Fernando Alanís
Director General
Industrias Peñoles
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View from the Top

Mining Can Follow Automotive Example

Sat, 12/01/2018 - 12:53

Q: What must Mexico do to become a more attractive jurisdiction to the global investment community?

A: Mexico has enormous potential. It is estimated that at least 70 percent of the territory has not yet been explored. States including Guerrero and Oaxaca have strong geology but very little mining activity because there is no efficient policy in place to promote and support the sector. A few years ago the country had a dream of becoming a global automotive hub. The administration worked toward that goal and now Mexico is the seventh most prolific car manufacturer in the world. We have to acknowledge the geological potential, the skilled workforce, the access to industry-leading technologies present in the country to create the framework to capitalize on this opportunity.

Q: Peñoles recently announced an investment plan of US$1.1 billion for the coming years. How will these funds be allocated?

A: The Rey de Plata polymetallic mine in Guerrero is currently under construction and should achieve commercial production by the end of 2018. The investment will total US$387 million and it should be a very profitable asset that produces gold, silver, zinc, lead and copper.

We will also be investing a total of US$330 million to expand the capacity of our zinc refinery in Torreon by 50 percent to 360,000t/y from 240,000t/y. When completed, this will make Peñoles the sixth-largest zinc producer in the world. Zinc is tremendously important for steel and therefore the construction and automotive sectors but global inventories are going down both in terms of concentrate and finished products. Unlike precious metals, the zinc price is essentially determined by fundamental economics so given the strong demand and supply shortage, I am very bullish on this commodity’s performance in the next few years. Once Rey de Plata is operational, we will have a surplus of zinc concentrate and we will then become one of the few companies in the world to own both a zinc mine and a zinc refinery. Coupled with the fact that we are next to the US, which is a huge market with a substantial zinc deficit, this will be an important asset for the company’s portfolio going forward.

Q: How much of a boost was the Energy Reform for Peñoles and how are you taking advantage of this opportunity?

A: In 1999, we became concerned about the availability and cost of energy in Mexico and given that energy represented around 40 percent of our expenses, we started to look for ways to lower costs. Industrias Peñoles made a strategic decision to integrate our energy supply and start generating our own electricity. In 2016, a total of 81 percent of the energy we consumed was generated in-house. Most of this comes from the petcoke thermal plant in San Luis Potosi, which generates 230MW, and the two wind plants in Oaxaca that generate over 40MW. We also have natural gas turbines in Laguna del Rey, Coahuila and a steam generator in Torreon.

In April 2017, we also initiated a new wind project with the Portuguese energy company Energias de Portugal Renovables in Coahuila. The facility has an installed capacity of 200MW, which will cover our energy needs for the zinc refinery expansion in Torreon. There is a new energy law in Mexico that will require companies to procure at least 30 percent of their energy from sustainable sources by 2025. Peñoles has already reached that landmark because we are convinced of the need for sustainable development.

Q: What strategies does Peñoles have in place to cement its leadership role within the Mexican mining sector?

A: The future of our company is based on three key strategic areas. The first is sustainable development, which incorporates the economic, social and environmental spheres. The second is human capital; we will continue to invest substantially to recruit, develop and retain the most talented people in Mexico. The third is technology. We have an internal R&D group made up of 35 full-time researchers working at a specialized center in Torreon and we are always looking for innovative methods that can improve our practices.