Zinc Surplus to Feed us MarketMon, 10/22/2018 - 12:45
Q: How optimistic is Industrias Peñoles regarding industry growth, considering the volatility of the sector?
A: There are many people within the mining industry who speculate but few who actually understand what is happening. Precious metals are highly volatile and companies cannot change their plans every time there is an unexpected change. Successful companies need to have a long-term vision and not let themselves get carried away by the ups and downs of the price cycle. We need to focus on the few things we can control such as reducing costs, increasing productivity and being highly efficient and everything else will fall into place. Companies that follow these rules can obviously still be impacted by a sudden drop in prices but they will be strong enough to survive the volatility.
Q: Why is the company taking a bet on zinc by investing in the expansion of its refining plant in Torreon?
A: We believe that Mexico is in an optimal position to refine zinc. The North American market is experiencing a zinc deficit but Mexico has a surplus of the metal. The main markets for zinc are automotive, construction and home appliance manufacturers because the metal can prevent steel corrosion. The US is one of the biggest consumers in the world for zinc thanks to its growing infrastructure industry.
In response, we are investing US$327 million in our refining plant in Torreon to increase production to 360,000 tons from 240,000 tons. We export the material to various countries and regions around the world, such as the US, Europe, Central and South America. The expansion is almost completed and we are collaborating with Outotec, a company that serves a wide variety of sectors, to incorporate new technology into the plant. The project is expected to be completed in May 2018. A large portion of the additional product being refined will be sent to the US.
We are completely self-sufficient and can do everything from production to processing and refining. The company has a commercial office in Connecticut and various warehouses around the US. Sixty percent of the zinc we refine is adapted to the specific needs of our clients. We can also provide technical support and help our clients make sure that zinc is up to par with their operational requirements.
Q: How close is the Rey de Plata project to starting production?
A: This project has already finished its exploration phase and will go into production in 2019. It is located in Guerrero, an area complicated by security issues but we are making sure to work hand-in-hand with surrounding communities to avoid problems and by proving the economic and labor opportunities the mine can bring to the region.
We prioritize CSR because we understand that all mines will eventually come to a close as minerals are a finite resource. Our goal is to avoid creating ghost towns after a project is closed and we put into action several strategies to assure this. For example, in Durango we helped the community start a trout farm and the project has successfully become an economic pillar for the area. This community now exports to South and Central America and we know that when we close the mine in the area, the people will not suffer negative economic consequences. We are developing a similar model in Guerrero by teaching the community new abilities parallel to the development of the mine. Peñoles is also offering young people technical careers and incorporating them into the mine. We just started the advanced construction phase of Rey de Plata and we are building the plant and continuing civil works. We installed 35km of electricity lines without any problems. The mine also has the main equipment it will require for production. This project is important to us as it will produce gold, silver, copper, lead and zinc with a milling capacity of 4500t/d. It is not the company’s first time working in Guerrero and we are happy to be back in the state.
Q: What does the company foresee for its other projects in development?
A: Los Humos, a project in Sonora, is in the final stage of exploration and we hope that by the end of 2018 or the beginning of 2019 we will have completed its feasibility studies. By this time, we will be able to decide whether it is a viable project. We have invested a lot into exploring this project and find it to be complicated because it consists of disseminated copper.
We also have an additional series of projects in place to optimize our current mines. Velardeña has been a success over the last five years and we are investing US$56 million into increasing production to 8,000t/d from 6,000t/d. This is the main supplier of zinc for our refining plant in Torreon and we benefit from its proximity to Torreon and key highways.
We are updating the mine technologically and we are proud to say that 20 percent of the operators in the mine are women. We are pioneers in Mexico when it comes to giving women opportunities in the sector. Many doors are opening in the industry for women thanks to the automation of operations as this reduces the need for physical labor and increases the need for intelligence and expertise. Overall, we are proud to say that we have 597 professionals working with us who are women plus 200 from unions of a total of 3,000 employees. Every year we want to incorporate more women but we do not believe in the 50/50 gender equity rule. We simply seek talent and women have a lot to offer the industry. It keeps our company dynamic and offers a fresh perspective. Thanks to this philosophy our legal department currently consists of 62 percent women and our finance and audit departments 52 and 54 percent respectively.
Q: How do you achieve long-term goals considering the volatility in the national and international context?
A: Our company is over 100 years old and is used to constant change and turbulence. We even had to overcome the Mexican revolution. Peñoles finds that volatility is a normal part of the industry. The landscape may always be in flux but the country’s mineral deposits will always remain, as will demand for this material.
We are strong believers in having a long-term vision and making sure everything is congruent with our goals. With a clear vision and consistency in commitments, great things can be achieved. From the beginning, we knew that we wanted to be an international leader in the industry and this vision is reflected in everything we do.
There are four main factors that differentiate us from the rest: the quality of our products, our processes, the excellence of our team and the ethical manner in which we manage our business. To achieve excellence, an operator must not only demand it from its collaborators but also incorporate processes that uphold this benchmark from recruitment to training and development. This applies to everything. It sounds simple but congruency is not easy to put into practice.
Q: How would you describe the key factors behind Industrias Peñoles’ success?
A: There are four key principles that companies should always invest in no matter the price cycle to assure success: security, technology, training and maintenance. These elements are sacred to us and even in times of dire budget restrictions, we do not cut costs in these divisions. We understand the importance of having trained people who know how to use technology safely. There is no other way to do business.
We are investing in developing our main training facility in Velardeña where we will have state-of-the-art technology and simulators. We use cabins to educate our operators for several weeks and have them simulate a variety of situations that are likely to occur in every day operations. The training center will certify operators through governmental programs that teach them how to properly handle machines and carry out maintenance. This training helps keep our mines safe and productive. It is part of the secret recipe behind our high levels of production, reduced costs and employee retention.
Q: What does the country need to become a more competitive mining jurisdiction?
A: To experience a boost in the industry, Mexico truly needs clearer public policies. The automotive industry is a good example of this. Many years ago, someone saw the potential Mexico had in the automotive industry and decided to establish a series of public policies to incentivize the development of this sector. The country now plays an important role in the automotive sector thanks to the vision this person established. The mining industry in Mexico needs a similar set of actions to take full advantage of the potential of the mining sector.
To see more projects in the country, we need less jurisdictional volatility to incentivize investment because mining law plays a crucial role in competitivity. The results of the Frasier Institute Report are a clear example of this. In 2011, Mexico’s mining sector experienced US$15 billion in investment, a record high, while in 2017 it dropped to US$3 billion thanks to the changes in the law. Considering that the industry requires a long-term investment, public policies should also have a long-term vision.
One of the biggest issues is that exploration is no longer deductible in a year, which is something common in countries like Australia and Canada. Exploration is the core of mining and a drop in investment will negatively impact the industry. These kinds of policies need to be adjusted.