Growing Commodity Costs Could Benefit Mexican Mining Industry

Efraín Alva Niño, Director, the Ministry of Economy’s Extractive Industries Unit, said that the mining industry will benefit growing commodity prices caused by the Russian invasion in Ukraine. The price increments for raw materials would impact solvency in Latin American countries, though the industry is well-positioned to reap the reward, especially in Mexico.

“The global economic outlook, which looked promising after the pandemic, was dramatically shaken by Russia’s invasion of Ukraine. For Mexico, it means lower growth for 2022 and extra pressure on the business environment. The negative impact of the Russian-Ukrainian conflict on Mexico’s 2022 outlook will be felt on supply chains and inflation, tilting toward a significantly more pessimistic scenario,” Alejandro Valerio, Practice Leader, FrontierView, told MBN. However, the panorama for the Mexican mining sector looks more positive, as growing commodity prices will prove to be beneficial for mining operations.

Due to fears that the European economy could collapse and that supply from key mining operations could be affected, prices of several metals hit record highs in recent times. Currently, Russia is the world’s leading supplier of palladium, with a market share of 40 percent. In addition, the country supplies 10 percent of the world’s nickel and 6 percent of the world’s aluminum. Once news broke that Russian troops had entered Ukraine, palladium prices jumped to a seven-month high, while gold hit an 18-month high as investors looked to buy safe-haven assets. “Gold prices remain healthy and are sure to perform well under current uncertain political strife being progressed by Russia in the Ukraine,” Ralph Shearing, CEO, Altaley Mining, told MBN. This represents a window opportunity for Mexico to receive more foreign investment and increment its mining projects.

However, Mexico’s mining industry has not come out of the pandemic entirely unscathed. In 2013, 104 mining projects were postponed. In the following year, that number grew to 822. Nevertheless, many industry insiders see the future in a positive light. During a conference organized by the Mexican Association of Mining Engineers, Metallurgists, and Geologists (AIMMGM) and its Sonora district, Alva pointed out that the sector will grow 500 percent by 2050. “We must not forget that Mexico is an attractive country for private national and international investment,” he added.

Jaime Gutiérrez Núñez, President, CAMIMEX, mentioned that the authorities are making a mistake by not supporting mining, since this sector is the fifth-largest generator of foreign currencies in the country, which is a boon for the local economy.

Furthermore, Gutiérrez explained that the percentage of postponed projects grew significantly in recent history. In 2013, the percentage stood at 14, but by 2021 it rose to 76 percent of the projects. This caused 180 companies funded with foreign capital to leave the country. Nevertheless, Alfonso Martínez Vera, Director of Exploration, Grupo México, said Mexico’s investment in exploration has remained steady, which ensures plenty of commodities can be produced toward the future. Though current government policies, including a halt on handing out new mining concessions, are not yet an issue for the industry’s production, this could become destructive if the situation persists for more than 12 years.