Reputations Are Hard to Build, Easy to DestroyBy Cas Biekmann | Wed, 04/29/2020 - 15:48
Q: How does Emerging Markets Capital (EMC) view the Mexican industry?
A: Emerging Markets Capital (EMC) is based in Hong Kong. It invests mainly in mining projects, such as precious and base metal companies, both listed and private. We finance across all stages of mining, from early-stage exploration all the way to producers. We have been investing in Mexico for over eight years, most recently in Reyna Silver, and we see Mexico as a quite a good jurisdiction for mining in general and silver in particular. In the past, EMC has invested in companies like MAG Silver, First Majestic, among others. Other than security challenges in some areas, it is relatively easy to operate in Mexico. The regulatory framework is solid and affairs generally go smoothly. People are relatively open to mining and a qualified workforce makes is an attractive mining investment jurisdiction.
What sets our group apart is that we are seen as very reliable and trustworthy. Some funds have predatorial practices. We have a hard-fought reputation for being good partners and we work hard to keep it that way. It takes a long time to build a good reputation, but it is very easy to destroy. We see ourselves as good partners.
Q: What are the main risk factors in Mexico, and how have they evolved over the years?
A: Mexico has a long-standing tradition in mining. Geologically, it is a rich country, with a wealth of minerals. The workforce is well-trained, which is a bonus. Almost all states in Mexico are accessible from a regulatory viewpoint. Companies can get work done without the government getting in the way. However, the main risks we see are security and in very few cases communities that are not receptive to mining, although every province, area is different. Private companies, relatively speaking, do good work in creating wealth, building infrastructure and creating opportunities for various stakeholders, including communities and investors. Some investors are worried with the current government, but for now, we have a neutral view. The risk is that the government introduces more complicated regulations and greater requirements.
Q: Why is the company especially interested in silver?
A: Silver is integral to mining. We are experiencing one of the longest economic cycles in recorded history. The world is more leveraged than ever. Gold and silver have been on the sidelines as currency for some time now, but we are starting to see what could be a new monetary environment. This would be very good for silver. It might be at an all-time low compared to gold, but other than that it is being used more and more for industrial applications such as solar panels. If silver was cheaper, it would be the preferred material for many applications. What this creates is a stronger demand at lower prices.
Q: What is your checklist when looking at a potential investment target?
A: First and foremost, people. Then the asset. The asset needs to be attractive but good management can make an average asset work but bad management can destroy a good asset. The commodity is very important too. Price fluctuations make this a risky business but the rewards are also big. We try to reduce risk as much as possible. Socially responsible investing is important. Safety should always be the No. 1 consideration and the communities where operations take place need to be engaged and onboard with the project to avoid problems. Impact also should always be positive for the communities or companies will set themselves up for trouble in the future.
Environmental, Social, and Governance (ESG) investing, however, is becoming a bit of theme these days. More than ever, we live in an age where everyone has an opinion on everything, although that opinion is not necessarily well-informed. The ESG component has a slightly different flavor for every company, but companies should avoid jumping on the bandwagon just because of a buzzword. Mining can provide communities with many benefits when done responsibly. If all the stakeholders are properly informed, misconceptions about mining could be addressed, creating more awareness and understanding of the finer details, risks and opportunities that mining investment can have in those communities.