Mexico holds first place in silver production and is ninth in gold, giving the country much to boast about when it comes to its national mining industry. Important states in the sector are known for having talented teams of geologists and efficient supply chains. Appetite to apply this success to global markets is growing.
Mexico’s mining industry is often characterized by the Big Four operators: Peñoles, Fresnillo, Minera Frisco and Grupo México. These four heavyweights alone have over 30 operating projects in Mexico with several more properties held, but so far, the only one that has carried out any meaningful expansion beyond the country’s borders is Grupo México.
Recently, Fresnillo began to see opportunities to position itself in the global market. The operator, listed on the LSE, owns more than 350,000ha of concessions in Peru, making it the largest holding for exploration in the country. CEO Octavio Alvídrez says Fresnillo is laying the groundwork for a strong Latin American pipeline that goes beyond Mexico. “In Mexico, we have 1.8 million hectares of exploration concessions and many targets to explore but we believe that it is always healthy to diversify,” he says.
When NAFTA went into renegotiations, many industries in Mexico saw the need to diversify away from the US market. Although Mexican mining does not depend directly on the neighbor to the north, Mexico has a strong mining relationship with Canada, and the seed of diversification seems to have been planted in the minds of miners. The Mining Undersecretariat is taking steps to form new relationships with new mining jurisdictions.
“Many MoUs the previous General Mining Coordination had signed were not being followed up. We decided to make sure these agreements were being put into action,” says Mario Alfonso Cantú, Undersecretary of Mining at the Ministry of Economy. “We also increased our outreach by diversifying beyond Canada, even though this country will always be our main mining partner. The Undersecretariat identified the main mining events and regions in the world that the sector could benefit from and decided to increase its presence in these areas, including Australia and China.”
SUPPLY CHAIN FOLLOWS
As the government and major operators drive this change, so the supply chain follows. According to Ricardo Díaz de León, Infrastructure, Mining, Logistics and Tourism Coordinator at ProMéxico, international markets, especially those in Latin America, are ripe for the picking for Mexican companies. “Many suppliers in Mexico excel in providing new solutions that other Latin American mining jurisdictions could take advantage of,” he says. “There are a few large companies that are taking advantage of the context.”
Although this move has been contained until now, it seems that many in the supply chain are awakening to the opportunities that crossing the Mexican border could hold for them. Alberto Leal, Business Development Director of Cribas y Productos Metalicos, says many have been motivated to do so due to the fact that international companies are coming into Mexico to compete. “We are competing in Mexico against local and global companies but we are also competing globally against these companies,” he says. “We have started to export our products to the US and South America. The world has become so small that it has allowed Mexican companies to sell internationally.”
TRANSITIONING FROM PRIVATE TO PUBLIC
But to compete on a global level, companies need transparency, strong governance and accountability. José-Oriol Bosch, CEO of BMV Group, says this is exactly the kind of opportunity that listing on a stock exchange can offer, pointing out that the exchange’s penetration within mining is still minimal. “We have a few mining companies listed on the BMV, but not enough,” he says. “The mining sector represents 4 percent of the country’s GDP and there are many mining companies working in the country but we have only four companies listed on the BMV: Peñoles, Grupo México, Autlán and Minera Frisco.”
To improve the participation of the mining industry in the BMV or BIVA, the recently-created stock exchange in Mexico, companies believe it could adapt more to the needs of the mining industry. “The BMV and BIVA need to incorporate additional and dedicated elements to truly attract investors,” says Alvídrez. “It needs to create a platform for mining investors and a defined plan to start creating a mining culture for investment in our country.”
Companies like Fresnillo and Telson Resources have found opportunities in foreign stock markets, such as the TSX and the LSE. But the Mexican market is beginning to wake up and offer more funding options. Accendo Banco is a Mexican bank that offers specialized products to the mining sector, including term loans, revolving credit facilities, bridge and mezzanine loans, nonconforming project finance facilities, leasebacks and factoring facilities.
Javier Reyes, an adviser on Accendo Banco’s board says it sees a great deal of possibility in the recovering sector. “This 10-year global mining industry crisis has translated into very limited financing for mining companies, particularly for small to medium-sized companies,” he says. “Mexico, which is among the countries with the richest natural resources, does not have a bank that supports the sector. This crisis has presented us a unique opportunity to provide financing across the whole mining spectrum.”
THE SEARCH FOR TALENT
Besides cleaning up their finances, Mexican companies are also starting to focus on developing their talent. “We used to consider our growth objectives to be the biggest challenge that we faced but now that we are about to meet our IPO goals of doubling production in 10 years, we consider the lack of human talent to be a greater obstacle,” says Alvídrez.
Fresnillo is targeting this challenge by focusing on training programs for younger generations. “We are responding to the situation by supporting educational initiatives around the country,” Alvídrez says. “We work closely with universities in Mexico City, Guanajuato, Zacatecas, Sonora and Chihuahua, among others. We also provide training facilities where students can go and improve their knowledge and skills.”
This sentiment is echoed by Carlos Silva, CEO of Carrizal Mining. “Human capital is a big priority for us. We do not rely on recruiters and have developed a unique system to select team members that includes a three-month probationary period,” he says. “Finding and retaining talented people is always a challenge. Through our system, we carefully identify the strengths and weaknesses of each member and create a plan to further develop each one.”
In terms of the domestic market, the rising competitivity may have many companies concerned but those that see it as an area of opportunity have found many advantages. The fresh vision has helped push the industry to improve the quality and services it provides. “It has gotten to the point where the Mexican customer demands high quality and is not willing to settle for a low-cost, low-quality product,” says Leal. “The Mexican mining industry has risen to the highest global standards and this is what we aim to provide.”
REAPING THE REWARDS
Mexican mining is a traditional industry in Mexico but for many years this seems to have held it back. With the blinkers focused solely on production levels, the national industry flourished, but it was confined by its own borders. Now, Mexican miners are beginning to institutionalize, focusing on financing, new technology, strong governance, transparency and developing human talent to create a platform to jump into other markets.
ProMéxico and other governmental agencies are collaborating to boost this momentum further by creating partnerships with complementary mining jurisdictions. “We should see the growth of our southern neighbors more as an opportunity to collaborate than as a danger of competitors, says Díaz de León. The trade agency is focusing on creating an agreement with Chile that will be replicated in Peru and Argentina to exchange specialized products and technology. “We want mining companies to increase their vision beyond national growth and find areas of opportunity internationally. Many do not know that they are ready to export and we can help them get started.”
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