Miners Get Real About Mexico’s Mining IndustryBy Pedro Alcalá | Wed, 02/10/2021 - 16:51
You can watch the video of this panel here.
A panel of stakeholders in the Mexican mining industry addressed the positive and negative aspects of the national investment landscape. These discussions took place during the third panel of Mexico Mining Forum 2021, titled “Mexico as a Jurisdiction: Risks and Opportunities in Today's Bull Market.” The discussion was moderated by Matthew Gordon, Founder of CRUX Investor, who asked the panelists to rate Mexico as a mining investment destination. This set the tone for what turned out to be a very honest conversation about the benefits and hurdles the Mexican mining industry is currently facing.
Most panelists rated Mexico between 3 and 4 in a scale from 1 to 5, with 5 being the best score. Alberto Orozco, CEO of Capitan Mining, gave a rating of 3.5 and said the country has enormous geological potential as it “is still in the early stages of its exploration maturity.” Orozco said Mexico provides “the ability to work year-round,” in contrast with other more seasonal jurisdictions such as Canada or Russia. While other panelists would be more critical of the ongoing regulatory issues in Mexico, Orozco said that all things considered, Mexico’s mining industry has “a legal framework that works.” However, he did make it clear that the industry was currently facing issues in the management of its “general administrative procedures,” which had to be addressed to “get the industry going.” “We need to digitize and expedite all administrative procedures so we can do business much more efficiently. Our system is still derived from what was built during the 1970s and it remains too paper-based,” Orozco said.
Jorge Ramiro Monroy, CEO of Reyna Silver, agreed with Orozco regarding Mexico being very early in its exploratory maturity “despite a centuries-long history of strong exploration campaigns that go back to the Spanish colonies.” He gave Mexico a rating of 3.8, noting that the country’s geological potential is boosted by new exploration technologies, such as satellite imaging, thanks to its northern region’s desert landscape. Monroy also acknowledged the country’s safety and security concerns and said that the presence of international operators made it clear that some of these companies prefer to deal with Mexican security issues rather than with the Canadian government. “My experience in the past 10 years in Mexico has allowed me to realize the country's potential, which is phenomenal. The main problems in the Mexican mining sector are the lack of security and political uncertainty.”
The speed of administrative processes was also touched upon by Robert Macdonald, Vice President of Exploration at Southern Silver Exploration, who also gave the country a rating of 3.5. He was the first one to mention the importance of maintaining a strong communication with ejidos to address some of the social challenges that operators in Mexico can expect to face. “A good relationship between ejidos and mining companies starts with communication. It must be a very organic and interactive process so both parties are aware of each other." Meanwhile, Douglas Cavey, Vice President of Corporate Development at Defiance Silver, gave the country a rating of 4, admitting that investment in Mexico has represented a tremendous success for stakeholders. However, he was also critical of the country’s administrative procedures, referring to them as “becoming largely unresponsive.” Cavey also noted that the country’s legal framework needed to provide clarity of title ownership while addressing various components of title and land access. “The cost of communicating with the federal government is quite high and prohibitive for smaller or more independent mining companies.” Macdonald agreed and said that ever since the present administration entered office, Southern Silver Exploration has only been able to have some conversations with agencies like SEMARNAT but has otherwise struggled to receive feedback from federal authorities.
David McKinlay Jones, President and Founder of Minera Zalamera, divided his ratings score into categories and stated that the country is definitely a 5 regarding its potential resources, but that he would rate it a 2 in terms of security issues. “I used to work in Guerrero and we have all heard about Guerrero”. He also rated the country with 1.5 when it came to regulatory procedures, flatly stating that they were currently “very problematic, if not impossible.” On the other hand, John-Mark Staude, CEO of Riverside Resources, gave the country a rating of 3 but admitted that he used to rate it a 5 and is eager to get the country “back on track toward a 4.”
After these initial evaluations, the discussion focused on how opportunities in Mexico were largely determined by successful ESG management, particularly community engagement. "Communities decide if we stay. Therefore, we must be able to communicate effectively with them and answer their questions. We are partners; this has to be a win-win relationship," said Jones. Orozco said smaller exploration companies need to be aware that “ESG implementation means that the people need to be as important as the minerals.” However, he also admitted that smaller companies will have an easier time managing ESG issues, since operators need to be mindful of how difficult it can be to scale up ESG. “It is more complicated for larger companies,” he said. Ramiro said that bad ESG management can unfortunately be a common issue in Mexico. “In the worst cases, you can see a complete disregard for the communities, which is a big problem in Mexico.”
Cavey highlighted specific aspects of ESG management. “Gender diversification in our workforce is key in our ESG practices, along with effective indigenous consultations.” Staude noted that good ESG management has an impact at a global level. “Investment from New York, Toronto and Europe comes from sources that are looking at ESG engagement. The expectation is that the capital they give will be put into that as well. In general, communities do welcome the project while external NGOs and political forces question the ESG due diligence. Either way, investors are on top of things. If news comes out regarding outstanding ESG issues, capital is being deployed to address them.”