In an exclusive preview of 2018’s edition, Mexico Mining Review asked Antonio Nieto, President and CEO of MineralsENG, about the key strategies to promote investment in the mining industry.
Traditionally, Mexico has been known as an important mining country. It is globally ranked among the top 10 producers of 20 mineral commodities including silver, copper, gold, lead, zinc, iron, manganese and molybdenum. The mining sector, including aggregates, represents close to 5 percent of Mexico’s GDP. Mexico is also, despite recent revised tax reforms, ranked as one of the most appealing jurisdictions for mining investment, attracting US$5.2 billion and US$4.7 billion in 2015 and 2016 respectively.
However, there is still potential to increase mining investment in Mexico. Besides hosting a handful of large operations, the country’s mining industry mainly consists of relatively small-scale operations when compared to other countries with strong mining economies. According to data from CAMIMEX, of the roughly 150 mining operations active in Mexico, about 10 could be considered large-scale operations with ore processing capacities higher than 4 million t/y. This proportion means that the top 10 largest mines in Mexico contribute to about 65 percent of Mexico’s total mineral production capacity. These numbers also indicate that Mexico has tremendous potential to increase its mining capacity if the sector is incentivized with economic mechanisms designed to promote investment.
Indeed, having just five Mexican mining companies trading on the Mexican Stock Exchange (BMV) may be an indicator of the need for the Mexican banking and financial sector to promote new financial mechanisms. The five listed companies typically do not rely on external funding when opening new projects, exercising new exploration campaigns or considering increasing production capacity.
One possible reason for the gap to promote access to finance in Mexico may be attributed to the lack of understanding by the country’s banking and financial sector of the unique technical aspects involved in the mining business, specifically how to manage risk to accurately verify the economic value of the mining prospect. Other mining countries such as Canada and Australia, which have a strong financing culture in the minerals industry, know that the economic uncertainty of determining the economic value of a mining project and the associated risk can be managed with healthy rates of return. Both countries understand the importance of clearly reporting risk when negotiating a new mining initiative for potential financing.
In Mexico, however, the uncertainty and risk-reporting process is often outsourced to professionals based in Canada and the US where banking and financial institutions are familiar with the NI 43-101 and JORC reporting protocols. Mexico’s banking and financial sector considers the mining business as a high-risk endeavor that requires massive amounts of resources, mostly capital and time, which makes potential investment hard to justify. Adding to the pessimistic perception about mining by the financial sector in Mexico, mining is indeed an atypical business when considering that the return of investment is based on the value of a mineral product that is “concealed” underground, making the valuation process complex if compared to other, more typical, business initiatives. Thus, it is imperative to make sure that the financing partner clearly understands how uncertainty is managed by geologists and mining experts to verify the value of the mineral resource and to confirm the economic feasibility of extraction.
A possible path to reducing the gap of access to finance for mining businesses may lie in the development of a clear and comprehensive National Reporting Code for Exploration Results, Mineral Resources and Ore Reserves, including an Economic Valuation Code for mineral prospects designed specifically for the banking and finance sector in Mexico. Understanding uncertainty and how risk can be managed in the minerals industry is key to promoting access to finance in Mexico. Having a clear reporting code for minerals initiatives in Mexico will help demystify mining risk before the eyes of bankers and capital investors.
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.