Jorge Vidal
Economy of Sonora
View from the Top

Promoting Regional Potential

Wed, 10/16/2019 - 12:48

Q: What changes to the Mining Law would boost the competitivity and investment of the Mexican industry?
A: Mining is a key economic pillar in Sonora and is crucial to the state’s development. Mining activity takes place in 22 out of 72 municipalities, contributes almost 17 percent to state GDP and generates 19,000 direct jobs and 80,000 indirect jobs with salaries that are 30 to 35 percent above the national minimum. The possibility that the law will be modified is considerably important to the state. Governor Pavlovich is taking measures within the National Conference of Mexican Governors (CONAGO), directly with the Minister of Finance, to ensure that tax deductibility is taken into account. Previously, Mexican legislation allowed companies to fully deduct taxes in exploration during the first fiscal year and now regulation has changed to amortize deductions for a period of 10 years. This inhibits exploration and is having a negative impact on mining operations.
Security must also be addressed. This issue is hurting companies’ productivity and impacting the appetite of new companies to invest. It is also important that the rules of the game be clearly defined when it comes to job security. Despite two new trade unions, the stance of the Confederation of Mexican Workers (CTM) over the years and the lack of a proper framework could cause an imbalance and send a negative signal to investors.
Q: How has Sonora’s mining sector performed in 2019, after a reported a decrease in mining activity in comparison to 2018?
A: The two key elements that will boost investment in Sonora are job security and tax deductibility. Investment in Sonora’s mining industry amounted to approximately US$700 million to US$800 million in 2017 and 2018. So far in 2019, around US$500 million to US$600 million has been invested. Investment depends on two projects: Grupo México’s Cananea zinc mine and Bacanora’s Sonora lithium mine. Cananea represents an investment of approximately of US$400 million. Bacanora will be investing US$420 million in the coming years, making Sonora the largest lithium producer in the country.
Q: What is Sonora’s strategy to exploit its lithium potential and what role will Chinese companies play in this strategy?
A: Regarding Bacanora, the investors are from Australia and England and arrived to Sonora a few years ago. This has been a long process. In Sonora, lithium can be found at  the surface, which means the process to recover the mineral is different from other countries. The expected investment will be between US$400 million to US$450 million. These investors have pursued partnerships, first at the domestic level and then at an international level. During this search, they developed an alliance with Ganfeng, which is the world’s leading producer of lithium. Recently, Ganfeng and Bacanora agreed to invest £18 million (US$22.4 million) into the Sonora lithium project, with a commitment from Ganfeng to match future investments by Bacanora. This grants Ganfeng seats on the Board of Directors of the mine and access to its operation.
The next step is the authorization of the Chinese government to continue this operation. This puts the project on another level because with this working capital and knowledge, everything accelerates. Ganfeng’s added value is that it operates across the entire lithium value chain, from production to battery manufacturing. This is important for Sonora. The plans have already clearly come to fruition, the property has been purchased and offices are being put in place. Nevertheless, there is still more work ahead. To reach full production, the active investment process takes about two years.
Projects like this help generate interest in the region because the next generation of electric vehicles will be major users of lithium. Sonora is home to one of Ford’s older production plants that is about to start using this technology. Lucid Motors, which aims to be Tesla’s competitor, is setting up operations in Arizona with a US$1 billion investment. It has already contacted Bacanora, which will be a win-win for the region in terms of production for the two-country market between Sonora and Arizona.