Cost-efficiency to Become More Productive in Difficult Times

Challenges provide unique opportunities to become more cost-efficient and to bolster productivity, panelists at Mexico Mining Forum 2017 said on Wednesday in Mexico City.

“Between 2010 and 2012, the industry enjoyed very high commodities’ prices, so our production costs increased accordingly. The fall in commodities prices forced us to become disciplined, more productive and more precise in our exploration operations,” said Adrian Blanco, Business Manager of Mexico for McEwen Mining, at the Hotel Sheraton María Isabel. “We had to focus on key indicators such as production, security and organizational environment to become more productive.”

Banco joined the panel “Production Best Practices for Continued Output,” moderated by Juan Francisco Torres, Partner at Hogan Lovells, with industry experts Salvador García, COO of First Majestic Silver and Mitchell Krebs, President and CEO of Coeur Mining.

For Torres, even though the industry is experiencing an upsurge and increase in commodities prices, productivity remains the primary operational challenge in the mining sector. To tackle this, companies have had to find ways to adapt their production costs and become more disciplined in the daily operations, Torres said.

The key for mitigating the impact, added Garcia, is to rapidly react and create new business strategies that help determine the best course of action. “The first thing you have to do is to analyze every project and determine if you can make cuts of any kind. Optimization, operative discipline, economic analysis and keeping employees’ spirits high become priorities.”

In the mining industry, focusing on productivity does not necessarily mean reductions. “Ever since the fall in prices, we have become a little more forward leaning. You do not always have to cut, you can grow your way into productivity,” said Krebs. “We started scaling up operations to capture the efficiency of larger operations. This has helped us reduce our costs almost 30 percent.”

While cost effectiveness is among the internal challenges companies face, some of the most important hurdles are related to governmental regulations. “Social licenses and land rights are the two most complicated issues,” Garcia said. “For every project, our foremost important contact must be the state’s government and at every step of the way we must be clear and not create false expectations with local communities.”

Adding to the challenges generated by governmental regulations, Krebs said that for any investor, it was important to maintain consistency over the longer term. “There are so many variables that go into projects that we need to be certain that the rules of the game will not change midway. Certainty is the best friend of investment.” Blanco echoed this sentiment, saying that even though the uncertainty of these current times feels different than other times, the government was making clear efforts to provide clarity regarding investment in the mining sector.

For García, the best way to improve the Mexican mining industry is to work alongside the government to realize the industry’s potential, “We are an important currency and job generator. We need support from the government in cost deductibility to maintain healthy mines.” That view was supported across the panel.

“People have no idea of the impact we have. We need to stand up, be proud and tell our story, because it is a great story,” concluded Krebs.