Canada Looks to Reinforce Mining Ties with Mexico
Canada remains a friend to Mexico and will respond to policy not speculation, James Gordon Carr, Canadian Minister of Natural Resources, told the Mexico Mining Forum 2017 in Mexico City on Wednesday, in response to concerns over US President Donald Trump’s threats to renogiate NAFTA.
“The friendship and history between Canada and Mexico is strong, and the future will be even better,” Carr told the forum at the Hotel Sheraton Maria Isabel. “At a time of change and uncertainty, we will navigate the special relationship that has endured the tests of time.”
Carr pointed to a Memorandum of Understanding (MoU) that would be signed later in the day between the two government as evidence of their close relationship. The memorandum for the mining sector will cover geoscience, clean innovation and CSR and will promote sharing best practices in water management and the use of renewable energy.
Together, Mexico and Canada are positioned to lead the world’s mining industry, despite the uncertainty in the market, he said. “The opportunities are real and the moment is now.”
During his presentation, the minister pointed to Mexico as a strong partner for Canada’s mining industry. The Latin American country is the world leader in silver production and in the top 10 for 16 other minerals. “As of today, there are 136 mining firms operating in Mexico from Sonora to Chiapas, with more than US$19.4 million of investment. There is no better mining partner than Canada. The Toronto Stock Exchange represents more than half of the equity for financing the industry and hosts more than 60 percent of publicly traded mining companies.”
Responding to a question on Canada’s involvement in small-scale mining investment, Carr was equally positive. “I would be very surprised if Canadian entrepreneurs were not interested in small-scale investment in Mexico,” he said.
Carr also stressed the importance of creating a good economy and a cleaner future for generations to come. “We came across this continent by chance, but we are partners by choice and we must achieve the prosperity we all want, by protecting the environment we all cherish,” he said. “The low carbon economy is the new frontier and will bring along new opportunities.” The Canadian government and companies are investing in developing clean technologies that drive productivity and work in harmony with the planet. The Canadian brand is known for sustainable mining developments and has earned a reputation for promoting corporate social responsibility.
In discussing the MoU, the minister pointed to the need to strengthen bonds with indigenous communities and to demand transparency, accountability and clear regulatory regimes that will guarantee the well-being of the industry’s players. Encouraging sustainability and CSR within the mining industry will create a ripple effect through the economy, creating good jobs, enhancing quality of life and increasing the competitiveness of both countries. “Together we will lay the foundations for the mines of tomorrow, jobs and clean growth for generations to come,” Carr said.
Canada seeks to expand opportunities as well as strengthening existing relationships with the Mexican government and the mining sector through these precarious times, he said. “Together we must send the signal to the people, that Canada and Mexico are friends and that we will build a future together.”
New Mining Undersecretary Stresses Importance of Cooperation
The tight markets of recent years will benefit Mexico’s mining sector because it forced miners to become more productive, more efficient and to filter projects to leave only the most promising, Mario Alfonso Cantú, Undersecretary of Mining at the Ministry of Economy, said at the start of the Mexico Mining Forum 2017 in Mexico City on Wednesday.
“Other factors like our supply of labor and the robust network of roads, rails, ports and airports mean that Mexico is an excellent market in which to invest,” said Cantú, speaking on Mexico’s position in the global mining landscape at the Hotel Sheraton Maria Isabel.
Cantú highlighted Mexico’s relationship of close cooperation with Canada during his presentation. Mining exports from Mexico represent US$412 million and imports represent US$695 million, which makes the relationship between Mexico and Canada extremely important, he said.
“Of the 271 foreign mining companies present in Mexico, 176 are Canadian,” Cantú said. Especially in the global context of the coming years, he said this cooperation will be increasingly important, given concern over trade policies in North America.
Cantú explained the importance of national cooperation as well as international, and he said this was strengthened by the recent creation of the Guerrero mining cluster, which joins the several existing clusters in states like Zacatecas, Chihuahua and Durango. “This type of initiative is essential to boosting the sector and promoting production.”
The undersecretary went on to say that the World Bank estimates base metal prices in Mexico will increase by 11 percent in the next few years due to supply constraints and improved performance in advanced economies. However, precious metals prices are expected to contract by 7 percent due to higher interest rates and lower mining investment.
Cantú said, however, that Mexico is in a unique strategic position to capitalize on any mining investment. “In 2016, US$4.7 billion was invested in mining in Mexico, US$946 million of which was in new projects,” he said. This compares to 2015 figures of US$4.5 billion, US$663.1 million of which was allocated to new projects.
