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Analysis

Mexico’s Next Poles for Mining Exploration

By Paloma Duran | Thu, 12/02/2021 - 09:46

The great geological potential of Sonora, Guerrero and Oaxaca has recently attracted more attention from investors and companies. Experts believe that these states will be the new poles for exploration projects, as many areas remain unexplored. Furthermore, experts say that if the sector’s uncertainty is addressed, there will be greater opportunities to develop the states’ capabilities.

“There are many factors that make Mexico an attractive destination for investments. The geology of the country is very favorable for exploration and many areas still have opportunities to be explored with modern technology. In addition, there are many areas yet to be discovered in Mexico. The recent surge in metal prices is reviving exploration, especially in the north,” said Craig Gibson, Technical Director, ProDeMin, to MBN.  

In 2020, US$8.7 billion was invested in mineral exploration worldwide, 11.2 percent less than the investment made in 2019, according to the S&P Global Market Exploration Trends report. Latin America remained the main destination for exploration with 25 percent of global investment. However, it reported a decrease of US$555.5 million compared to the 2019 records, reported CAMIMEX.

Chile remained the main investment destination in mining exploration in Latin America, followed by Mexico and Peru. Despite having improved its position, Mexico’s investment attractiveness has remained on a downward trend for 10 years, dropping 22 places in the Investment Attraction Index of the Fraser Institute. The index considers the Best Practices Mining Potential Index (60 percent) and the Mining Policy Index (40 percent). The institution explained that the decrease in Mexico’s attractivenmess is mainly due to the uncertainty of the sector, the non-granting of concessions, lack of incentives and the possible implementation of reforms.

Nevertheless, Mexico holds its position as a primary destination for mining exploration. "The attractiveness is set on exploration destinations. There are other world jurisdictions that are really getting much better. However, as a whole, I think Mexico has more attractive opportunities around new discoveries,” said explained Michael Konnert, CEO, Vizsla Silver Corp, at Mexico Mining Forum ECHO 2021.

Currently, there are 307 exploration projects in the country, which represent 26 percent of the mining projects in the country, according to CAMIMEX. More exploration projects are expected as Mexico has joined the lithium rush, which is mainly benefiting northern states such as Sonora. “The gold belt in Sonora has developed further and it is considered a more important area for gold in Mexico. In addition, exploration is expanding into new areas for battery metals, such as lithium in Sonora. These factors are benefiting the north of Mexico more than the south, so the main opportunities are there,” said Gibson.

The latest CAMIMEX report showed that Sonora is the largest contributor to Mexico's mining industry with an outstanding share of 34.2 percent. In 2020, there were more mining projects in Sonora than in any other state in Mexico. Of the 1,190 active projects throughout the country, only Sonora is home to 267 projects, which represents 22 percent of the total. The main metals in the state are copper, which represents 81.1 percent of the country's total production; and gold, which represents 29.8 percent, reported MBN.

Regarding other minerals that are gaining relevance, such as lithium, Sonora currently houses the most advanced project in the country. The Sonora Lithium project is the main lithium project in Mexico and is scheduled to begin operations in 2023. The project will be supervised by Bacanora Lithium and Ganfeng Lithium. the latter having announced it would acquire 100 percent of Bacanora's shares. The production of the US$420 million project is expected to be around 35,000 tons per year. If achieved, Mexico will have the status of a major international producer, said Reuters.

Many specialist believe that lithium is the metal of the future and Mexico’s reserves could turn it in one of the greatest beneficiaries of the lithium boom. As a result, President López Obrador announced his intentios of granting exclusive control over lithium reserves to the state. The proposal still needs to be approved by Congress, for which discussions have been postoponed until 2022. Bacanora Lithium said that it will not be affected by the reform as it complies with the new license requirements and has already started exploration work.

Recently, the Ministry of Economy announced that it had found 14 additional points to exploit lithium in Sonora, in addition to those of Bacanora Lithium. Alfonso Durazo, Governor of Sonora, said that he would promote exploration to take advantage of the resources. However, due to the government's refusal to grant concessions and instability, new companies have not been able to enter the lithium industry in Mexico. However, the country's  lithium potential has put "Mexico on the world radar, with more people taking an interest in the country," Violeta Núñez, a researcher at Universidad Autónoma Metropolitana (UAM), told la Jornada.

Although it has become more difficult for private companies to participate, lithium exploration will continue. The Mexican government will invest MX$55.2 million (US$2.5 million) in lithium exploration between 2021-2022. The objective of this investment is to have reliable data on the volume of reserves in the country and confirm if their exploitation is economically viable as the lithium figures that have been released to the media are not accurate. The 2021 program for the exploration of lithium in the country contemplates studying 52 locations, while by 2022, 30 more will be added.

