Financing Canadian Projects in the Mexican Mining IndustryMon, 10/21/2013 - 10:45
Q: What is the mission and mandate of Export Development Canada?
A: EDC is the official Export Credit Agency (ECA) for Canada, and our job is to provide financial services to support trade transactions involving Canadian companies. We are a financial institution of the Government of Canada, working closely with our colleagues in the Trade Commissioner Service at the embassy to help grow trade between Canada and Mexico. Since 2000, EDC has provided more than US$23 billion of business in Mexico, which includes services like financing or receivables coverage. EDC’s Mexican presence is geared towards providing financing services to buyers based in Mexico, who are usually Mexican companies but also international companies active in the Mexican market. We have worked with companies like Minera Frisco - which buys products from Canada on a regular basis – as well as Peñoles, Grupo Mexico, and Goldcorp. In 2012, EDC facilitated a total of CA$2.9 billion (US$2.8 billion) of financial products in Mexico, including CA$1.3 billion (US$1.25 billion) in financing across different sectors. Over 700 Canadian companies have benefited from our services. EDC also supports Canadian companies that want to invest in Mexico. We provide financial services for their investments in the country and for their project financing needs. For example, EDC provided project financing for Minera Boleo in Baja California. We can also take part in syndications where there is a Canadian supply or involvement.
Q: What are the criteria that a company has to meet in order for EDC to get involved?
A: In essence, the moment a Canadian company is involved or could be considered for involvement, we can consider participation. Compared to our sister organizations in the market, we are very flexible and proactive in terms of getting involved in financing. For example, for US$200 million projects that have only US$100 million in Canadian supply, we can analyze the project CAPEX and consider providing the full US$200 million where we believe there is great potential for Canadian capabilities to win new business. In Mexico we have a lot of these pro-active facilities, in either corporate or project finance, and they are all successful.
Q: What is the total volume of equipment and services sourced from Canada in 2012, and in which proportion did EDC get involved?
A: EDC is involved in approximately 25% of the total Canadian exports to Mexico. Over the past few years, Canadian and Mexican mining companies have generated a lot of cash thanks to commodity prices, metal prices such as gold and silver, among others. The mining industry is very healthy financially, and some companies do not need financing as much as they did before so EDC’s services were needed less than in previous years. Depending on future market trends, we might further increase our engagement with the mining sector.
Q: What have been the key factors that enabled Canadian mining companies to be so successful in Mexico?
A: Several factors make them so successful. The size of the mining industry in Canada is considerable and therefore the competitiveness level is very high. This pushes Canadian mining equipment and services companies to offer broad and interesting value propositions. In addition, there are over 200 Canadian mining companies active in Mexico. About 45 are in operation, and the rest are juniors. Mexico is an open economy with treaties like NAFTA, making it an investment friendly country with relatively easy fiscal regulations, and an excellent labor force. Mexico has a privileged geographical location next to the US and Canada, and that attracts investors. Moreover, the country’s geology is rich with good mineral quality, and its history of mining is extended, therefore attracting Canadian exporters into the country.
Q: Can Canadian equipment manufacturers count on EDC’s support when they export here in the early stage of their expansion, and when start producing locally, and ultimately export products back to Canada?
A: Yes, EDC calls this integrative trade, and we can look to provide financial services of all stages of a company’s development as long as the mining company has been in the production stage for some years and is financially sustainable. EDC participates with the inflow of Canadian services and capabilities to start. When well-established Canadian companies want to create local projects with strong sponsors, they usually approach local and international banks, and we can work with them. EDC does not participate in the exporting of goods back to Canada.
Q: What are your expectations for next year in terms of the financial services that will be provided in the Mexican mining industry?
A: The impact of commodity prices will continue to be an influence in the amount of business that we - and most banks - do in the mining industry. Recently, mining companies have not been so active on the market to borrow from banks on the medium to long term, using their internally generated cash more often, or opting to fund through local and international bond markets instead, which precludes our involvement.