Using the 4P Model to Cater to Mexican SmesMon, 10/22/2018 - 12:57
Q: Why is it so difficult to access financing for mining in Mexico and how is Accendo part of the solution?
A: I think there are two main factors: First, the industry has suffered a very severe crisis for the last 10 years and second, mining is perceived as a risky business. For these reasons, sourcing financing can be very difficult. Accendo Banco has a professional mining team with more than 20 years of experience that gives us the ability to underwrite any type of mining loan and the ability to always think outside the box. We are supported by our experience, the expertise of our team, and the willingness to provide bespoke financial products to our clients to help them reach the goals they have set for themselves.
Q: What could the private and public sectors do to increase national interest in mining investment?
A: Mexico, as a prominent mining jurisdiction, is well-positioned because of its endowment of natural resources. Accendo Banco believes the country needs to actively promote the investment and financing opportunities available in Mexico globally as 90 percent of the headquarters of international mining corporations are in countries such as the US, Canada, Australia and the UK. Accendo Banco participates in the most prominent international mining forums, including those in Toronto, Vancouver, New York and Sydney, which are the cities in which the mining business is most concentrated
To increase the national interest in mining investment and financing the government also needs to address security issues. The security situation in Mexico directly affects the mining industry, since there is little certainty that safety is guaranteed in areas of the country where mines are located. One of the main reasons several mining investment and financing decisions have been delayed is security. In addition to promoting Mexico as a mining destination, we need to show it as a country with strong rule of law.
In addition, the financial sector has limited loan coverage for the mining industry in Mexico due to the aforementioned security concerns and due to the majority of lenders all chasing the same major clients, leaving the small and medium-sized operations underserved. Accendo Banco has a huge role to play in this segment. We believe that our experience and our loan products for the mining industry will trigger investment from national and international companies once these small and medium sized operations grow and gain critical mass for the larger markets.
Q: How does Accendo strive to change the perception of mining within the finance industry in Mexico?
A: For the past 20 years, the main shareholders in Accendo Banco have been promoting financial services to the Mexican mining industry through targeted, tailored products, such as trade finance, equipment leasing, financing of expansion plans and restructuring of existing loans. These services are provided to the whole mining supply chain, from the miners themselves to their suppliers, such as contractors, drillers and reagent producers. Accendo Banco knows most of the publicly traded foreign companies with assets in Mexico. We should note that the financial services offered by Accendo Banco are extended to every mining industry participant that has assets located in Mexico, meaning that foreign or national companies are eligible to receive these services as long as they are located in Mexico.
Financing mining companies through Accendo Banco intrinsically promotes mining. Also, participating in the main international mining forums helps create awareness about Mexico’s rich natural resources, which must not be compromised by bad perceptions of certain regions of the country.
Q: What project requirements must be met before Accendo Banco hands out a loan?
A: We think of it as the 4 Ps: place, project, people and price. First, the project must be based in Mexico. Second, the project must pass our rigorous due diligence process, which means projects must be technically sound and provide growth potential. Further, our due diligence includes not only analysis of financial statements, CAPEX estimates, cashflow models, and aspects such as technological innovations, but also geology, resources and reserves, mining methods, metallurgical test work, social and community relations, permitting risks where applicable, legal and region-specific considerations. This thorough analysis allows us to finance projects that have all the components for success, thereby promoting the mining industry’s growth. Third, people are the backbone of any project. We strive to work with reputable managers and boards of directors who run projects as if they were in the US, Canada or Australia. Finally, pricing needs to make sense given the risk-reward profile of the opportunity. It is important to state that we are the only bank in the country with a fully-integrated mining team comprised of geologists, engineers and financial analysts focused on the mining sector. Our team of experts allows us to guarantee we are providing loans to projects that promise to be hugely successful.
Q: Why did the company decide to acquire Deutsche Bank Mexico?
A: Accendo Banco’s vision is to become one of the most prominent trustee banks in Latin America, based on our experience, transparency and solid foundation. These features will allow us to reach international standards that maximize the profitability for our clients. Deutsche Bank is one of the most prominent trustees in Mexico and Latin America. This acquisition, which was closed in June 2018, puts more than US$30 billion of trust assets under Accendo's management. We are confident that this transaction, in conjunction with our existing banking operation, will position us as one of the leading medium-sized banks in Mexico. Accendo should finish 2019 among the Top 30 largest banks in the Mexican financial sector.
Q: How will this acquisition improve the services you can offer to the mining industry in Mexico?
A: The acquisition will help us scale up our banking operations and will allow us to broadly serve the sector. Combining this larger scale, our group’s unique 20-plus years of expertise serving the sector and the bank’s superior service and expertise in serving midsize companies, Accendo should be positioned as the No. 1 mining bank in the country in the coming years. According to the Ministry of Economy, the mining industry contributes an estimated 4 percent of GDP. This is an area of opportunity for Accendo Banco and our expertise will help to develop the industry’s supply chain and the sector in general.
Q: What would you like the next administration to prioritize when it comes to the mining industry?
A: Accendo Banco believes that the top priorities for the next administration must be guaranteeing the rule of law to ensure that the country has optimal conditions and stability. Violence has scared away investment in different mining regions. Solving this, in and of itself, will attract more investment to the Mexican mining sector. In addition, we believe Mexico needs to implement a tax reform to increase productivity and create a more competitive environment for mining companies.