Article: Planning for the Future

Long-term Mining

The El Eden mine in Zacatecas, Mexico. Credit:

Nov. 16, 2020

Now deemed essential, the mining sector has been able to restart operations early following the COVID-19 lockdown. Cashflow could be a challenge, however.

In Mexico, mining players are continuing to recover from the wounds of the government-mandated, two-month pause that was finally relieved at the start of June when the sector was deemed essential by authorities. “We are a small company, and this situation affected us dramatically because when cash is not flowing, it is difficult to meet your obligations," stated Ralph Shearing, CEO/President and Director of Telson Mining. “Additional difficulties arose as a result of restricted travel to and from our mining projects, which has hampered our funding efforts by restricting site visits."

The unexpected loss of cash flow will be one of the main challenges for junior operators in Mexico that were already struggling to raise enough capital to continue developing assets. But a phoenix may rise out of the ashes, as in business, and life, opportunities tend to arise from times of trouble, and the bigger the defiance, the bigger the fruits.

According to EY, “while capital available for acquisitions will be limited, we are likely to see miners with strong balance sheets seize the opportunity to grow their market share." In its report, Covid-19: Why focusing on Capital Discipline can Help Miners Recover, the consultancy firm also predicted a rise in strategic alliances among mining service companies and a rise in M&A activity.

The prediction has held true so far as, in June, First Majestic Silver Corp signed two letters of intent for the option of acquiring its properties in Mexico, one with Apollo Gold for its properties in Jalisco and another with Silver Dollar for a Durango property.

And despite the challenges that Telson Mining shared with The Business Year in raising capital for its flagship Tahuehueto project in construction, in June the Canadian-based junior resource company announced that it signed a US12-million, medium-term loan facility with Accendo Bank subject to due diligence. Shearing stated in a press release “Upon closing of the USD12 million loan facility, the company will be in a position to advance its 100% owned Tahuehueto gold mine toward the completion of construction which we strive to achieve in early 2021."

More good news was released by Excellent Resources, a company that specializes in precious metals in North America and most recently in Germany. The producer achieved an increase in financing of CAD15 million on a previously announced private placement of secured convertible debentures. The company plans to use the proceeds partly to continue exploration on its projects, including Platosa, Mexico's highest-grade silver mine since it started production in 2005.

Another positive sign of the health of the mining industry appeared when Aura Minerals, a Canadian mid-tier gold and copper production company, filed an IPO on the São Paulo Stock Exchange. The company is the first gold miner on the Brazil stock exchange and has assets in Honduras, Brazil, the US and Mexico.

The CEO told The Business Year Mexico is becoming one of its major operations. “Based on our analysis and learning since we reopened our operations here, we like three things about Mexico: it is a natural mining country—it has great mines; it has all the mining infrastructure, suppliers, parts, technology, and know-how, together with excellent labor; and all the legal framework and processes for acquiring and renewing permits and concessions are in place," said Rodrigo Barbosa, CEO of Aura Minerals.

Considering these activities occurred only three months after the pandemic was declared in early March, many others will certainly take place as players left cash-strapped from the two-month pause on production struggle to keep up with cash flow deficits become easy picks for more stable operators. And while the scars of halted operations may remain visible for the short term, the consequential shopping spree may be the boost the Mexican mining industry needs to get the wheels moving on new projects.

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