Mining in Oaxaca is not easy. Not only is it not a typical mining jurisdiction, the zoning dictates that thousands of concessions take up the same land that only a few would in Sonora or Chihuahua. The presence of indigenous communities is also a head-scratcher for companies, as cultures must be understood. One operator working in Oaxaca is Gold Resource Corporation, and President and CEO Jason Reid spoke to Mexico Mining Review to give his input on what it’s like to mine in the southern state.

 

Q: What is your assessment of Mexico’s friendliness as a mining jurisdiction and how would you make it more attractive for investors?

A: Mexico continues to fall in the Fraser Institute’s rankings of mining friendly jurisdictions. It used to score in the top quarter of many metrics but is now near the middle or lower. This is not a good trend and reflects the increased difficulties that mine operators face regarding security and tax issues in the country. Companies want a stable government, business-friendly policies, local support, reasonable taxes and less bureaucracy rather than more. But the trend in Mexico is not going a favorable direction.

Jason Reid, Gold Resource Corporation

Q: How are the company’s investment flows likely to behave in the future?

A: Money and investment absolutely flow where most appreciated. It is no coincidence that our second mining unit is in Nevada as the jurisdiction was ranked by the Fraser Institute’s 2017 survey as the first among mining friendly jurisdictions in the US and third globally. The mining business is risky with money spent on discovering deposits, funding development, engineering, construction and execution of a project, all in a volatile metal market. Adding jurisdictional complexities with anti-business governments, excessive taxes and bureaucracy to these challenges, it forces companies to go where they are most appreciated.

We have been operating in Oaxaca since 2006, producing since 2010 and plan to be in the state for at least another decade. While we look at other opportunities around Mexico, its trends are becoming less mining friendly, decreasing the chances for us to open another unit elsewhere in the country. But if the new government encourages additional investment and promotes a favorable mining environment, it is far more likely we will increase our investment in the future.

Q: What have been the latest developments of your operations in Oaxaca?

A: Our Arista mine continues to grow both at the Arista vein system and the Switchback vein system. We have been mining from the Arista vein system for almost eight years and it continues to grow. The Switchback vein system has potential to be larger than Arista and should provide our next eight to 10 years of production.

As for exploration at our Oaxaca mining unit, it is primarily focused on the Arista and Mirador mines to expand these deposits. But our exploration budget this year is smaller, around US$4.5 million for drilling, given the brutal bear market and the fact that we are currently building our Nevada mine with cash flow from operations. We also continue to build Mirador with cash flow and target an initial 150t/d throughput before moving up from there. We have grown all our operations organically since 2010, merely with cashflows and without raising any private equity. We have managed to remain profitable over the last seven years and survived the last downturn in the metal markets by betting on projects with low operating costs and high returns on capital.

 

This is an exclusive preview of the 2019 edition of Mexico Mining Review. If you want to get all the information, plus other relevant insights regarding this industry, pre-order your copy Mexico Mining Review or access our digital copy of the 2018 edition.

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