In an exclusive preview of 2018’s edition, Mexico Mining Review asked Christopher Warwick, Mexico Country Manager of Pan American Silver, about the pros and cons of mining in Mexico.
Q: Considering Pan American Silver’s operations throughout Latin America, what are the pros and cons of mining in Mexico?
A: The attractiveness of future investment in Mexico’s mining sector should be the industry’s number one priority. There were some problems with the introduction of the royalty tax a few years ago that certainly impacted negatively on mining investment, admittedly at a time of falling metal prices. Now, the latest introduction of an Ecological Tax imposed by the state of Zacatecas sends a very mixed message to investors in the Mexico mining industry. Zacatecas is a traditional mining state within Mexico and there was very little notice and no prior discussion regarding the implementation of the tax, and the reasons for its imposition remain unclear.
Certainly, this tax affects one of our mines, La Colorada, in Zacatecas but the effect is not as devastating to an underground operation in the same way it would be to an open-pit mine due to the waste movement and management that is required of the waste dumps. It is of minimal impact but fear remains of the possibility of such a tax being rolled out nationwide. Pan American is uncomfortable with the potential for this to happen so our actions in the next few months will be aligned with those of other companies operating in the state that are challenging the implementation of the tax. This is especially daunting when our operations have been carefully vetted by the relevant government agencies who authorize our work with diligence and with emphasis on the overall environmental considerations. Our operations may have an impact before we even start mining and these authorities are very diligent in following up on the operation to ensure the guidelines given at the time of issuance are followed and in sanctioning any deviation from any norm at the time of inspection.
Q: Do you think the outrage at the tax will cause it to be revoked?
A: There is a great deal of both external and internal pressure. However, I have been working in Mexico long enough to realize that outrage tends not to have much of an impact. The law may be re-examined and repackaged but I doubt that it will be repealed. When a mining company carries out the initial stages of assessing a potential project, SEMARNAT comes in to ensure that all regulations and guidelines are followed. After the mine is established, there are then regular visits and audits to check compliance and mines work to continue abiding by the norms within that framework. Our perception is that the work at the operation has the approval of the federal authorities to proceed and continue because we have always worked within the parameters outlined by the government organizations appointed to approve such work. I have no problem with tightening up environmental laws in Mexico but it is so important that this is done correctly and then fairly administered.
Q: How did Pan American Silver decrease its AISC 32 percent from 2015 to 2016?
A: This was achieved through project expansion. Four years ago, when metal prices dropped, we made the decision to really optimize our production at our existing operations, which would mean that any kind of upward movement later in metal prices would bring the benefits of those expansions to our shareholders. Our prime resource is silver, which has moved from US$13 to US$17 in recent months and now we are directly starting to benefit from that due to our prior investment decision.
This was the most important action the company has taken in recent years. Our deliberate strategy and foresight a few years ago will pay the return expected and attract the anticipated investment in the company, which in turn will reward shareholders the returns they deserve. Historically Mexico is a business-friendly environment and it would be a shame if this were to change as a result of the introduction of the regulatory changes.
This is an exclusive preview of the 2018 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.