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Analysis

Mexico Mining Forum 2020: Highlights

By MBN Staff | Sat, 02/29/2020 - 12:00

Mining: More Than a Primary Activity

A year into President Andrés Manuel López Obrador’s administration, Undersecretary of Mining at the Ministry of Economy Francisco Quiroga presented the Undersecretariat’s key lines of action to make mining activities a pillar of Mexico’s economy and a driver for other industrial activities. “Success of mining actitivies should not only be measured by the volume of minerals we produce but by what we can do with those resources,” Quiroga said during the opening presentation of Mexico Mining Forum held on Wednesday at the Sheraton Maria Isabel hotel in Mexico City.

Mining can make a difference in society by focusing on the industry’s competitiveness and the social challenges it faces, Quiroga said. “The goal is social and economic viability in the long term.”

Social issues are at the center of the government’s agenda to make mining a more sustainable industry. “Mining players have to become leading neighbors in their communities,” said Quiroga. “They should not replace the government but should comprehend the needs of their communities and establish a long-term vision that transcends the mine’s life cycle, considering their current and future environmental impact.” Beyond that, Quiroga specified that alliances that foster productivity and operational continuity are a must for mining operations. “Activities should respect the rights of workers and foster an environment that favors the participation of women in the mining workforce,” he said.

In terms of competitiveness, although there is confidence for investment in Mexico, Quiroga says investors should look at the advantages that a community or region offers, instead of focusing on the country as a whole. Otherwise, the perception of investment viability could be clouded, he said. Quiroga also highlighted regulatory stability as a priority for the industry and the goal the government has to streamline its processes at the General Mine Directorate (DGM) to handle everything through a single digital platform. “We want to simplify legal processes at the DGM and link this office with other government regulators,” said Quiroga.

Financing and security are also key issues that the government is tackling. With the former, Quiroga said the goal is to market Mexico as a low-risk investment destination, looking to communicate the country’s compliance with global standards. FIFOMI’s involvement is also crucial in guaranteeing project viability and competitive financing with more flexibility. “Clear communication is also a must with key decision-makers and authorities to open Mexico’s projects to global markets,” explained Quiroga. Regarding security, the government has a clear mandate: “Blackmailing or stealing from the mining sector will not be a profitable business,” he said. “We will establish a quick and effective response to any robbery attempt to make it harder to transport and commercialize stolen goods.”

Lastly, Quiroga turned his attention to the importance of mining activities, not only as a productive industry but as the source of raw materials for other industrial activities. While the Undersecretariat looks to increase production and ensure reliable, sustainable and inclusive production, it is also analyzing the role that this industry plays in sectors like electronics, energy and automotive to introduce best practices and certifications so that competition is not in terms of costs but in terms of added value. “The goal should be to make mining a competitive leverage for other manufacturing industries and for Mexico’s position as a manufacturing powerhouse,” said Quiroga.

Community Engagement Crucial to Mexican Mining Industry

As mining has modernized, the understanding of the need to deliver benefits to local communities impacted by mining activities has grown. Engagement of local communities and the respect of land rights have now become an integral part of a mining company’s operations, said the panelists at the Mexico Mining Forum 2020.

The second panel of the forum was moderated by Gabino Fraga, Director General of Grupo GAP. Fraga led the highly-experienced panel in discussing how Mexico’s mining industry is bridging the gap between companies and communities, and how mining players are adapting their community outreach as they learn from the past.

Michael Harvey, the former Director of External Relations at Newmont Goldcorp and speaking in his capacity as a specialist in government relations, sustainability and communications, explained the positives and negatives of the country’s mining industry. “After working in Brazil and Venezuela, it is clear that in Mexico there is far more access to government officials. It is easier to arrange meetings with high-level officials here,” said Harvey. However, the rule of law is not always taken seriously as a central point of focus within a successful mining project by government officials, he added.

José Tovar, Community Relations Manager at Alamos Gold, outlined the increasingly problematic cleaving in understanding between communities and mining companies. “We cannot deny that the main risk with mining work has been the social operating license and there is a growing trend of social conflicts around mining projects,” he said.

