CARLOS SILVA

Mexico 2020 | MINING & ENERGY | VIP INTERVIEW

TBY talks to Carlos Silva, CEO of Santa Cruz Silver Mining, on the impact of the pandemic, IRMA certification, and increasing production going forward.

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 very well regulated and organized, so for us it was easy to implement new health measures to halt the spread of COVID-19. We have a lot of experience in implementing different strategies across the industry. 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, the 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 the 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 and that 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/oz to USD17/oz in 2020.

How close is the company to achieving its certification IRMA?

IRMA stands for the Initiative for Responsible Mining Assurance and it 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 in the continent working towards 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's your view on that?

We do not compete with other companies for our product. When a price of a metal tanks, the only way to grow is by increasing production. The price of Zinc has started to increase, but it has not been enough. I do not actually follow many analysts because they are not able to explain what's happening and why prices of certain metals are ticking up. Gold prices increased because that metal 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 that 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.

What will push some companies to leave?

It could be because of the context. A number of issues have impacted Mexico's mining sector, and the pandemic is one reason that can push some companies to decide against resuming operations.

Is Santa Cruz Silver Mining planning to increase production in order to recover some of the losses it incurred 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. As of now, the chances of securing new funds are low. People who manage funds are not investing because they do not know what's going to happen. With this in mind, our strategy is to survive.

What initiatives is the mining association evaluating?

In the recent past, the association fought hard to make the government recognize mining as an essential industry. We fought for it daily and successfully achieved it, but I think it was a little too late. The protocols set to initiate operations in the Zacatecas state are tricky. We have to sign protocols and be careful. The problem is that there is a lot of talk and not enough action. Personally, I do not think any other industry in Mexico is organizing itself like we are to reactivate our activities. On the other hand, some industries, such as automotive, were able to continue working.