Mexico Remains Attractive Despite Sector Downturn

Q: What should the government do to attract more investment in the mining sector despite the difficulties it is undergoing?

A: Costs in Mexico are relatively low, especially in terms of human capital, and a great deal of qualified staff can be found across the country. Mexico has no regulations for foreign investment in the industry and this means foreign companies through a Mexican subsidiary can fully invest with no limit whatsoever. While the royalty tax has had an excessive impact, this is a necessary step to allow Mexico continuous growth. Another aspect that is often overlooked is that all minerals are quoted in dollars so despite the dip in commodity prices Mexican costs are lowered by 30 percent just through the exchange rate. RB Abogados’ main responsibility is to carry out industry transactions while complying with applicable law but satisfying the business structures of the parties to the transactions.

Q: How is the landscape looking in terms of the sale and transfer of mining concessions, and what are the rising trends?

A: Certain Canadian public companies with mining properties in Mexico are amalgamating to obtain a wider portfolio and increase mineral reserves, which makes them more attractive to investors. Mexican mining concessionaires and their properties continue to be extremely attractive for foreign publicly traded companies so structures like reverse takeovers and joint ventures are still working well. Most of the deals are more focused in share considerations than cash allocations, which encourages shareholders to approve these kinds of transactions.

Q: How can your law firm help smooth out the transaction processes to ensure the contentment of both parties?

A: The transactions structured abroad may represent a challenge and sometimes prove risky for Mexican owners who may not be aware of how publicly traded companies operate. This is an industry where small players are fervent believers in their projects so it can be complicated at times to align their interests with those of major operators. In these cases, we suggest small mining companies or individual concessionaires sell their projects for an attractive amount and sign an agreement on royalties. The benefit of royalties is the fact the seller will only begin to receive them after the fixed production start date but if the operator does not begin production by that fixed date then small fixed monthly fees must be paid to the seller until the production phase is reached.

Q: What are the most important projects you have worked on?

A: We have been involved in many M&A and project finance transactions for the industry. We participated in the acquisition of San Dimas by Primero Mining from Goldcorp, and we facilitated a royalty stream from Coeur Mining to Franco Nevada for revenues from La Preciosa. Additionally, we provided counsel for the joint venture between Pan American Silver and Orco Silver for La Preciosa, and the pre-paid forward silver purchase with JMETT as a buyer and Santa Cruz Silver Mining as a seller. Other projects in which we were involved were establishing the credit facility to Pan American Silver from Scotia Bank, and overseeing the acquisition of Goldcorp’s Guanajuato mine by Great Panther Silver. We also worked on the acquisition of Peña de Bernal by Starcore from Goldcorp, and the joint venture between Excellon Resources and Apex on the La Platosa property.