News Article

Short-term Government View Hampers Industry

Wed, 02/08/2017 - 16:53

To increase the appetite for investment in Mexico’s mining industry, different government levels and institutions must create a united front and work together with the private sector to take advantage of Mexico’s rich terrain, according to a panel of industry insiders at the Mexico Mining Forum 2017 that took place at the Sheraton Maria Isabel in Mexico City on Wednesday. A more favorable regulatory environment is also necessary to mitigate risks in an industry that works to a multidecade horizon.

“The government needs a simple unified vision. Mining is a long-term investment that requires a stable environment,” said Alfredo Phillips, Corporate Affairs Director at Torex Gold. “Politicians should think about the 30-year horizon. They should not look at mines like piggy banks.”

During the panel “Mergers, Acquisitions and Mining Investment,” Carlos Espinosa, Partner at SoftLanding Group and Former Head of Business Development – Global Mining at Toronto Stock Exchange, Bradford Cooke, CEO of Endeavour Silver, Sean Emmond, Mexico Country Manager of Export Development Canada, Armando Pérez, Director General of FIFOMI, and moderator, Alfredo Álvarez, Partner at EY, agreed that Mexico’s mining industry needs to help the government learn more about the industry to help mitigate the current risks they are facing, such as security and taxes.

The consequences of not addressing these issues could have immediate consequences for Mexico. “My board has asked me to find projects outside Mexico,” said Cooke, referring to the impact of a heavy eco tax imposed on miners by the state government in Zacatecas. “Miners make investments where other industrial sectors cannot. These new circumstances require new actions and I ask the government to consider the long-term nature of those investments, and to make some changes with an open mind.”

The federal government’s heavy tax hand also came under scrutiny. “The tax authority (SAT) has picked a lot of fights in the mining sector in the last few years,” added Alvarez.

FIFOMI’s Perez countered that although mining has been around for many years in Mexico, the boom is still new to the government and it does not yet fully understand how it works. “The government does not work at the pace private companies do but we must do something to help,” he urged.

The tax on mining has impacted the industry this past year, with SEMARNAT and SAT laying down a firm hand to ensure the future of Mexico’s environment. Espinosa pointed out that one of the main challenges is that the government is not aware that Mexico is not in competition with itself but instead with the rest of the world. “If Mexico is not offering the right framework, they will look to other jurisdictions that do,” he said.

State governments also are not giving mining the same push they give other industries, such as automotive and aerospace, which is slowing growth in the industry. “Mexico has many strengths, one being that it has one of the most diversified economies than any other emerging market,” said Cooke. Panelists agreed that Mexico’s risks have reasonable solutions, which could in turn strengthen Mexico’s internal economy. When discussing the risk impact of any new US trade policy, Emmond had a simple reply: Business as usual…cautiously.

“Mining brings opportunity to areas where there would be no opportunities at all. We as companies need to make sure the government understands this and that they do not develop policies with a short-term view,” stressed Phillips.

Mexico has the geological characteristics to weather any fiscal storm, according to Perez, who maintained that the countries potential is greater than the problems. “The impact of short-term changes can be contributed to a lack of education about the industry among politicians,” he said. “In the end, what is important is the geological potential of a country.”