How has Santa Cruz Silver Mining been impacted by the pandemic?
So far, none of our workers have been infected. New regulations are coming in, and we have to comply with them. The mining sector in Mexico is extremely well regulated and organized, so it was easy for us to implement new health measures to halt the spread of COVID-19. Notably, we had to halt our operations in Hidalgo because we are not generating enough revenue. Labor costs represent 45% of our total costs. Although we are not generating revenue, we had to pay our workers, which impacted our cash flow. Our plan is to reactivate mining operations in July. Mining is recognized as an essential activity by the government, but restarting mining operations takes time. We have some suppliers who are demanding late payments, and it will take us up to three months to catch up. Moreover, CFE, the state-owned electric utility, wants us to continue paying our electricity bills. We are not receiving any government support to cope with this situation. We were awarded a 60-day moratorium on electricity payments, but it will expire in June. We did not generate revenue in May, so we are still in the same situation. I am thankful to CFE for providing us with some time, but it is not enough. As for our workers, we have signed agreements to delay part of the payments, which has helped us. Overall, the biggest impact of the pandemic has been on our cash flow. On the positive side, the price of silver has increased from USD12 per oz to USD17 in 2020.
How close is the company to achieving its IRMA certification?
The Initiative for Responsible Mining Assurance (IRMA) stands out from other certifications such as the ESR, a certificate for socially responsible companies in Mexico, by being much more comprehensive and focused on best practices. It helps increase trust among investors and employees. We are the only company on the continent working toward this certification.
What was your main objective behind acquiring the Zimapan Mining assets from Grupo Peñoles in July?
It is a transformational transaction for Santa Cruz to add the Zimapan mine to its portfolio. We have already had the privilege of working in this mine under a lease agreement with Minera Cedros. This acquisition will help us towards our goal of becoming a mid-tier silver producer, and we thank Peñoles for their support in this process.
One of the few sectors that have experienced growth in Mexico is mining, according to the Mexican Institute of Statistics. What is your view on that?
We do not compete with other companies for our product. When a price of a metal drops, the only way to grow is by increasing production. The price of Zinc has started to increase, but it has not been enough. Gold prices have increased because it is seen as a safe haven in times of turmoil. As for silver, we need prices to increase more in the short run. We have reduced zinc production at the Francisco Madero mine because we do not know exactly how the market will change in the future. I assume some foreign companies will not restart their operations. Some will choose to downsize operations, and some might decide to wrap up their operations in Mexico.
Is Santa Cruz Silver Mining planning to increase production in order to recover some of its losses from after the COVID-19 pandemic?
We will increase production if we can get more investment. For now, I just want to generate cash flow to survive through 2021. As for 2020, we are already halfway through, and it has had a big impact on us. Currently, the chances of securing new funds are low. People who manage funds are not investing because they do not know what will happen. With this in mind, our strategy is to survive.