Rising Prices Attract Majors to Greenfields

Q: How has the mining royalty impacted the industry and what are the implications overall?

A: Mining investment is usually a long-term project and companies make investment decisions based on multiple factors such as mineral prices, ore deposits, experience and availability of labor, macroeconomic stability, infrastructure, regulations, and tax policy. The decrease in foreign direct investment was not due to the royalties imposed but rather the result of falling commodity prices. According to the Mexican Mining Chamber (CAMIMEX), investment in the Mexican mining sector increased to US$8 billion in 2012 from US$1.2 billion in 2005. But global investment has since fallen dramatically to US$9.2 billion in 2015 from US$21.5 billion in 2012, and investment in the Mexican mining sector dropped to US$4.6 billion from US$8 billion during the same period.

Nonetheless, mining companies continue to invest and develop projects that exploit Mexico’s geological potential, macroeconomic stability, infrastructure, skilled workforce, and strategic location. According to CAMIMEX, investment is forecasted to reach a total of US$4.7 billion in 2016, a 1.6 percent increase on the previous year. That several mines started operations recently is encouraging. For example, El Limon-Guajes in the state of Guerrero, a gold and silver mine, was inaugurated on April 2016 with an investment of US$800 million. Two years into the Mining Fund more than MX$5 billion (US$274 million) has been raised, 80 percent of which has been allocated to states and municipalities. The funds are used to boost community development and promote higher standards of living.

Q: What impact has the unwillingness of majors to join greenfield projects had on the industry?

A: I do not believe that majors are unwilling to join greenfield projects per se. Investment decisions depend on the profitability of a mining project and are affected by external factors including mineral prices, costs, and quality of ore deposits. In recent years greenfield projects have not offered rapid ROI, so majors have been focusing their efforts elsewhere. Given the mineral market situation and technological developments, this trend is changing and companies are now able to exploit deposits that were previously not economically viable.

Q: What remains to be done to support investors? How can the Ministry of Economy help in this process?

A: The Federal Government is committed to supporting small and medium sized mining enterprises. The Mexican Geological Survey (SGM) provides geological-mining and metallurgical advise to SMEs, while conducting hydrogeology and environmental geology studies, physicalchemical studies, metallurgical testing, and resource certification. Meanwhile FIFOMI provides training and technical assistance to small and medium-sized mining projects alongside its main focus, which is making credit and other financial instruments available to the sector.

The mining sector is regulated by the Ministry of Economy, the Ministry of Environment and Natural Resources, the Ministry of Energy, and the Ministry of Labor and Social Welfare. This requires close cooperation and constant communication. The Ministry of Economy has an office that is fully and solely devoted to mining and acts as the contact point for mining companies throughout country. We are in permanent contact with both the companies and local authorities to ensure we keep abreast of any problems and act accordingly. We also keep an eye on any conflicts between companies and communities during the development and consolidation of a project, working with the three levels of government to find alternative solutions. As a result of this close cooperation, the number of conflicts has reduced dramatically in the last few years. The Ministry of Economy has its doors open to listen to and address whatever problems may arise in the sector.