High Investment Expected Despite UncertaintyBy Paloma Duran | Wed, 07/27/2022 - 13:08
Even though investments in the mining sector are forecast to fall sharply in 2022, mainly due to the government's proposed reforms, leading mining companies are planning to invest significantly in Mexico as their CAPEX remains high.
“Mexico's mining industry remains very attractive to investors despite the challenges. First of all, because it is a consolidated industry with years of experience and knowledge. Second, as a result of this, there are highly trained people who understand how to work efficiently from construction to mine operation. Third, the mineralogy of the country is excellent as it has very large and rich mineral deposits. These characteristics will allow Mexico to remain one of the most attractive investment jurisdictions,” Adam Webb, Director of Mine Supply, Metal Focus, told MBN.
Previously, CAMIMEX highlighted that in addition to the lack of permits and concessions, the energy and the Mining Law reforms have generated great uncertainty among companies and investors in Mexico. In addition, miners are concerned about government arbitrariness, exemplified by the closure of Vulcan Materials' operations in Quintana Roo. Consquently, for 2022, CAMIMEX forecast an investment of US$3 billion, a considerably inferior amount compared to the US$4.24 billion seen in 2021.
“Investors and companies are wondering whether to invest more or to exit the Mexican mining sector. The reform has scared mining investment out of the country. Changes in policies toward the mining sector are needed; otherwise, the industry’s future foreign investment will certainly diminish,” Ralph Shearing, CEO, Altaley Mining, told MBN.
CAMIMEX has emphasized that recent challenges are causing the country to miss out on opportunities valued at around US$25 billion. However, Webb explained to MBN that the Mexican government's actions aimed at having a greater role in the industry are not exclusive to Mexico but a reality in several Latin American countries. “The Mexican government’s policies obviously have an impact on the industry as they make Mexico less attractive from an international perspective. However, these are not only being implemented in Mexico, but also in other countries in the region such as Peru and Chile. However, I think that Mexico has numerous opportunities compared to other regions, especially in silver mining, so it will still be relevant."
Moreover, experts say that Mexican mining companies have a great opportunity to receive more foreign investment and grow their mining projects with metal prices on the rise following to geopolitical pressures. “Base metals and gold are facing an upward trend. Their prices remain healthy and are sure to perform well under current political strife in the Ukraine,” Ralph Shearing, CEO, Altaley Mining, told MBN.
Juan Carlos Artigas, Head of Research, World Gold Council, recommended Mexican miners and investors to continue working with gold, since it offers many opportunities for profits. “Gold is an excellent option to add to an investor's portfolio as it not only provides potential returns but also diversification and liquidity. We believe that in 2022, investment and management will gain strength due to inflation and geopolitical pressures.”
While some experts say the current mining environment presents significant challenges, experts believe miners in Mexico are well positioned to continue making significant investments. Currently, 14 mining corporations have announced that they will invest US$2.91 billion in the country in 2022. The figure surpasses the US$2.68 billion published by the same companies at the beginning of 2022, reported by BNamericas. Moreover, the actual figure could be even higher since small-scale miners and companies that did not provide information were excluded from BNamericas’ forecast.
Currenlty, the companies that are expected to invest the most in Mexico are Southern Copper, Fresnillo, Torex Gold, First Majestic Silver, Pan American Silver and Equinox Gold. The estimated expenditure of Southern Copper, Grupo México’s company, is US$939 million, which has already been lowered compared to previous plans by US$61 million. Still, it remains one of the highest in the country. Moreover, Grupo México recently announced its Mexican projects are going through new investment stages, valued at more than US$7.7 billion over the next 10 years. The Buenavista Zinc project, for example, has a budget of US$413 million. Up to December 2021, the company had invested US$217 million. Meanwhile, the Pilares project has an investment budget of US$159 million, of which US$75.9 million have already been allocated. Much of the budget will be used this year to finalize details and start operations in 2H22.
Meanwhile, Fresnillo estimated its 2022 spending would reach US$690 million. The Mexican mining giant has not said it would lower this amount, suggesting an increase compared to the US$592 million invested last year. Fresnillo highlighted that of the entire budget, US$571 million is for sustaining CAPEX, while the remaining US$119 million is for the project’s CAPEX. Of the latter, US$112 million will be allocated to the development of the Juanicipio project, which is expected to come into operation this year.
Torex Gold announced it will invest considerably with the aim of integrating its Limon Guajes and Media Luna projects and extending the gold project’s useful life until 2033. The gold company is expected to spend US$377 million in 2022. Moreover, Faysal Rodríguez, Vice President Mexico, Torex Gold, announced an investment of over US$800 million from May 2022 until 4Q24. According to Rodríguez, this is the single largest investment from a mining company in the state of Guerrero. “So far, I am not aware of an investment like this in the country. Other projects are under development, but not with a formally announced investment like ours. It is an investment without precedent in Guerrero,” said Rodríguez during a business forum.
The remaining companies, First Majestic, Pan American Silver and Equinox Gold registered no changes to their original CAPEX projection. First Majestic maintains its US$208 million planned expenses for its Mexican assets and Jerritt Canyon gold mine in the US. The company announced that US$112 million will be used for expansion activities, such as the natural gas generation plant in Santa Elena and to increase the processing rate at the Ermitaño mine.
Pan American Silver confirmed that its CAPEX guidance between US$280-305 million remains, of which US$68-81 million will be the project CAPEX for the La Colorada asset. In addition, the company will invest around US$29 million and US$34 million in sustainitng the La Colorada and Dolores mines, respectively. Finally, Equinox Gold reaffirmed its CAPEX estimate of US$100 million for its Los Filos mine, which covers US$62 million of sustaining and US$38 million of non-sustaining spending.
“Countries like Mexico are considered well-established jurisdictions, so they will continue to be considered safe investment destinations in the long term, even if the mining situation worsens. Also, since they are considered safer investment options than Russia due to the Russo-Ukrainian war, part of the investment pool could end up in Mexico. As a result, investment is expected to remain strong this year and beyond,” said Webb.