In an excerpt from his exclusive interview with Mexico Mining Review 2016, FIFOMI’s Director General, Armando Pérez Gea, discusses his views on the current state of the mining industry in Mexico, and the financial opportunities the entity provides to overcome the actual depression.
Q: What is the current economic context being faced by the Mexican mining industry, and how does FIFOMI support the industry in the current economic environment?
A: We have observed that the mining industry undergoes a cycle, and now it is at a low point as some prices have dropped and are affecting the level of extraction of minerals. These cycles, with their ups and downs, are necessary as they allow the sector to determine which companies are stronger and better suited to survive and produce in Mexico when prices are less favorable (…) We support stressed mining projects by generating tailor-made strategies to help the owners to implement better financial and operational practices that overcome common missteps companies made.
Q: What criteria do companies have to meet in order to qualify for a loan either from FIFOMI or a commercial bank, and how do you determine that a company is ready to graduate from your support?
A: FIFOMI’s essence is to find and support good projects, we cannot let a viable project die from a lack of financing. The main requirement to finance a project is to be sure that future cash flows will be enough to pay back the debt, and if so, FIFOMI structures the debt payment profile to reduce the risk of a defaulting. We are implementing structured financing through special purpose vehicles and take protective measures by setting adequate guarantees in case revenues are bad. If companies do not have enough fixed assets, as is the case for some service supplier companies, FIFOMI can consider long-term contracts as collaterals, for companies that perform contracts on a yearly or very short basis long term financing is more difficult to provide.
Q: What is Mexico’s current strategy to attract foreign investment?
A: First of all, it is important to recall some important facts about Mexico´s mining activity. Mexico is the first producer of silver worldwide, number eight in gold, number ten in copper, number five in zinc, barite and lead. In terms of production potential, Mexico is the first exploration investment destination in Latin America and the fourth worldwide. There are some differences between Mexico and other Latin American countries in relation to mining activity; while mineral production represents in Mexico only 4% of our GDP, in most other Latin American mining countries primary mining output represents a considerable proportion of GDP. The industry that processes mineral products represents in our country a 5% share of the GDP, reflecting a diversified economy that offers many investment opportunities. Thus policymakers in Mexico work in schemes to increase foreign investment evenly across industries, mining included. The large number of agreements with other countries to foster trade and investments is the best example of an overall strategy to attract long term foreign investment into Mexico, with the clear benefits to employment and the well-being of the population in mining regions.
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