Regulation, Stability Crucial to Attract Investment

Despite the global supply chain disruptions, local restrictions on new concessions, delays in permitting and legal uncertainty, Mexico remains a very attractive destination for investment in the exploration, development and production of mining projects, agreed experts in finance and investment.

“Mexico is a very attractive place to mine. The country has a long history in the industry and we have access to a highly experienced labor force, which is crucial. There are tremendously attractive projects. Comparatively, the country has a stable economy and currency, in addition to well-established mining laws. There is some uncertainty and that makes it harder for newcomers, but we have been successful in Mexico for a long time,” said Christine West, CFO, Endeavour Silver.

Endeavour Silver has several exploration and development projects in Mexico, in addition to two operational mines. Acquired by the company in 2004, the Guanacevi mine is Endeavour’s first and highest-grade silver mine. Located in Durango, the mine’s plant capacity was expanded by 100 percent to 1200t/d. Guanacevi provides steady employment to over 500 people and engages around 400 contractors. Endeavour acquired its second mine, Bolanitos, in 2007. Located in Guanajuato, this mine provides steady employment to over 380 people and hired about 250 contractors.

Despite the boom that NAFTA brought to mining exploration in Mexico in the 90s, “there are still big pieces of land to explore and great discoveries to be made,” said Michael Wood, CEO, Reyna Gold.

Reyna Gold, founded in 2017, focuses on gold exploration in Mexico’s northwest. The company has four properties covering 570km2 on the Mojave-Sonora Megashear and the Sierra Madre Gold and Silver Belt. “The properties have been acquired due to their similarities to the gold properties in Nevada and California,” Wood wrote for MBN.

Though the opportunities remain attractive for both local and foreign investors, mining is a capital-intensive activity. Returns on investments usually take years to materialize. Therefore, contradictory messages from the government have raised concerns among industry leaders. Earlier this year, the initiative to nationalize lithium “unfortunately set a precedent,” said Wood. This measure took Mexico off the radar of many investors, dropping investments during 1H22, he added.

The drop of investment during 2022 also has to do with commodity prices amid the accelerated demand for some minerals brought by global sustainability efforts, said Bill Brodie Good, CEO, Alien Metals. “With the long history, the skillset and geology of Mexico, in addition to a degree of settling down in the global markets, investment will come back soon, stronger than ever,” he added.

Alien Metals is a UK-based exploration and mining project developer. The company has three projects in Mexico: San Celso, Los Campos and Donovan 2, all high-grade silver-copper-gold projects in Zacatecas. After the COVID-19 pandemic, which delayed Alien’s plans during two years, the company has resumed exploration at its three properties.

Despite the spun-out uncertainty, overall mining activities have been fairly stable in the country, said West: “Investors do not like a high level of uncertainty. Mining and exploration already have a high level of uncertainty as such. However, [regulations and conditions] have been steady overall, with no new mining taxes.”

Financing Mining Projects

Environmental, social and governance (ESG) criteria have become progressively crucial for mining companies over the past years. From the impact to the ecosystem, waste treatment and safety provided to employees and communities involved to companies’ corporate governance practices, ESG became a decisive factor for investors.

“ESG has been practiced for a very long time at many mining companies. Health and safety have always been crucial for us. It has become an essential part of every project. Investors will scrutinize the people on the board, to check if they follow the guidelines and see if they genuinely engage to complete the projects,” said Good.

Regardless, a sound project remains the key to raise funds, said Wood. “The core project remains crucial. It is not easy to find good projects in the world and that is the beauty of Mexico. There are many great projects to attract capital,” he added.

Large-size projects have become difficult to finance, said West. Companies must be able to provide a god IRR and countries with clear jurisdictions, stable economies and currencies, will favor investments, she added.