A BUMP IN THE ROAD?

Mexico 2020 | MINING | FOCUS

While 2019 saw record-breaking production levels in Mexico's mining sector, 2020 threw a significant curve ball as COVID-19 brought much of the sector to a complete halt for a number of weeks.

Few could have predicted how much of an impact COVID-19 would have on the world when reports of its existence first came out in late 2019, but coming up to the midway point of 2020 and much of Mexico's mining industry is still reeling from the impact of a weeks-long lockdown. In late March 2020, mining in Mexico was halted by government decree and would be kept that way during the state of emergency until May 30, when the industry was labeled as essential; however, mining unions had been pressuring the government to allow them to return sooner as the government slowly lifted restrictions across the country.

Naturally, the shutdown came as somewhat of a blow, especially after 2019's performance in copper, which many in the sector would have hoped to replicate in 2020. Grupo Mexico pushed past the 1 million tons of copper benchmark in 2019, after an expansion of the Toquepala copper mine. In an interview with TBY, Oscar González Rocha, CEO of Americas Mining Corporation, which is a part of Grupo Mexico's mining division, said; “Our production in 2019 was, for the first time, over 1 million tons of copper; due to the completed expansion of the second concentrator in Toquepala. This added expansion allowed us to increase our production by 100,000 tons; leading to a grand total of over 1 million tons."
Still, it is not all doom and gloom and despite the shutdown, and Rocha was optimistic for the rest of 2020. “The only inconvenience we have encountered is the change of distribution dates as some companies are suggesting we do not send it according to times already set up." However, he went on to say “Apart from that, it has not been a problem, since we already signed the contracts. We will send our production following a different timing than we expected." On another positive note, in a report by S&P Global Ratings, it suggested that Mexico's three largest mining companies, Grupo Mexico, Industrias Penoles, and Fresnillo, should be able withstand the impact of a shutdown of up to three months due to the financial flexibility of the companies. This, along with Rocha's comments on contracts already signed, suggests that the short-term halt in production might not be so devastating for the sector as one might first assume. Indeed, a rise in metal prices over summer is also a positive signal for the future.
One of the other big hitters is Fresnillo. Mexico is the world's largest producer of silver, producing 6.3 million tons in 2019, roughly 23% of global production. This was a slight increase on 2018 when the country produced 6.12 million tons. In 2019, Fresnillo produced 65 million ounces, making it the largest silver producer in Mexico according to the 2019 World Silver Survey. As production rose, so did demand. Globally, demand in 2019 rose to 991.9 million ounces from 988.3 million in 2018. Investment demand also rose by 12% in 2019 as retail and institutional investors looked to silver and a long-term investment with stock markets wobbling around the world.
Looking into 2020, and the sector is one of few that aims for growth in times of social distancing. M&A activity is expected to remain strong, andmetal prices are rallying at all-time highs. Gold is officially one of the best-performing assets in the market as of August 3, reaching USD2,000/oz for the first time in history, totaling a surge of 30% this year to the date of publication. Silver prices are also breaking its own records. This precious metal reached a seven-year high at a range of USD26/oz, while copper reached a two-year high of USD6,550/ton in July.