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Analysis

Mining Opportunties in Mexico Go Beyond Lithium

By Paloma Duran | Fri, 05/06/2022 - 10:46

Although the announcement of the Mining Law’s reform has put lithium under the spotlight, experts agree that the main opportunities for Mexico continue to be in other metals, such as gold and silver. Although the three minerals have a key role in the green revolution, gold and silver are already being exploited and are thus contributing to the development of the country.

“Undoubtedly, the country's lithium deposits confirm the great geological potential of our territory. However, the future of the mining industry in Mexico does not lie in promoting a single mineral but in promoting and supporting the exploration of all metals and minerals,” said Sergio Almazán, President, AIMMGM.

The issue of lithium has become more controversial since the Mining Law reform was approved, which gives the state control over lithium and other strategic minerals. Although the government has stressed that this is a victory since the future of Mexican mining lies in lithium, specialists have stressed that there will be no immediate benefits.

In the coming years, lithium demand is expected to be mainly driven by the automotive sector to produce EVs, as the cost of lithium-ion batteries lowers. A Nature article reported that “demand for automotive applications is estimated to grow by more than 30 percent per year until 2030. Major battery manufacturers are committed to invest more than US$50 billion over the next five years to increase lithium-ion battery production capacity, which is expected to exceed 1.2TWh by 2030,” the article notes.

Goldman Sachs recently announced that lithium carbonate prices will reach an average of US$46,640 per tonne in 2022. However, it is expected to decline in the coming years. In 2023, the price is expected to drop to US$20,500 per ton. In 2024, it will fall to US$17,180 per ton and in 2025 to US$14,468 per ton. Although prices will decline, producers are expected to make significant profits in the long term.

Despite its great opportunities, lithium’s viability in Mexico has been questioned. To take advanatage of the opportunities, the government requires further studies, the acquisition of new technology and the creation of a viable extraction method to make its exploitation economically viable. Armando Alatorre, President, CIMMGM, told Milenio that the government must invest around US$100 million to explore the country's deposits. Furthermore, the country's lithium exploration program may take between five and 10 years, while the construction of the necessary infrastructure may take another three years.

Currently, the Mexican Geological Survey (SGM) is carrying out a US$2.7 million lithium exploration program, which has identified lithium deposits in Chiapas, Chihuahua, Coahuila, Durango, Guanajuato, Hidalgo, Jalisco, Michoacan, Morelos, Nuevo Leon, Oaxaca, Puebla, San Luis Potosi, Sinaloa, Sonora, Tamaulipas, Veracruz and Zacatecas. Despite the progress, experts argue that the program's budget is far from what the country requires to boost the lithium industry. Furthermore, it has been argued that SGM's exploration program period of 8 months is too short to truly assess the potential of Mexico's lithium reserves. "Determining whether a site could become a mineral deposit could take between 10 and 15 years,” said Flor de Maria Harp, Director, SGM.

Since the lithium industry will not bring great opportunities in the short and medium term, experts argue that the government should continue promoting mining opportunities and investments with immediate benefits. The World Gold Council recently reported that gold is expected to remain strong due to its increasing use as safe haven amid the current uncertain geopolitical and economic environment. Moreover, Mexico, being one of the main gold producers in the world, can benefit from this bullish outlook.

In a report, the World Gold Council explained that geopolitical factors such as the Russo-Ukrainian war and rising inflation have attracted further investor interest in gold, causing the precious metal to reach a price of US$2,070/oz in March 2022, which is close to its all-time high. Furthermore, the council explained that during 1Q22, gold demand rose 34 percent year-on-year to 1,234 tonnes, which is the highest since 4Q18. Meanwhile, total gold supply increased 4 percent compared to 2021, mainly driven by a high mine production of 856 tonnes.

“Right now, mining companies are making a lot of money; gold miners particularly benefit from growing inflation and crises like the Ukraine issue. I have been in this industry for a long time and have seen a lot of market cycles but this one feels different. We are at the beginning of a major super-cycle for commodities and specialty metals,” said Ralph Shearing, CEO, Altaley Mining, in an interview with MBN.

Experts argue that while in 2021, Mexico ranked as the world's seventh-largest gold producer and therefore could benefit greatly from these gold market dynamics, a drop in production could hamper its gains. In 2022, Mexico is expected to produce 3.03Moz of gold, showing a decrease of 7.5 percent compared to the 2021 gold production of 3.27Moz, according to estimates made regarding the 19 main gold producers in the country, reported BNamericas.

The decrease in production is due to lower grades and mine closures at two of Mexico's largest gold producers, Newmont and Fresnillo. However, experts believe that Mexico could compensate for the production drop since six of the 19 companies considered in the estimate are expected to increase production. However, this will only be confirmed at the end of 2022.

Meanwhile, silver is expected to hit a record high in 2022 due to its growing uses in sustainability-oriented projects, reported the Silver Institute. Demand for silver is forecast to rise up to 1.1 billion oz in 2022, representing a 5 percent increase compared to 2021’s demand. Consulting firm Metal Focus said that while it will be the largest increase in demand recorded since 2010, it will also generate a supply shortfall of 71.5Moz. The deficit comes after a shortfall of 51.8Moz in 2021. “We believe that this is the start of a structural change in the market where we see deficits that will carry on for some time,” said Philip Newman, Director, Metal Focus.

However, the Silver Institute said supply prospects are expected to improve in 2022 with an increase of 2.5 percent. The biggest production increase will come from Mexico, which is starting new projects and increasing output at long-established mines, followed by Chile and Russia.

Felipe Martínez, Director of Business Development, Robit, told MBN that as industrial demand for silver continues to increase in the coming years, the future for Mexico, which is the world's leading silver producer, looks bright. “Mexico is in a terrific position to leverage these macroeconomic trends and historic uses for silver naturally provide a good benchmark for the future as investors seek a safe haven,” said Martínez. However, he stressed that the negative supply and demand issue will remain. Consequently, miners will have to produce and recycle more to meet the new demand. However, due to new government policies, experts say these efforts could be strained.

Despite these challenges, the Silver Institute said silver countries like Mexico will continue to benefit from rising prices and market demand for silver. By 2022, the price of silver is forecast to average US$23.90, down only 5 percent compared to 2021. Meanwhile, 2022’s industrial demand will set a new record, as the promotion of green initiatives and geopolitical conflicts are making silver an attractive a safe haven for investment.

Although the outlook of gold remains somewhat uncertain, experts agree that Mexico will continue to be one of the main producers of precious metals and, therefore, will reap the benefits. Dean McPherson, Head of Business Development for Global Mining, Toronto Stock Exchange, TSX Venture Exchange and TMX Group, told MBN that market dynamics and trends are placing Mexico at the forefront and that is why it continues to be a key jurisdiction for the company. “The country has its challenges, which are well known by our investors, but there is a degree of comfort in their approach to it. In other words, Mexico stands to benefit significantly from what is happening in the mining markets.”

Meanwhile, regarding lithium, experts say it is important to recognize that the knowledge and indicators of lithium’s potential are still insufficient. “We do have some anomalies that are worth exploring in greater detail. Nevertheless, we cannot say that Mexico today has great lithium potential. Mexico has around 1 percent of the global lithium reserves and it is too soon to have serious conversations regarding it. However, Mexico continues to have major opportunities in the mining industry. Seventy percent of the territory is categorized as likely to contain mineral deposits equal to or greater than those already discovered,” Almazán told MBN.

The data used in this article was sourced from:  
MBN, SGM, Goldman Sachs, Geomimet
Photo by:   Scottsdale Mint
Paloma Duran Paloma Duran Journalist and Industry Analyst