Alfredo Phillips
President of the Guerrero Mining Cluster and Corporate Affairs Director
Torex Gold
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View from the Top

Guerrero Could Become Top Gold Producer

Sat, 10/28/2017 - 14:55

Q: What unique role does the cluster play in developing the mining industry in Guerrero?

: To create a conducive environment for developing the mining sector in the state of Guerrero it was vital to create critical mass from a business perspective. This would provide resources to our company Torex Gold, as the largest investor in Guerrero, and other companies to push projects forward. For the development of the state, we felt all players must have a stake in the development of the sector and we wanted to optimize operations for the benefit of not only ourselves but also the surrounding communities and the regional economic development of the northern part of Guerrero, known also as Tierra Caliente.

In doing this, we focused on helping the government understand the benefits of mining and promoting a sector that, in many parts of the world, has been a national lever for sustainable development. We identified the benefits of creating the cluster to promote regional development and to incorporate all local stakeholders into the value chain to ensure those benefits are distributed to all involved.

There is also a significant business role for the cluster. This involves sharing best practices among like companies, guaranteeing the safety of our personnel and our communities and creating political capital to protect our interests from political outliers that may pose a threat. We ensure we are positioned in such a way that we can lead the economic and social development of our communities with our investment.

Currently I am working with the Greater Sudbury Development Corporation, the city of Sudbury, Ontario, Canada and Sudbury Association of Manufacturers and Suppliers (SAMSA) to establish a collaboration with the Guerrero cluster. Sudbury is a world-leading cluster with 300 companies that excel in providing equipment and services to mining companies such as ours. The letter of intent was signed at PDAC 2017 and will be supported by development of a regional industrial park that will serve as a landing space in Iguala to bring to Mexico companies from Sudbury and other parts of the world that are attracted to the great potential the state offers. With the help of the government, we can foster the entry of equipment suppliers into Mexico and hopefully convert Iguala into a technical mining hub.

Q: How will the cluster finance itself and its operations?

A: In 2015, the member companies of the cluster represented a US$900 million-US$1 billion investment, US$800 million coming from Torex’s Limón Guajes project. For the next four years, the projected capital investments for the members of the cluster adds up to around US$1.2 billion. If Torex’s second project, Media Luna, moves ahead uninterrupted, the company will invest close to another US$600 million by 2020.

Other projects such as Los Filos, which was being acquired by Leagold, are considering additional CAPEX investments to optimize underground mining and other operations adding close to US$250 million. Timmins Gold will also start construction this year at Ana Paula and Industrias Peñoles is planning to start up its Rey de Plata project, which equates to a further US$250 million each. This only takes into account the investment that is already being considered as part of the short-term planning process so regardless of whether there is further investment in the industry in 2017, the state will receive a significant cash boost.

The Guerrero cluster is modeled after the Zacatecas cluster (CLUSMIN), although given our local needs, we decided to structure our committees differently. We have three committees: one dedicated to economic development and our value chain, one to human capital and training and the third to corporate social responsibility and communication since we find this to be a fundamental element to change the perception of our sector. We also have an informal working group that deals with security because it is so complex and can be greatly misunderstood so we decided it would be best to work on it but not to formalize it.

Regarding the cluster, financing its operations is not difficult. I currently dedicate a reasonable part of my time to getting the cluster up and running and whenever we need additional resources for events or meetings, either Torex or the other members provide the necessary resources.

Q: Why do you believe Guerrero can become the biggest gold producer in Mexico and what do companies need to do to reach this goal?

A: If companies begin taking advantage of Guerrero’s potential, it could easily reach this position. Recent data from SGM suggests the state’s potential as a gold producer to be the best in the country. For example, companies such as Agnico Eagle that have a new property next to those of Torex and Los Filos, are now looking closely at carrying out bigger exploration programs given the region’s recent results.

The problem with the drop in gold production of 21 percent in the last four years is that there was only one producer, Los Filos, and its production levels dropped. El LimónGuajes (ELG) produced 280,000 ounces in 2016, which increased production significantly for the state, making it the fourth gold producer in the country. It will ramp up to close to 380,000 gold ounces in 2017.

The largest gold producer in the country is Goldcorp’s Peñasquito, followed by Fresnillo’s Herradura, both in Zacatecas, but Guerrero now hosts the number three and four mines in the country. In 2016, ELG and Los Filos ranked third and fourth, respectively, in gold production in Mexico. Once we get Media Luna online in 2020, it is targeted to produce close to 320,000 gold equivalent ounces with about 180,000 ounces of gold so Guerrero can easily take a topthree spot nationwide in terms of gold production in the short term. In the next five to 10 years in fact, it could easily become one of the richest gold regions in Latin America.

Q: To what extent is the cluster trying to change Guerrero’s image as an unsafe mining jurisdiction?

A: Security was not formalized as a committee because it is such a difficult, delicate and sometimes confidential area of business. We have a permanent working group on security and a permanent hotline to share information. The security personnel of each company communicate with each other regularly because we think it is important to keep open communication channels and to collaborate. In addition, we have close relationships with state and federal authorities.

We understand that security is a big problem for the state and it has a deep-rooted structural origin. However, we are also well aware that the current state and federal governments are doing everything they can to resolve the issues and we are trying to help in that process. The first thing we have to do is to ensure the members of the cluster are confident that Guerrero is a safe area in which to work and that they are actually secure. After that point, we need to transmit this mentality to our contractors. This kind of chain of communication is useful for dispelling myths and exaggerations that surround the safety issues in the state given the media hype. Of course, there are issues but as a representative of a company with operations in the area, I can confirm that Guerrero is a place where business is possible as long as security issues are closely monitored and adequate protocols are followed.

We have been working diligently with the government to help it through sharing best practices and creating information exchanges. We coordinate activities with our neighbors and we fundamentally focus on keeping our communities and people safe. Once we start organizing these issues, they are much easier to resolve in collaboration with all interested parties.

Q: What is the main goal for the cluster over the next five years?

A: Once the cluster starts gaining traction, our goal for the next one to two years is to successfully develop a collaboration with other external groups that can help us incorporate Guerrero-based companies into the value chain. This will require collaboration with governments at federal and state levels because many of these companies have limitations and require support to meet the strict requirements the industry maintains. As an example, the chairman of COPARMEX in Chilpancingo who has a construction company told us in a meeting that working for Torex helped improve his company. For him to provide services to our ELG project, he had to perfect the service his company offered and he is thankful for that. In two years, I hope to have large number of similar success stories from companies across the value chain, which in the end should help develop a regional mining hub.

I would also like to see an increase in exploration activities and new companies entering Guerrero, to the point where mining is able to grow by 100 percent in the next five to 10 years. As a cluster, we hope that our presence in Guerrero creates benefits for all and develops a new paradigm for responsible mining.