Everything of Use Is Either Grown or Mined

Q: What are the latest developments at your operations in Oaxaca?
A: Our Arista mine continues to grow both at the Arista vein system and the Switchback vein system. We have been mining from the Arista vein system for almost eight years and it continues to grow. The Switchback vein system has potential to be larger than Arista and should provide our next eight to 10 years of production. As for exploration at our Oaxaca mining unit, it is primarily focused on the Arista and Mirador mines to expand these deposits. But our exploration budget this year is smaller, around US$4.5 million for drilling, given the brutal bear market and the fact that we are building our Nevada mine with cash flow from operations. We also continue to build Mirador with cash flow and target an initial 150t/d throughput before moving up from there. We have grown all our operations organically since 2010, merely with cash flow and without raising any private equity. We have remained profitable over the last seven years and survived the last downturn in the metal markets by betting on projects with low operating costs and high returns on capital.
Q: How are the company’s investment flows likely to behave in the future?
A: Money and investment absolutely flow where most appreciated. It is no coincidence that our second mining unit is in Nevada as the jurisdiction was ranked by the Fraser Institute’s 2017 survey as the first among mining friendly jurisdictions in the US and third globally. The mining business is risky with money spent on discovering deposits, funding development, engineering, construction and execution of a project, all in a volatile metals market. Adding jurisdictional complexities with antibusiness governments, excessive taxes and bureaucracy to these challenges, it forces companies to go where they are most appreciated.
We have been operating in Oaxaca since 2006, producing since 2010 and plan to be in the state for at least another decade. While we look at other opportunities around Mexico, its trends are becoming less mining friendly, decreasing the chances for us to open another unit elsewhere in the country. But if the new government encourages additional investment and promotes a favorable mining environment, it is far more likely we will increase our investment in the future.
Q: What is your assessment of Mexico’s friendliness as a mining jurisdiction?
A: Mexico continues to fall in the Fraser Institute’s rankings of mining-friendly jurisdictions. It used to score in the top quarter of many metrics but is now near the middle or lower. This is not a good trend and reflects the increased difficulties that mine operators face regarding security and tax issues in the country. Companies want a stable government, business-friendly policies, local support, reasonable taxes and less bureaucracy rather than more. But the trend in Mexico is not going in a favorable direction.
Q: What are your hopes and expectations for the next administration ?
A: Everything we use in life is either grown or mined and therefore mining should be encouraged and supported. Oaxaca has seen over US$60 million in tax revenue from our operations. I hope the incoming administration encourages mining investment. For example, the current tax regime ranks near the bottom of mining friendly jurisdictions. If that ranking further falls, Mexico will continue to have foreign investment flee the country. So, I hope the new government will be far more supportive than any prior one. In Oaxaca, one of the five investment pillars established by Governor Alejandro Murat is mining. He and his team have been the most supportive of the mining industry in our history operating in Mexico. I believe the country needs more like-minded government officials to encourage foreign companies to operate in Mexico and in turn receive tax revenue from mining operations. The more mining, the more tax revenue; the less mining, the less tax revenue. The new administration will dictate in which direction the country’s tax revenue from mining will go.