Moreover, 70 percent of Mexican territory has the geological conditions to support mining. “Only 27 percent of Mexican territory has been explored,” said the undersecretary. “And many of the country’s mines rank globally, including Goldcorp’s Peñasquito mine and Fresnillo’s mine of the same name in Zacatecas.”
New projects entered into production in 2016, including El Limon-Guajes in Guerrero, with an investment of US$800 million, which reinforced Torex Gold’s dedication to Mexico. “The first phase of Fresnillo’s San Julián mine also came online with a substantial investment and Grupo México’s Buenavista del Cobre expansion meant that copper production almost doubled in Mexico,” he said.
In 2017, more growth is expected, notably with Pan American Silver’s La Colorada project, in which the operator invested over US$160 million. Similarly, the Dolores mine is expected to see an investment of US$110 million.
Among other opportunities, the Mexican Geological Survey (SGM) will tender several projects over the coming months in states such as Sinaloa, Durango and Chihuahua, Cantú said. SGM has been increasingly active in issuing concessions. “In 2016, 668 concession titles were issued covering an area of 820,000ha,” he said.
Skilled Human Capital Needed to Boost Mining Cluster
The state of Zacatecas is hoping its mining cluster can attract new companies to help address calls from workers’ unions for more and better jobs, said Jaime Lomelín, Corporate Director of Grupo Bal, at the Mexico Mining Forum 2017 on Wednesday, adding that education is a key plank in that effort.
“There is currently an excess of human capital in the state and we need to bring in more suppliers to create new jobs,” he told the audience at the Hotel Sheraton Maria Isabel.
The key to a successful mining cluster is ensuring the triple helix is working together: companies, government and academia. “It is of utter importance for the supply chain to participate in the cluster in order for it to be successful,” said Lomelín, who oversaw the establishment of the country’s first mining cluster, Clusmin.
Mexico is known for its automotive and aerospace clusters but Clusmin is gaining strength in Zacatecas. Clusters are an important asset to the Mexican economy and have spurred growth in various states. Mining is Zacatecas’ most important economic activity, representing more than 29 percent of the state’s GDP.
Clusmin’s human capital committee works to attract more suppliers into the state. “By strengthening ties between suppliers and clients, the quality of the services offered improves and productivity increases,” said Lomelín. As part of the triple helix, “the role of the government is to support the formation of companies and create industrial parks for suppliers to settle into.” The government of Zacatecas has created several new methods of funding suppliers to increase the attractiveness of the state, he added.
The Achilles’ heel of mining is maintenance,” said Lomelín, discussing the importance of training and the creation of university career paths in mining. “Suppliers and educational institutions must train human capital together,” he said. Clusmin is working with CONACYT and INDADEM to create programs to better understand the type of specialized jobs and career paths that are needed to increment the productivity of the Mexican mining industry.
“There are many mining areas that did not offer high-level education programs. For instance, metallurgical career plans did not exist in schools and we worked with local universities to create duel programs that would increase the quantity of skilled personnel needed for these jobs,” Lomelín said. These dual programs allow students to work with mining companies early in their career to give them first-hand experience for when they graduate.
“The purpose of this cluster is to boost productivity and we have all the players needed to complete the triple helix,” he added.
Lack of Exploration Threatens Sustainability
Exploration in Mexico is still attractive but the government must take care to ensure it remains competitive, panelists at Mexico Mining Forum 2017 said on Wednesday in Mexico City, warning that a lack of exploration activity threatened the sustainability of the mining sector.
“Exploration is in crisis,” said Charlie Ronkos, Executive Vice President for Project Development, Americas at Premier Gold Mines. “Exploration looks at cost per ounce of discovery, rather than cost per ounce of ore mined, yet this still has to be competitive with the rest of world. It is important that the cost per ounce in Mexico is very attractive.
The panel at the Hotel Sheraton Maria Isabel debated “A Wealth of Exploration Opportunities” and included Raúl Cruz, Director General of SGM, Robert Scott, CFO of Riverside Resources and Ben Whiting, Vice President Exploration of Orex Minerals. Laura Díaz, Partner at DBR Abogados, moderated.
The current royalty structure poses another hurdle to exploration. “All the indicators show Mexico is a place companies want to invest,” Scott said. “But over the last few years, it has become more difficult to attract investment. As CFO of Riverside, I am spending most of my time trying to manage costs.”
Exploration companies must recover those costs if they are to discover interesting projects. “Because foreign money has no restriction as to where it must be invested, we must be careful to maintain the attractiveness of Mexico as a mining jurisdiction,” he said.