A strong community relations program, which values the considerations of the local community and brings benefits directly to the people, is essential to solving this issue, Tovar said. Rather than considering community outreach a secondary concern, it must be incorporated into the business’ core strategy and be given the same consideration as factors including security and finances are. In this way, community trust can be won and growth can be generated for the local economy and the company. “The mining industry has all the potential to be an ally for sustainable growth in the territories where we operate,” he said.

Daniel Santamaría, Vice President of Minera Gorrión, Almaden Minerals, echoed the need to incorporate the local communities into the strategy of any modern mining operation. At his company’s operation in Puebla state, there is constant communication with the local community, he stated. The community’s insights are given a special status as an important reference point for the project’s development: “As companies, we have a fundamental corporate responsibility to respect human rights, in the participation, communication and confidence of local communities,” he said.

However, Mexico’s vast diversity also plays into the way that companies must interact with nearby residents. Luiz Camargo, Country Head of Minera Cuzcatlán, explained that his company’s assets in Oaxaca demonstrate that a one-size-fits-all approach to community engagement is naïve. Camargo pointed out that Oaxaca does not have as extensive a history of mining operations as other northern states like Sonora. Modern mining practices are therefore less understood in the state. It is the company’s responsibility to explain how mining has advanced, he said. At the heart of this is open communication: “We must explain the benefits that modern mining can bring to the area,” said Camargo. “We offer tours of the mine and have an open-door policy as a company, so that the community can get to know us.”

Gabino Fraga noted that Oaxaca’s migratory history, in which a high-percentage of people leave the state for work, also made the role of women within the local community more important than in other regions. Camargo agreed and explained that through community engagement, which supported education and the acquirement of skills, the company had helped local women increase their wages. “Local production is something that we try to incorporate to encourage the growth of the societies that surround us. Within these actions, we try to incorporate women to reduce the patriarchy that generally surrounds the sector,” he explained.

Santamaría also focused on the need to be proactive in seeking the opinion of the community, and how daily consideration to the views of local people was an important way to develop strong relations and avoid conflicts: “We are a company that approaches the communities directly, we have a team focused on that part specifically. It is essential to complement all our technical work,” he said. Santamaría added that it is crucial that mining companies go beyond the simple delivery of economic improvements to the local region. Strengthening of human rights, the alleviation of poverty and enhancing the access of local people to health and education services is vital, he said. 

Financing Trends and Investment Dynamics

Javier Reyes de la Campa, Chairman of Accendo Banco (AB), highlighted Mexico’s enormous potential in the mining sector during his presentation at the Mexico Mining Forum 2020 at the Sheraton Maria Isabel hotel in Mexico City on Wednesday, saying the industry is crucial to achieve greater economic growth. “The vision of the Ministry of Economy is very assertive in its approach to strengthen and grow our capacities in the sector,” he said.

Mexico is among the leaders in the production of silver, gold and copper but what makes the country especially strong on the operational side is how it takes advantage of the productive chain, Reyes said. He mentioned that countries like Ecuador, which has just opened up its mining industry, are enjoying rapid growth. “That should make our country prioritize the strengthen of the sector.”

AB has a great deal of experience in financing mining projects, which is why Reyes believes that “right now is the perfect moment to invest in the mining sector. This is the right moment in the economic cycle to do so.” He added that after the 2008-09 global economic crisis, the world’s monetary policy stopped working. The proof of that is inflation and the growth of national debt across the world. Right now, the US national debt is over US$22 trillion.

Reyes also said pointed to risks that could hamper the global economy, pointing to China and the coronavirus as an example. “Coronavirus has affected supply and demand of products and services and life in China is basically on hold,” Reyes says. Using graphics, he demonstrated how China’s growth was at 6 percent and after 30 days it had slowed down to 4 percent. Stocks in China fared even worse, dropping dramatically in five minutes.  “After 11 years of up and downs, China’s market might not recover from this as quickly as we think.”

The safe bet right now would be to avoid risk, Reyes said. He added that the mining sector represented a good opportunity. “I encourage investors to look at the mining sector, which has been quite ignored for the past decade.”

