Javier Reyes
Accendo Banco
View from the Top

Financing Mexico’s Development, Production Stages

Wed, 10/16/2019 - 18:00

Q: What areas of opportunity exist within Mexico’s mining industry and how can its competitiveness be boosted?
A: For our new president, developing the mining industry is a priority. He wants the industry to grow at 6 percent annually. He believes that sustainable mining is the right option to bring economic development to the very marginalized and poor regions of the country where several mining opportunities are located. Being more competitive with the mining taxes as well as letting mining companies immediately amortize exploration costs would help boost the industry’s competitiveness. Mexico has one of the highest mining taxes in the world.
Q: What is the business appeal of financing the mining industry? Why do other financial institutions choose not to service this industry?
A:  We have financed this industry for more than 15 years and we have developed a unique expertise, positioning us as the No. 1 mining bank in Mexico. We have a very talented and diversified mining team with the skills needed to structure all types of financing. Other institutions choose not to service the industry due to the lack of expertise and the teams to serve this sector, particularly here in Mexico. We also note that other financial institutions require much larger ticket sizes to consider a transaction, such as greater than US$50 million, reducing the number of opportunities for them. In contrast, we will look at smaller transactions, which is appealing to many of the Mexican mining companies.
It is very appealing to finance the precious metals mining industry since it is a counter-cyclical sector, and it brings diversification to our overall loan portfolio. Now that the world and Mexican economy are slowing down and possibly heading into a recession, the default rate of our non-mining portfolio will go up, so mining financing will compensate these potential losses.
Q: In an optimistic scenario, only 10 percent of exploration projects are actually successful. How does Accendo Banco minimize the high risks involved in financing mining projects?
A: We do not finance exploration stage companies, as exploration needs to be financed with equity. Although we do not finance exploration, we do finance development and production projects. We minimize the risks by focusing on the technical merits of the project, including the team that is developing the project, and rigorous due diligence throughout the entire project, both technical and non-technical. We also collaborate with FIFOMI to finance mining projects. The models that have been successful so far are co-lending for project finance opportunities, plant expansions and working capital loans for publicly traded mining companies.
Q: What would be the ideal financing environment for the Mexican mining industry and how can Mexico achieve such an environment?
A: The ideal would be that the Mexican equity markets, or stock exchanges, would finance the risky dollars needed to drill and develop projects until they get to the stage where they can be funded by private banks and FIFOMI. The Canadian Stock exchanges finances early stage projects and this is the most important reason why Canadian publicly traded companies dominate the Mexican mining sector. To achieve such an environment, we need deep Mexican capital markets with risk appetite for the natural resources sector. This will take many years to develop if we were to start now.
Q: Which among these services do you expect to grow most rapidly in the short term? What does this say about Mexico’s mining industry?
A: Project finance opportunities to build new or expand operating mines. What this says is that there are no other financial institutions, except ourselves, willing to take this risk. Mexico is one of the wealthiest natural resource countries in the world and it is sad there are no financial institutions willing to serve this industry, particularly at the smaller end of the market.