Whiting challenged this sentiment and identified the largest exploration challenge as companies that are unwilling to drill. He used the Boleros silver project in Durango as an example. “We drilled one hole in an area that was never explored before and we discovered 33 million ounces of silver,” he said.
The Orex executive was part of the team that drilled the first hole in what became Coeur Mining’s La Preciosa deposit. “By the time we sold the concession to Coeur Mining, there were 750 drill holes,” he said. He stressed that, although exploration must be carried out in an economic way, the importance of drilling cannot be understated.
Cruz reinforced the opportunities provided by Mexico, especially given the wealth of cartological information offered by SGM. “Mapping began in the 1800s,” he said. “We have now been able to define strong gold and silver belts in Mexico, as well as sizeable deposits of copper, iron and zinc.”
SGM now has over 80 prospects and there are three projects in the pipeline to be tendered by SGM, said Cruz. “These include the Soledad copper deposit in Sinaloa and the Los Borregos manganese/copper deposit in Chihuahua,” he said.
However, while Whiting applauded the work carried out by SGM in its geological database, he challenged the efficiency of the government in presenting mineral concessions for lottery. “At times, that lottery can be carried out three to five years before a piece of ground becomes available for explorers to work on,” he said. “While the database has moved into the 21st century, geological concessions are still struggling.”
Ronkos echoed this sentiment and shared that hurdles must be overcome in obtaining permits in the country. “I have seen examples where it can take two years to drill one hole, which makes it difficult for greenfield projects,” he said. He suggested entering the country as a producer, allowing companies to group together concessions for higher cost efficiency.
Scott disagreed on the solution to this particular challenge. “Things have become more difficult but I would recommend partnerships with strong local groups like Riverside,” he said. “Although Mexico has been able to attract larger and smaller companies, I agree that trying to start greenfield projects can be challenging,” he said.
As a lawyer who deals in these transactions, Díaz agreed that the permit process can be challenging. “For a mining lawyer, this can be the most challenging stage of a project,” she said. “Being present across the entire lifecycle of a mine, from early exploration to closure tests every ability and can make or break a mining lawyer.”
Whiting, however, expressed confidence in Mexican exploration. “Just last month, Riverside announced a new drilling venture in Sonora with one of my companies,” he said. “This will be called Silver Viper Minerals and we plan to drill at the earliest opportunity.”
Likewise, Ronkos is confident about rising metals prices and their impact on the sector as a whole. “I can see a solid future for mining in the next 10 years,” he said.
Short-term Government View Hampers Industry
To increase the appetite for investment in Mexico’s mining industry, different government levels and institutions must create a united front and work together with the private sector to take advantage of Mexico’s rich terrain, according to a panel of industry insiders at the Mexico Mining Forum 2017 that took place at the Sheraton Maria Isabel in Mexico City on Wednesday. A more favorable regulatory environment is also necessary to mitigate risks in an industry that works to a multidecade horizon.
“The government needs a simple unified vision. Mining is a long-term investment that requires a stable environment,” said Alfredo Phillips, Corporate Affairs Director at Torex Gold. “Politicians should think about the 30-year horizon. They should not look at mines like piggy banks.”
During the panel “Mergers, Acquisitions and Mining Investment,” Carlos Espinosa, Partner at SoftLanding Group and Former Head of Business Development – Global Mining at Toronto Stock Exchange, Bradford Cooke, CEO of Endeavour Silver, Sean Emmond, Mexico Country Manager of Export Development Canada, Armando Pérez, Director General of FIFOMI, and moderator, Alfredo Álvarez, Partner at EY, agreed that Mexico’s mining industry needs to help the government learn more about the industry to help mitigate the current risks they are facing, such as security and taxes.
The consequences of not addressing these issues could have immediate consequences for Mexico. “My board has asked me to find projects outside Mexico,” said Cooke, referring to the impact of a heavy eco tax imposed on miners by the state government in Zacatecas. “Miners make investments where other industrial sectors cannot. These new circumstances require new actions and I ask the government to consider the long-term nature of those investments, and to make some changes with an open mind.”
The federal government’s heavy tax hand also came under scrutiny. “The tax authority (SAT) has picked a lot of fights in the mining sector in the last few years,” added Alvarez.
FIFOMI’s Perez countered that although mining has been around for many years in Mexico, the boom is still new to the government and it does not yet fully understand how it works. “The government does not work at the pace private companies do but we must do something to help,” he urged.