Funding Based on Clear Asset Management

In an environment with no new mining concessions, brownfield projects become crucial for stakeholders. “However, lacking and expensive funding force companies to find ways to mitigate risks and appease investors,” said Alfredo Phillips, President of the Guerrero Mining Cluster and moderator of the Risk Management: Financing Brownfield Projects in Mexico panel, at Mexico Mining Forum held on Wednesday at the Sheraton Maria Isabel hotel in Mexico City.

David Chelich, Head of Business Development Mexico at TMX Group, highlighted that regardless of its nature – green or brownfield – equity is the prime source of funding for any mining project. “Projects are never fully financed with debt,” he said. The problem, however, is that the needed resources are nonexistent in Mexico, according to Javier Reyes de la Campa, Chairman of Accendo Banco. “Capital does not exist in Mexico in the way we need it. Our stock market is not specialized enough and there is much asymmetry in information,” he said.

Although there are development banks and trust funds like FIFOMI available, these players require warranties to their invested capital and do not get involved in risk operations. “Neither FIFOMI nor banks will grant risk capital, which means the country must improve the conditions to access such resources,” said Reyes. “The risk in mining operations is extremely high, even more so probably than hydrocarbons,” said Alfredo Tijerina, Director General of FIFOMI. “Furthermore, bank do not have a specialized area in mining, which means they do not understand this risk.”

Another problem for companies, especially younger ones, is that before needing capital to ramp up operations, players require capital to deliver all necessary studies to get the licenses and permits needed to operate. “You first need a group of private investors to fund your studies in order to access larger financing,” said Enrique Rodríguez del Bosque, Partner at RB Abogados.

Mexican companies have the advantage, however, of being in a good place in terms of investment attractiveness, according to Chelich. “Mexico as a mining jurisdiction ranks fourth globally in terms of investment and 126 companies listed on the TSX and TSXV have operations in Mexico with 366 mining properties,” he said. Companies eligible for investment, according to Chelich, are those with diverse portfolios and management teams experienced in taking projects from discovery to production, while increasing shareholder returns in every phase.

Rodríguez highlighted that unlike greenfields, brownfield projects have the advantage of deriving from a project that was already successful. “There are already assets and production flows that give certainty to investors,” he said. However, for companies to approach possible stakeholders, due diligence is key. “Companies have to do an exhaustive analysis of what they have, not only in terms of assets but also in terms of relationships with the community, with the government and even with the union,” said Rodríguez. Chelich agreed with this statement, explaining that ESG is extremely important for the Toronto Stock Exchange and for retail investors. “Extraction industries are among the most criticized and investors are always reviewing ESG performance,” he said.

ESG, however, is not just about being a good corporate citizen. “Companies that focus on ESG achieve better cost savings and profitability in the long term, which enhances the company’s capability to access capital,” said Chelich. According to Tijerina, FIFOMI’s funding is always linked to permits and clear financial statements. “However, even though we can reduce the requisites for small miners finance-wise, we always maintain our standard requisites in terms of social and environmental permits,” he said.

Digitalization Set to Shake Up Mining Industry: Datamine

Mining has long been at the back of the line when it comes to industries welcoming new technologies. This is set to change, Jaime Gabarró and Paolo Martins, Senior Business Development Consultant and Regional Director South America at the world’s leading mining software provider, Datamine, told the Mexico Mining Forum 2020 audience at the Sheraton Maria Isabel hotel in Mexico City on Wednesday.

Jaime Gabarró opened his presentation by explaining that how most mining companies perceive technology and digitalization in business is not how it plays out in practice. While the idea of technology commonly conjures up ideas of applications like Waze and Uber, there is little understanding of the process behind building such insightful platforms. “These are technologies that we can interact immediately with, and which display data in real time,” explained Gabarró. “But to achieve this, a base of data needs to be built.”

Companies in Latin America have traditionally built databases and solutions for their use in-house. But this solution is unsustainable as only few people have the specialist knowledge required and employees come and go. Additionally, this route poses a problem of simple exchange of data throughout the company to deliver integrated, wide-view data insights, Gaborró explained.

