GOING UNDERGROUND

Mexico 2019 | MINING | FOCUS: MEXICO’S MINING PIPELINE

After a slump in mining investments, precious metal producers in Mexico are seeking to boost production as rising commodity prices bring new life into the sector.

With its long history as a producer of precious metals, today Mexico is the world's top miner of silver and the second-largest gold producer in Latin America. Yet in recent years, falling commodity prices have slowed global mining production, impacting the nation's sector as foreign direct investment slowed dramatically.

Now as price indexes rise once again for Mexico's key commodities—gold, silver, copper, and zinc—state officials and private companies are determined to breathe new life into the sector with a steady project pipeline and supportive regulatory framework. Still, many political challenges lie ahead as the President Andres Manuel Lopez Obrador, or AMLO, has sent mixed signals on the possible mining reforms he might seek to advance, and protests by local communities continue to hinder operations at several mines in the country.

“Despite the real security concerns that face numerous stakeholders in the Mexican mining sector, the region remains an attractive investment option for private business given the natural wealth that is scattered across Mexico,” Craig Dempsey, the CEO of Biz Latin Hub, a Latin America-focused business services consultancy, told Forbes.
Though Mexico has been the site of intensive mining operations for more than 500 years, just 25% of the country's territory has been explored for mineral and oil deposits to date. National and foreign developers have long sought to exploit Mexico's natural wealth, but growth in the mining sector has been stunted by political and social uncertainty.
In 2018, foreign and local companies invested about USD383 million on mineral exploration in Mexico, down 37.4% from the USD612 million registered in 2017, according to state figures. The total also represents a 67.1% drop from an all-time-high of almost USD1.2 billion reached in 2012, when precious metal prices also peaked.

Still, recent developments have shown promising signs the sector could rebound in the years to come. For starters, Mexico has a strong mineral portfolio. Its mines produce 1.7% of the world's output of mineral ores. Apart from robust and expanding operations at gold, silver, lead, copper, coal, zinc, and iron mines, Mexico has been increasing its output of the highly sought-after lithium, which is a key component in batteries for many consumer electronics.
Elevated lithium prices in recent years have fueled development beyond the mineral's top producers in Chile and Argentina, prompting Mexican miners to increase output. For example, Bacanora Minerals continues to develop its Sonora lithium mine, expecting to produce 17,500 tons of lithium carbonate by 2019-2020, with plans to increase annual production to 35,000 tons. The Japanese trading firm Hanwa has also established a long-term partnership with Bacanora Minerals for all the lithium carbonate produced at the mine.

Other ongoing expansions in the mining sector include Industrias Peñoles' Rey de Plata lead, zinc, and copper mine, and Américas Mining Corporation's expansion of its Buenavista and Pilares copper mines. The Mexican-based precious metals mining company, Fresnillo, also continues to expand operations at its San Julián silver mine, which is one of seven operating mines it manages in Mexico.

At the same time, the Toronto-headquartered Sierra Metals has indicated that resource estimates at its Cusi silver mine had increased 129%, to 4.56 million tons from the previously reported 1.99 million tons. The project pipeline in Mexico holds a steady stream of new developments in the coming years, which combined with rising commodity prices, should draw increased FDI, yet the political and social climate has left some investors concerned.

In April 2019, the US-based Newmont Mining Corp announced it would temporarily halt operations at its Peñasquito gold mine after sustained protests by a trucking contractor and the indigenous community blocked operations for more than one month. The halt shocked the Mexican mining sector, sending mining stock prices spiralling over fears that similar protests could spread to other mining projects that failed to win over the communities in which they operate.
All eyes are on AMLO concerning the future of Mexican mining. The nation has abundant resources and, after assuming office in late 2018, officials in the new administration said they would not seek to implement drastic changes to the mining sector, cancel concessions or raise royalties. Following the shuttering of the Peñasquito mine, AMLO's response will likely influence the direction for the mining industry for years to come.