Guerrero and Oaxaca have been also identified among the states with the greatest geological potential, which could make them the new poles for exploration and mining projects, according to David Jones, world-renowned geologist.

Guerrero

The Guerrero Gold Belt, one of the country’s most prominent gold deposits, is getting a positive update on its reserve figures. After approximately three decades of exploration and drilling, the Guerrero Gold Belt has become one of the most mining-exploited areas in Mexico, specifically referring to its extraction of gold, reported MBN.

In 2020, Guerrero ranked fourth in gold production, representing 13.8 of national production. In addition to gold, the state produces silver, copper, iron, lead and zinc, reported the Minsitry of Economy. According to Jones, the area is likely to hold over 10Moz of gold yet to be discovered. This geological formation is approximately 80km in width, and would position Guerrero as one of the top four gold-producing states in the country, only behind Sonora, and competing with Zacatecas and Chihuahua which have had a more productive mining history.

According to Jones, very few or no assets in Mexico can come close to the combined operations of the two most prominent extraction projects in the belt. Torex estimates the El Limón-Guajes mine will yield 430,000-470,000oz of gold this year, positioning itself as the third largest producer in the country, while Equinox adjusted its estimates for the Los Filos mine to anywhere between 50-000-140,000oz this year.

When the Guerrero Gold Belt began its development, the region was not all-too interesting or attractive and the high content of copper got it ignored, but not for long once gold was spotted, explained Jones. Today, a large number of companies are working in the region and more are expected to arrive.

In a past interview with MBN, Gibson said Guerrero was one of the best new developing districts in Mexico as it had world-class deposits and was becoming a key location for mining. “The Guerrero Gold Belt is a phenomenal area for the exploration of important gold deposits. It has some social problems that have affected the development of the region; nevertheless, it remains a key reference for gold exploration.”

Despite its potential, having a true relationship with communities and improving security in the state has been challenging. An example is the case of Minera Cuzcatlán, which has been accussed of generating negative environmental impacts. The company has said that for the more than 15 years it has been operating in Mexico, it has fully complied with legal, fiscal, regulatory, labor and environmental obligations. In addition, the company has said that the accusations lack evidence and scientific support. The situation has prevented the company from going ahead with its projects, MBN reported 

Oaxaca

Regarding Oaxaca, the country's biggest mining opportunities are there, Jones said. “In Sonora there is much to discover, in Chihuahua the same. The whole country has a lot of potential, but I am particularly excited about Oaxaca. There are currently some projects that are part of a very large volcanic belt but no significant exploration has been carried out,” Jones told BNamericas. 

In 2020, Oaxaca ranked fifth in silver and lead production, representing 4.9 and 3.2 percent of national production, respectively, CAMIMEX reported. Currently, there are 16 mining projects in Oaxaca, which include the San Jose mine of Fortuna Silver, the El Aguila and Alta Gracia mines of Gold Resource and Yautepec, Magdalena and Rama de Oro of Madoro Metals. The emerging belt has become the target of many exploration companies in Oaxaca since “the state represents an opportunity parallel to that of Guerreo’s first gold belt,” said Jones.

Likewise, in Oaxaca there is an opportunity with an emerging deposit of volcanogenic massive sulfides, which Vortex Metal plans to work on soon. “No one has ever drilled them and there could be multiple new deposits in that belt. It is amazing that this is there waiting to be explored,” Jones celebrated.

Despite its great potential, Oaxaca remains largely unexplored due to its remote locations. However, roads are currently being renovated, making them easier to access. Likewise, another challenge is that there is a large indigenous population, which still does not trust mining companies. Jones said it is essential to create and maintain good relationships with them. "A key factor will always be to remain credible and to keep our word."

Despite differing opinions on which state has the best opportunities for new exploration projects, it is a fact that Mexico will continue to be a prime destination for these projects. “Mexico is a mining country; 70 percent of the nation’s territory has mining potential and currently only 30 percent has been explored. Mining has historically been concentrated in the center and north of the country. However, this activity can benefit more states,” Fernando Alanis, former President, CAMIMEX, told MBN.

Nonetheless, all experts believe that the industry has several challenges that it must address to enhance its exploration appeal. Among them is that the sector needs to be considered as a strategic sector for Mexico's economic growth. The issue of concessions must be resolved as without them there is no exploration. Similarly, exploration must be encouraged by deducting  pre-operating expenses and by providing tax stability. Finally, insecurity issues must be addressed to protect miners and communities, CAMIMEX explained.

 

The data used in this article was sourced from:  
MBN, CAMIMEX, La Jornada, BNamericas, SGM, Ministry of Economy,
Photo by:   USGS
Paloma Duran Paloma Duran Journalist and Industry Analyst