The tax on mining has impacted the industry this past year, with SEMARNAT and SAT laying down a firm hand to ensure the future of Mexico’s environment. Espinosa pointed out that one of the main challenges is that the government is not aware that Mexico is not in competition with itself but instead with the rest of the world. “If Mexico is not offering the right framework, they will look to other jurisdictions that do,” he said.
State governments also are not giving mining the same push they give other industries, such as automotive and aerospace, which is slowing growth in the industry. “Mexico has many strengths, one being that it has one of the most diversified economies than any other emerging market,” said Cooke. Panelists agreed that Mexico’s risks have reasonable solutions, which could in turn strengthen Mexico’s internal economy. When discussing the risk impact of any new US trade policy, Emmond had a simple reply: Business as usual…cautiously.
“Mining brings opportunity to areas where there would be no opportunities at all. We as companies need to make sure the government understands this and that they do not develop policies with a short-term view,” stressed Phillips.
Mexico has the geological characteristics to weather any fiscal storm, according to Perez, who maintained that the countries potential is greater than the problems. “The impact of short-term changes can be contributed to a lack of education about the industry among politicians,” he said. “In the end, what is important is the geological potential of a country.”
Modern Mining Tunes Into Social Responsibility
The mining industry needs to work alongside the government and local communities, communicating effectively the benefits the sector’s operations bring to the country and particularly to the mining communities, panelists debating “Corporate Social Responsibility in Today’s Mining Operations” said at Mexico Mining Forum 2017 on Wednesday in Mexico City.
“Whenever we start a mining project, expectations are very high. Usually, local communities are afraid of the environmental damage projects will generate, so we need to listen their concerns, be transparent with locals and build the project with them,” said Irma Potes, Subdirector of Community Development at Grupo México, at the Hotel Sheraton María Isabel.
Potes was joined on the panel by moderator Armando Ortega, Vice President Latin America of New Gold, and industry experts Christopher Ávila, Deputy Director of Government Affairs at Grupo Bal, Michael Harvey, Director of Corporate Affairs and Security at Goldcorp, Ricardo López, Director General of the Mining Trust Fund at SEDATU and Claudia Ibarra, Director General of Mining Regulation at the Ministry of Economy.
Government participation in dealings with local communities is key to achieve successful negotiations, suggested Harvey. “Sometimes, when we are dealing with communities, groups that have a particular political agenda and that are not interested in the general well-being of the community become involved. To balance this situation, you have to bring in the federal authorities.”
A particular problem the mining industry faces in Mexico is related to the excessive expectations that companies face regarding their involvement with communities and what they need to provide in terms of infrastructure, said Ortega. His concern was addressed by López, who said that taxes paid by mining companies contribute to a federal fund that aims to generate sustainable development in mining regions. “The objective is to generate a development plan for every community, region and mining zone that contributes to the generation of infrastructure that will ensure the survival and functioning of mining communities in the long run.”
Even though mining companies are complying with their legal obligations, a pressing issue is related to the right of indigenous communities to public consultations on mining projects. Ortega said that companies fear public consultations will make the mining sector a hostage in negotiations. However, Ibarra said the government is working toward establishing the necessary legal certainty for both companies and local communities before beginning with public consultations.
While hesitations regarding the impact of a project will always exist, it is important to be transparent and communicate openly with communities. “There is a cultural bias against mining based on how it used to be done. We have to present the facts and always communicate,” Harvey said.
A lack of communication can have a dire impact, often becoming the source of a crisis. “Whenever there is a crisis, the most important thing to do is to face the community, not being afraid to listen to everything they have to say and to apologize for any wrongdoing,” said Potes.
Companies have realized that they can only thrive with help of their suppliers and local communities, added Ávila. “Company speeches are changing. We are becoming more involved with human rights and environmental topics.”
The changes in Mexico’s mining sector are helping to shape the modern industry. “In Mexico, there is a modern mining sector that has departed from its old version,” said López. “Modern mining takes into consideration its investors and local communities. Modern mining asks for the responsible and inclusive use of the resources generated by extractive production.”
Mexico Must Start Thinking Globally on Tech
New technologies such as automation and digitalization create new investment and job opportunities for Mexico, according to panelists discussing “Moving with the Times in Technology and Innovation” at Mexico Mining Forum 2017.
“Technology is making us move forward, increasing productivity and generating additional resources that end up creating more jobs and exploration opportunities,” said Roberto Pérez, Head of Motors and Drives at Siemens, at the Hotel Sheraton María Isabel on Wednesday in Mexico City.