The problems that mining’s existing digital landscape poses are the laboriousness of data collection, the disjointed connection of information across multiple systems – sometimes within one company – and the reduced value that extracting that data therefore offers.

Digitalization, and the use of digital twins, can help resolve this issue. Digitalization integrates separate data strands to help identify themes from historical trends, to offer real-time sensor data to drive short interval control in execution of plans, and to derive future insights with AI tools to predict outcomes across a mine’s supply chain, among other benefits.

But data must be converted into information before it can result in added value, said Gabarró. Digital twins, which can map the real landscape of a mining company’s inventory and tracking processes, provide this conversion. Financial and accounting processes, among many others, can be automated with clarity, and are fully auditable.

Digital twins can also be put to use in the mine itself, especially in the exploration stage. Datamine’s DataBlast software offers informational insights on the blast layout, charging and initiation design of a mine, can be integrated with Drill Navigational Systems and offers real-time field measurement, among other features. The company’s WipFrag software package, meanwhile, processes fragmentation analysis, can capture information from drones and offers on-stream analysis of truck tips and conveyors.

“The new technological platforms allow us to optimize and achieve greater control, stabilizing the operation that through the systems we can use and generate greater added value,” he said.

Datamine’s world-leading ability was outlined by Paolo Martins who explained that the company is part of the Canadian Constellation Group that includes 450 software companies among its members. “We are the only supplier that covers the entire mining chain. We are part of a group interested in investing in acquisitions of new products and solutions for the entire mining process in Mexico,” he said.

The Value Chain Behind Successful Project Development

Although the mining sector plays a pertinent role in Mexico’s economy, the industry needs to continue to demonstrate its relevance, Enrique Espinosa, Subdirector of Mineral Resources at the Mexican Geological Survey, said during a panel discussion at Mexico Mining Forum 2020, held at the Sheraton Maria Isabel hotel in Mexico City on Wednesday. “Mexico is behind several powers such as Canada and the US but it is our responsibility to provide exploration and new deposits, to be committed to generating new processes and to strengthen the supply chain to demonstrate how the mining sector contributes to the country.”

The panel, titled “The Value Chain Behind Successful Project Development” and moderated by Gerardo Duràn, Director General of the Chihuahua Mining Cluster, broached subjects such as sustainable actions in mining, the impact of technology and innovation on processes and the overall responsibility of the mining sector in Mexico. “In addition to mineral demand, the drivers behind mining are the environment and climate change, the digital transformation and automation,” said Agustin Enciso, Director General of Cozcyt. He also pointed out that the focus for the industry needs to be on the future as well as the present. "Mining will not attract more investment nor will it develop high-quality talent if it only focuses on communicating its present benefits. Companies need vision toward the future."

The panel also spoke of the need to break stereotypes and educate the public on the good that the industry does for communities. “Mining is not a highly invasive practice, it has evolved to be a synonym for social responsibility, sustainability and most importantly, technology and innovation,” said Duràn. On the technology front, David Vizcarrondo, Director of Strategic Accounts at Emerson, discussed the evolution of technological trends in the sector. “Automation and technology have been spearheading innovation, a development focused on mining specialization, production costs, efficiency and safety,” he said.

Expanding on the technology question, Enciso spoke about an industrial park in Zacatecas that “encourages and educates in the use of technology to ensure that the mining industry develops research centers, talent, technology and suppliers to continue promoting development for other sectors.” Espinoza shared this point of view and added that, “The future of mining must be with mining alliances and social development. This alliance begins with exploration and the geologist who opens the project and is the first ally of the community.”

Turning to the future of the sector, Alejandro Espejel, Country Manager of FLSmidth, described the long-term nature of every mining project and the resulting accomplishments that come from that. “Each mining project is long term, where the investor seeks to satisfy a challenge related to volumes and extraction efficiency. Robust suppliers are needed along with up-to-date knowledge. We develop projects, do tests locally, have equipment to analyze the products that are going to be used and develop systems that optimize the process.” To this, Enciso added that, “Automation will eliminate many jobs at mines. The challenge now is to ally with academic institutions to develop the talent that companies will need in the future.”

