is no support for the industry, Sinaloa could become less attractive for new investments and projects. "As a cluster, we are willing to continue working with the government for the benefit of our sector, regardless of the political party in power."

Méndez emphasized that now there must be constant monitoring of the campaign promises candidates made to make sure they come to fruition. Senator Miguel Ángel Lucero Olivas told MBN that with the 1Q21 FDI records and a positive outlook, investment is expected to maintain its upward trend in the mining sector. "If we add to the equation the economic recovery of the post-pandemic world, we can affirm that Mexico will have a very good year of mining activity and investment."

The data used in this article was sourced from:  
MBN, La Jornada, Milenio, Radiza, Excelsior, Imparcial, BNamericas, Minister of Economy, Fraser Institute
Photo by:   Element5 Digital
Paloma Duran Paloma Duran Junior Journalist and Industry Analyst