Pérez was joined on the panel by Dominic Pasteiner, Journalist and Industry Analyst at Mexico Mining Review, who also acted as moderator, and Eduardo Bennett, Mexico President of Komatsu, Carlos Caicedo, Managing Director of Atlas Copco, Richardt Fangel, Director General of FLSmidth and Richard Booth, Senior Vice President Latin America of MMD Mineral Sizing.
While it is true that automation and digitalization are unstoppable forces, there is widespread fear regarding the perception that such advances lead to job losses. However, the feeling is the same every time there is technological progress, said Bennett. “Back in the 1950s, robotics generated the same feeling that automation is generating today.”
Technology is poised to generate jobs in many fields such as IT, said Booth. “We need to take people out of mines. It is a matter of security.”
Conditions at new mines as well as the need to explore new locations has made automation and digitalization processes in the sector even more pressing. “Mining is trying to reach more difficult zones and conditions are becoming riskier for humans. Autonomous equipment is becoming an obligation rather than an option. Performing high-risk tasks with significant accident reduction will translate into prosperity,” said Caicedo.
Automation not only generates fewer accidents but also reduces operational costs. But it will require a complete mindset change from the way business is done in Mexico, said Fangel. Although it is true that there is still a long way to go, Pérez is confident the industry is on the right track: “We have accomplished digitalization up to a certain point. The next step is to have all the elements of the mine communicated. Full digitalization will allow companies to compare in real-time their results with specific targets.”
Even though the mining industry has been an integral part of the Mexican economy for over 500 years, it still has not gained the necessary recognition, said Pasteiner. For Bennett, part of the problem is that its importance has never been recognized as in other industries. “We have the responsibility of working with the Mexican state in the generation of a national development plan that transcends governments.”
For the industry to continue thriving, Mexico must be open to technological changes, said Fangel. “The industry needs to start thinking more globally and stop thinking Mexican,” he concluded.
Cost-efficiency to Become More Productive in Difficult Times
Challenges provide unique opportunities to become more cost-efficient and to bolster productivity, panelists at Mexico Mining Forum 2017 said on Wednesday in Mexico City.
“Between 2010 and 2012, the industry enjoyed very high commodities’ prices, so our production costs increased accordingly. The fall in commodities prices forced us to become disciplined, more productive and more precise in our exploration operations,” said Adrian Blanco, Business Manager of Mexico for McEwen Mining, at the Hotel Sheraton María Isabel. “We had to focus on key indicators such as production, security and organizational environment to become more productive.”
Banco joined the panel “Production Best Practices for Continued Output,” moderated by Juan Francisco Torres, Partner at Hogan Lovells, with industry experts Salvador García, COO of First Majestic Silver and Mitchell Krebs, President and CEO of Coeur Mining.
For Torres, even though the industry is experiencing an upsurge and increase in commodities prices, productivity remains the primary operational challenge in the mining sector. To tackle this, companies have had to find ways to adapt their production costs and become more disciplined in the daily operations, Torres said.
The key for mitigating the impact, added Garcia, is to rapidly react and create new business strategies that help determine the best course of action. “The first thing you have to do is to analyze every project and determine if you can make cuts of any kind. Optimization, operative discipline, economic analysis and keeping employees’ spirits high become priorities.”
In the mining industry, focusing on productivity does not necessarily mean reductions. “Ever since the fall in prices, we have become a little more forward leaning. You do not always have to cut, you can grow your way into productivity,” said Krebs. “We started scaling up operations to capture the efficiency of larger operations. This has helped us reduce our costs almost 30 percent.”
While cost effectiveness is among the internal challenges companies face, some of the most important hurdles are related to governmental regulations. “Social licenses and land rights are the two most complicated issues,” Garcia said. “For every project, our foremost important contact must be the state’s government and at every step of the way we must be clear and not create false expectations with local communities.”
Adding to the challenges generated by governmental regulations, Krebs said that for any investor, it was important to maintain consistency over the longer term. “There are so many variables that go into projects that we need to be certain that the rules of the game will not change midway. Certainty is the best friend of investment.” Blanco echoed this sentiment, saying that even though the uncertainty of these current times feels different than other times, the government was making clear efforts to provide clarity regarding investment in the mining sector.
For García, the best way to improve the Mexican mining industry is to work alongside the government to realize the industry’s potential, “We are an important currency and job generator. We need support from the government in cost deductibility to maintain healthy mines.” That view was supported across the panel.
“People have no idea of the impact we have. We need to stand up, be proud and tell our story, because it is a great story,” concluded Krebs.
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