The challenges that Mexico faces are not restricted to the local industry, and the priorities for the industry are globally understood.  “The global challenges of mining have concrete priorities that go hand in hand with sustainable development and security. Also preparing mining for the next generation is important, making it attractive to the new generation. Digitalization does that,” said Vizcarrondo.

Mining Fund: Still Looking Out for Mining Communities?

Six years after its creation, the Mining Fund was canceled in favor of a new right companies have to pay that will be used for education infrastructure. Although companies agree that the resources stemming from the fund should be better and more transparently used, they also agree that the beneficiaries should be mining communities, said Alberto Orozco, President of the Sonora Mining Cluster. As moderator of the Redistributing Value in the Industry: the Mining Fund panel during Mexico Mining Forum, Orozco led a discussion between the public and private sector on Wednesday at the Sheraton Maria Isabel hotel in Mexico City.

In 2014, the Mining Fund was created as a right that companies had to pay, so the resources could be invested in the development of communities where extraction activities took place. According to Bernardo Ramírez, Partner at Chevez Ruiz Zamarripa, unlike a tax that is discretional in terms of resource allocation, rights are paid based on a service. “In mining, the goal is to redistribute value where cash flow was generated,” said Ramírez.

However, in 2020, the government approved a reform that completely overhauled the Mining Fund in favor of a new right. Resources will now be destined to education and will be redistributed as follows: 85 percent to the Ministry of Education, 5 percent to the Ministry of the Economy and 10 percent to infrastructure programs, according to Ramírez. “Considering that by 2019, MX$18 billion (US$970 million) had been collected through the Mining Fund, this is not a minor issue,” he said.

“Everyone asked us to keep the Mining Fund intact,” said Miguel Ángel Lucero, Senator and President of the Senate’s Mining Commission. According to Lucero, the commission fought against the Morena party majority in the Senate but eventually lost against 70 percent of the chamber who voted in favor of the creation of a new fund to redistribute resources among 200,000 elementary schools. The Senator highlighted that inconsistencies and lack of transparency in the use of resources were the main reasons behind President López Obrador’s decision to terminate the Mining Fund. “Resources were not used for infrastructure projects but for electoral campaigns. We should be happy that the MX$4 billion (US$214.8 million) we are expecting to collect in 2020 will be used on something useful for the country,” he said.

These views, however, were ill received by most industry stakeholders and decision-makers, including the state administrations of the major mining hubs in the country. “We seek to come up with a scheme to reinstate the Mining Fund according to the mechanics of the new administration,” said Luis Javier Sánchez, Deputy Minister of Investment of Zacatecas, calling for collaboration with the federal government to not terminate the Mining Fund. Sánchez highlights the role that mining plays in the Mexican economy, especially in Zacatecas that is the leading global producer of silver and the biggest national provider of lead and zinc. “We need to be allies to this sector,” he said. Hilde Salgado, Deputy Minister of Economic Development of Sinaloa, however, chose to make the benefits of the Mining Fund more evident.

“Sinaloa has 112 mining projects and 1,470 concessions managed by 58 companies from Canada, China and the US. Between 2014 and 2017, resources stemming from the Mining Fund resulted in MX$194 million (US$10.4 million) invested in infrastructure, education, highways, services and many other projects that can all be verified, with MX$62 million (US$3.3 million) left over that is already allocated to several projects. Approximately 98 percent of the economy of communities in the mountain range depend on mining operations, which are now left in uncertainty,” she said.

According to Salgado, companies will now have to give back to communities twice. Once with this new tax and then with projects directly with communities, since these will not see a return from the government due to the lack of proper direction of this new right. Carlos Silva, CEO of Santa Cruz Silver Mining, disagreed. “Actually, we will have to give back thrice. Companies have always been responsible for the infrastructure development of our communities. We have always had our communities as a priority because that is the only way we can be productive. This means that beyond the Mining Fund, we have always developed projects in favor of communities,” he said.

