Chihuahua Stays on Top in Difficult MarketWed, 10/18/2017 - 14:42
Following the federal government’s fiscal reforms in 2014, metal and mineral exploration expenses in Mexico were made tax deductible only after a period of at least 10 years. Previously, companies had received the deduction after the first year of the project. This added pressure took some of the shine off Mexico’s viability as an exploration destination. In 2015 Mexico dropped from fourth to seventh on the global list for exploration investment, falling behind China as well as regional rivals Chile and Peru.
“The fact that exploration activities are nontax deductible after the first year explains why the local mining sector did not have the exceptional year that many predicted in 2016,” says Alvaro Madero, CEO of ALCHISA, the exclusive distributor for ExxonMobil oil lubricant in the state of Chihuahua. “We know that there is interest in exploration from Mexican, Canadian and even Chinese companies but they are put off by the new tax regulations.”
Despite investment on a national level being shackled by the change, the historic mining region of Chihuahua has strong fundamentals that have ensured the continued success of the sector locally. The state ranks in the top three in Mexico in terms of gold, silver, lead and zinc production, and its strong all-round economy helps attract foreign and Mexican companies in equal measure. ALCHISA counts Industrias Peñoles, Minera Frisco and Coeur Mining among its clients in Chihuahua, while it also has a special arrangement to supply Goldcorp’s Peñasquito operation in Zacatecas. As a key part of the local supply chain, Madero sees the potential within Chihuahua and is encouraged by the strong role the state continues to play for the Mexican mining sector.
“Chihuahua is an exporting state and the local manufacturing businesses are helped greatly by the peso weakening against the dollar,” says Madero. “The highly developed infrastructure gives us confidence that new mining investment will continue to flow into the state.”
ALCHISA’s business model goes far beyond the simple distribution of ExxonMobil oil lubricants to clients throughout the state. The company works closely with operators in Chihuahua to ensure each mine receives the right product for its particular processing system. To this end, ALCHISA works in close quarters with technicians at ExxonMobil’s Center for Technological Investigation in Kansas, while it has also set up a series of laboratories within the mines themselves. “We use these facilities to collect oil samples, analyze performance and give recommendations to the operators,” says Madero. “We invest alongside our clients to guarantee that they receive the best quality lubricant at the most competitive price.”
But the private sector alone cannot guarantee the long-term prosperity of the state. The Chihuahua state government has a responsibility to boost economic development, create jobs and promote sustainable practices. The mining fund, which was set up in 2014 to support local communities in mining regions, can play a big part in this. Although the initial results were less than spectacular, Madero is confident that the recent change in administration could yield dividends. “I believe that we will soon see money from the mining fund make a difference in Chihuahua, at least on a local level,” he says. “The funds should be used to generate employment, rather than to provide cash for largescale public-sector projects that have little impact on the daily lives of people in mining communities.”
Given that ExxonMobil works through a network of distributors in Mexico, each with clearly defined areas in which to work, ALCHISA’s expansion plan is focused on strengthening its position in Chihuahua and continuing to improve the state’s appeal for investment. The company is conscious of the fact that its business has a direct impact on the surrounding environment and local population. The ALCHISA Verde program was set up to foster a culture of social awareness internally while the company organizes events such as city cleaning days and educational programs in an effort to do what it can to help.
“We have a long-standing agreement with the National School of Professional Technical Education (CONALEP) in Mazapil, Zacatecas,” says Madero. “Through this initiative, we invite students to practice their skills in our laboratory at Peñasquito.”