Image credits: Minera Cuzcatlán
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Analysis

Mining Still Strong in Mexico Despite Short-Term Concerns

By Paloma Duran | Mon, 02/14/2022 - 12:47

Mexico remains a major mining jurisdiction, as its long mining tradition, resources and geography make it one of the best places to develop a project. Even though the sector faces great challenges, chief among them uncertainty, expectations for the future remain positive with industry leaders hoping short-term hurdles are addressed.

“Early in 2022, Mexico finds itself in a fine position to grasp the opportunity to lead the Americas and the world again. However, fear — of unstable taxes, labor, safety and government policies — has pushed the country’s favorability as a resource development destination down to the lowest it has been in the past 30 years,” John-Mark Staude, CEO of Riverside Resources, says.

For decades, Mexico's mining potential has been widely recognized worldwide, especially as it is home to high-value minerals, such as gold and silver. Its attractiveness has only increased with the discovery of deposits that contain the minerals of the future, such as copper and lithium. Extraction of the latter is still uncertain but it has attracted investor attention nonetheless.

“The ongoing global push for decarbonization of the energy chain could propel Mexico’s mining sector in a positive direction to provide commodities and mineral products to fuel global growth and the transition to clean energy, clean air and clean water. The time for Mexico’s people and resources is now,” says Staude.

Although the minerals’ boom is benefiting mining worldwide, CAMIMEX reports that the performance of the Mexican mining sector worsened due to government decisions and legal uncertainty. In 2021, the sector attracted US$4.246 million, higher than what was collected in 2020 but 15.6 percent below what was expected, which was US$5.03 billion.

Alberto Vázquez, Partner at VHG Servicios Legales, told MBN that the federal administration’s position is no longer about mixed-messages but a concrete posture against mining. “The president’s comments and actions confirm that the industry has been satanized. The biggest impact of this has been the lack of new investors, the lack of interest from foreign companies that before would turn to Mexico as an alternative for investment. There are no new projects, no new investors and there will not be,” says Vázquez.

Delays and restrictions regarding permits have also raised concerns among investors. Currently, there are 29 environmental permits pending from SEMARNAT and 34 from CONAGUA involving mining companies. In 2021, major miners, such as Minera Cuzcatlán, announced that they were at risk of closing operations, while others, such as Great Panther, announced that the lack of permits forced them to already shut down.

Not all mining companies have suffered these effects, however. Taj Singh, President and CEO of Discovery Silver, does not see permitting as a problem. In fact, he considers the Mexican processes to be very clear and uncomplicated. This is echoed by Zacatecas Silver, which recently received authorization from SEMARNAT to drill more targets at its Panuco deposit. Nonetheless, companies and industrywide bodies consider this an obstacle to successful operations. CAMIMEX says that the government must address the permitting issue by providing a reliable and efficient legal framework and better incentives. If achieved, the sector could generate 50,000 additional jobs and attract five times the investment value of 2021, according to the chamber.

Despite these short-term concerns, many companies remain optimistic for the long-term potential of Mexico. Bradford Cooke, CEO of Endeavour Silver, says the company expects the political landscape will move back toward more rational policies over time.

Carlos Espinosa, President, CEO and Director of Monarca Minerals, says that despite the national challenges, Mexico's mining opportunities remain unmatched. “Monarca Minerals identified a great mining opportunity in Mexico, especially since it is the world's leading silver producer. We believe that the country has been very stable in terms of regulations, mainly because it has a long mining history. Together, these factors make Mexico the best option. Although we know that there are political and economic factors that affect the sector, its potential will continue over the long term,” says Espinosa.

From the government’s side, Efraín Alva Niño, Director of the Extractive Industries Unit of the Ministry of Economy, told MBN that an important mission for the Ministry of Economy has been to create legal conditions that promote investment and assure investors that legislative initiatives will not result in sudden movements, such as the cancellation of concessions or a retroactive change in the regulations that govern the industry. “Mexico can become a more attractive destination for mining investments by establishing a clear understanding with investors regarding the nature of their exploration work and the opportunities each mine provides,” said Alva Niño.

Dialog is key in improving the relationship between the private and public sectors in favor of the industry. “By facilitating this dialogue, we can foster scenarios where every actor wins,” says Ivan García, Head of Technical Coordination at the Senate's Mining Commission.

If the most pressing internal challenges are addressed, experts believe the country can become the top destination for mining projects in Latin America, as it just needs to become a more welcoming hub. Singh, who has been involved in Mexican mining for more than 10 years, from exploration to production work, says the country has unique opportunities for miners compared to other jurisdictions. Besides permitting and Mexico’s geological fertility, Singh highlights the country’s talent pool and operating costs among the main advantages the country offers: “The country has a deep pool of skilled and knowledgeable labor and mining is an important part of the culture. Meanwhile, operating and capital costs, although they have gone up in the past few years, are still very competitive worldwide,” he says.  

Photo by:   Minera Cuzcatlán
Paloma Duran Paloma Duran Journalist and Industry Analyst