Investment in the Mining Sector in Decline

Since before President López Obrador’s term, investment in the Mexican mining industry has been decreasing due to legal uncertainty and the mandatory closure of activities. Far from improving, experts agree that this situation could worsen lest conditions and initiatives from the public sector chance for the better.

In the last years, the mining sector has faced challenges and difficulties in an international and domestic context. According to the journal Pan Finance, after a trend of falling mineral prices and after the economic boom that ended in 2011, the sector has mirrored the world economy over the last decade, losing much of its dynamism. In the domestic sphere, despite the country’s long tradition and mining potential, only 25-30 percent of the country has been explored for minerals and oil to date. Furthermore, due to new government policies, insecurity and social unrest, the sector is facing uncertainty. “Mexico is losing its attractiveness as a mining jurisdiction globally,” said Fernando Alanís, Former President, CAMIMEX, in an interview with La Jornada.

Mexico is a global mining power and in 2019 it ranked among the Top 10 producers of 17 minerals, being first in silver, second in fluorite, sixth in zinc, seventh in salt, eighth in copper and ninth in gold. In 2018, however, investment in the mining sector hit a 12-year low with international and national companies spending approximately US$343 million on exploration, in comparison to US$612 million in the previous year.

By 2021, the US$425 million invested in exploration failed to reach pre-pandemic levels of US$536 million in 2019. According to CAMIMEX, total investment in the sector met the same fate, reaching US$4.2 billion in 2021, which represented a decrease of 8.8 percent against 2019. Moreover, in 2020 the sector received only US$2.5 billion, reaching its lowest point of the last 13 years and representing a 4.9 percent fall against 2018.

Investment in the mining sector is forecast to fall sharply in 2022, mainly due to the government's ongoing efforts to implement unfavorable reforms, said the General Director, CAMIMEX, Karen Flores. The chamber estimates that the country will receive over US$3 billion in 2022, an amount significantly lower than the US$4.2 billion received in 2021. According to the chamber, the sector never did recover from the Tax Reform of 2014. The recently approved Mining Law Reform has created further uncertainty. CAMIMEX said that over 2,000 projects have been suspended since 2014. In addition, the absence of new concessions worries players in the sector.

“Unfortunately, we are headed downward since 2014. With the tax reform [of 2014], investment in exploration has fallen 60 percent. As for general investment, we had a small uptake the past year but fell short of the estimation by 15 percent,” Flores said.

The fall in investment has been mainly attributed to López Obrador’s administration which has placed the granting of new mining concessions on hold. Companies with permits received during previous administrations are waiting and putting projects on hold with the hope of better tax and exploration fees. In addition, the energy reform and the Mining Law Reform have generated great uncertainty for companies and investors in Mexico. This year, on the back of the approval of the Mining Law Reform, Mexico is expected to lose around US$24.2 billion in investment, warned the National Confederation of Industrial Chambers (CONCAMIN).

“The greatest challenge that the mining industry faces is not related with authorities and whether they approve or deny the applications of projects, nor with the recognition of the rights of ejidos and Indigenous communities, but with the current stigma that exists regarding mining activities in our country. This, unfortunately, is generally unfounded,” said Pablo Méndez, President, Chihuahua Mining Cluster, to MBN.

Alanis said in an interview that growing doubts about government policies are leading companies to invest in more inviting countries like Peru and Chile this year. Mexico’s legal and fiscal issues have made it less attractive than South American mining hubs. “If new concessions are not awarded, there is no exploration, and if there is no exploration the future of mining is simply in doubt,” he added.

Mexico ranked 34 in the Fraser Institute’s 2021 Annual Survey of Mining Companies, which evaluates the attractiveness of investment in 84 mining countries and jurisdictions. This is the best score the country has had since 2018, as Mexico ranked fourth among the Latin American countries. Still, the report highlighted the increasing uncertainty regarding the exclusion of the private sector in the exploitation of key resources, such as lithium, and also qualified the freeze on new mining concessions as an “industry killer.”