Although Ramírez acknowledged that the Mining Fund has some deficiencies in the way the right was calculated and how it relates to the income tax, its impact on communities and social development was visible. “If there is clarity in what kinds of projects are considered beneficial for communities, then there is no room for corruption,” he said. “The impact the Fund had was good. We previously fought against it but now we are fighting for the resources to be used where they should be,” said Silva.

Considering the negative response from the overall industry, Lucero recognized the difficult position of the Senate and the Chamber of Deputies. “It is hard to defend what some consider undefendable. However, difficult situations require hard solutions,” he said. When asked how the government would make sure there was no corruption in the way resources would be managed now, Lucero referred to the new way the government works in terms of social programs. “Resources are given directly to those who need them. Lack of bureaucracy means fewer chances of corruption. Schools will now receive resources directly, which they had never received before,” he said. Salgado, however, saw this as a political, rather than a social action. “Everyone wants what is best for the country but these measures seem like a populist strategy to secure votes for the next election,” she said.

People, Safety the Key to Operational Success, say Mining Leaders

Though technology will undoubtedly play a major role in the mining industry’s development over its short and long-term future, the message from the panelists during the final discussion of the Mexico Mining Forum 2020 was that people and safety are the pillars of success.

Moderating the panel on “Operational Success: Challenges and Exemplary Strategies,” Country Manager of Victualic Mexico Héctor Quezada invited the four-strong group of industry leaders to share the critical changes that their companies made to their operations during the last year, and which delivered success.

Jody Kuzenko, COO of Torex Gold Resources, remarked on the dramatic change that her company’s operating mine in Guerrero state saw last year. Explaining that in 2019 the company produced 450,000oz of gold, Kuzenko said that this success was based on simple measures. “As an operator, I judge myself on two key metrics: production and safety. In 2019, we had a 28% improvement in gold production on 2018 and a 32% reduction in lost time injuries over 2018. We are closing in on 5 million person hours worked free of lost time hours.”

She explained that, contrary to expectation, which assumes technology will provide the basis for any major increase in operational success, it was improvements in personnel and safety standards that her company successfully leveraged. “If you get people and safety right, in my operational experience, everything will be right. Get them wrong and nothing is possible – it doesn’t matter what technology you have in place.”

The centrality of an experienced and knowledgeable workforce was a theme repeated by other panelists. Adrian Blanco, General Manager Mexico of McEwen Mining, noted that his company’s operations have drastically improved since recruiting the most experienced workers possible. Experienced heads make a huge difference to operations in a short time period, he said.

For Salvador García, COO at Starcore, mining’s traditionalist character posed a unique obstacle in the industry’s chase to improve standards, now at the core of what makes a mine successful and worthy of investment. Pointing out that poor safety standards put lives in danger and are also an indicator of poor long-term sustainability, he said that: “When I started working at the mines, I was shocked to see the safety indexes as they were incredibly high. They are also one of the most important indictors for a project’s baseline.”

The panelists also agreed that technology will make a huge impact on a mine’s success, though the industry and Mexico must do more to integrate the benefits modern tools bring. Blanco said that the lack of technology has led to a gulf of innovation within mining that must be overcome if environmental and social concerns are to be better fulfilled. “There is a deficit of transformation in the sector, mainly on sustainable measures. Every operation can use technology to support their processes,” he said.

Environmental security is becoming a greater concern to the industry. When asked by Quezada how a company can best measure its performance in strengthening its safety processes to protect against unintended damage, Ramón Mendoza, Vice President Operations at First Majestic, pointed toward international players. “Benchmarking against the most prominent players in the most advanced markets, like Australia and Canada, is crucial,” explained Mendoza. “We must look toward industry leaders and try to achieve those levels.”

The focus by industry players on environmental safety is representative of the world’s changing considerations, Kuzenko remarked. It is important that rather than profit alone, companies understand that poor safety and security standards are beginning to color the view of a company. “The only measurement for investors is whether they are willing to invest in you. But I would say that the investment community, and the world as a whole, is changing. While investment metrics used to be only cash and margin-related, the world is waking up to the need for ESG-type investment: environmental, social and governance,” she said. 

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