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Analysis

Development Activity in 2012

Mon, 10/21/2013 - 12:00

Following exploration, the development stage of the mining industry’s value chain includes assessing the potential of a mine and, in case of a positive assessment, securing funds to finance the project and continuing with construction. This crucial stage determines whether or not the mine will be a financial and operative success. Prefeasibility and feasibility studies, mine planning, excavation and removal of waste material, dewatering, construction, development of metallurgic extraction facilities, installation of field labs, acquisition of high-quality, efficient equipment and securing sufficient supply of energy are just some of the factors that need to be tackled during this stage. Moreover, the aforementioned aspects must align towards a single goal: enabling metal or mineral production with healthy financial margins while meeting all environmental, social and occupational safety requirements that will make the project sustainable and stable in the long term.

As shown by the information contained in the previous chapters, Mexico’s abundant mineral deposits and the country’s legislation encourage investment and generate significant interest in the development of mines in Mexico. Additionally, the country has many suppliers and service providers that can help mining companies accurately assess the feasibility of their projects, plan their mines efficiently and develop the entire infrastructure necessary to reach and extract ore deposits in record time. Mexico’s workforce is not only cost-competitive but also qualified. The country’s strong mining tradition and the existence of world class engineering programs in its universities guarantee the availability of capable workers and highlyspecialized technicians. All these factors encouraged the mining industry to invest over US$15 billion in the development of new projects in Mexico during the 2007- 2012 period. The return on this investment is already becoming tangible. Data from the General Directorate for Mining Development shows that, in December 2009 there were 262 Mexican companies backed by foreign capital operating 692 mining projects in Mexico. As of December 2012 there were 285 mining companies with foreign capital operating more than 853 projects in the country.

According to the Mexican Mining Chamber (Camimex), the total investment made by Mexico’s mining sector during 2012 reached US$8.043 billion. Companies affiliated to Camimex brought in 93% of this total investment. These companies also made expenditures of over US$711 million in project expansion activities, and they also invested around US$1.8 billion in the development of new mining projects. The acquisition of equipment and machinery almost matched this last figure, with a total sum of US$1.72 billion. All of the above investment decisions imply that mining companies directed at least 59% of their total investments (an equivalent of US$4.2 billion) towards the development of their assets. In spite of the metal market’s current situation, Camimex expects its members’ expenditures to increase by almost 6% throughout 2013. Development-oriented investments are projected to go up by 19%.

GOLD DEVELOPMENT PROJECTS

Some of the most important gold mines whose development stages were completed during 2012 were owned by Minera Frisco. The company’s Concheño gold-silver mine, located in Chihuahua, started producing in mid-2013. A dynamic leaching plant with a processing capacity of 15,000t/d was installed in this open-pit mine. Frisco also expanded operations at its El Coronel and San Felipe assets last year, in order to incorporate a heap leaching process to the former and increase overall production in both mines. The company also completed the development phases of its Porvenir and San Francisco del Oro assets – respectively located in Aguascalientes and Chihuahua – and built flotation and leaching plants capable of processing 10,000 t/d in each mine.

US-based company Argonaut Gold started development works at its La Colorada project during the first trimester of 2013. Production at this mine, located in Sonora, was reactivated during the same year, yet the company expects to increase gold output in 2013 by introducing new metallurgical processes and facilities in what was a high-grade underground gold mine during the Porfirian era. Another Sonoran mine where development and construction works began during 2012 is Agnico Eagle’s La India unit. The company started its operations at the project during 2013, after completing all necessary permitting. The mine is expected to start commercial production by 2014, and is expected to generate an output of over 900,000oz per year until 2022. Additionally, two mega projects are expected to help Mexico climb on the world ranking of gold producers during the coming years. Torex Gold completed prefeasibility and feasibility studies at its Morelos Norte project, which is located in the Guerrero Gold Belt on which the current NI 43-101 mineral resource estimate stands at 4.8 million ounces of gold in the measured and indicated category plus an additional 600,000oz of gold in the inferred category. The company expects to start construction of two open pits for this project in the last months of 2013. In the state of Durango, the Sierra Madre Gold Belt also hosts a promising mega project. Chesapeake Gold’s Metates asset holds reserves of 18.5 million ounces of gold. In 2012 and 2013 the company carried out advanced exploration activities and full feasibility studies are expected to be completed by early 2015. By 2020, this mine could be producing up to 25% of Mexico’s total gold output.