Mexico, the best choice for the mining industry

Mexico has a world-class mining industry with 500 years of experience and it expects to attract 15 billion USD of investment in the sector between 2007 and 2012.

In the depths of Mexico’s jungles, mountain ranges or deserts, the country’s geography is a map with coordinates set for the growth of its mining industry. Its origins predate the Spanish conquest and the industry is now fully globalized, with Mexico now ranked first in Latin America and fourth in the world for investments in mining. Mexico is the second largest producer of silver in the world and is ranked among the top 12 countries in terms of production of eighteen types of minerals.

Mexico has become one of the most internationally competitive countries for mining at the same time as the sector has taken on a key role in the country’s own economic growth. The sector currently accounts for 3.6% of Mexico’s Gross Domestic Product (mining expanded), thanks to new and sizeable investments for large-scale projects which have an inherently long average life-span: from the exploration phase until production at optimum levels, maintaining a significant number of jobs.

While the industry is optimistic about the future, with 15 billion usd of investment expected for new projects in the 2007-2012 period, it is worth taking a few steps back and revealing the background of the enormous potential of mining in Mexico today.

Mining Tradition
Mexico has a long history of mining, stretching back over more than 500 years, before the Spanish conquest and colonization. Mining was the driving force behind the New Spain economy. Furthermore, the country’s enormous production of silver and gold became Spain’s main source of income.

This 500-year history is the reason for one of modern Mexico’s main competitive advantages. The skill developed by its workforce over the centuries has evolved into a tradition and the talent behind the industry’s operations and management is matched by the varied geography and by the geological potential in Mexico.

Geological Potential
Mexico’s geological terrain is one of the most tectonically active and complex in the world. Orogenesis has pushed up mountain chains all across Mexico, like the Sierra Madre Oriental, the Sierra Madre Occidental and the Sierra Madre del Sur, and these three regions have formed some of the key metallogenic areas. Gold and silver mineralization is commonly linked to the two belts of hydrothermal veins and gaps that stretch out underneath both sides of the Sierra Madre Occidental and that are located mainly in the younger volcanic sequences, in the case of both types of deposit, according to a document prepared by the Ministry of the Economy.

“We currently have one of the largest mining potentials in the world, especially in terms of extracting silver, copper and gold,” the document reports.

With the country’s enormous geological potential in mining, the Mexican government has set about organizing all this information for the benefit of investors. Exploration surveys have therefore been carried out, covering 100% of the Mexican territory at a scale of 1:250,000 and almost a third of the country at a scale of 1:50,000, available to the general public on the Mexican Geological Survey website (www.sgm.gob.mx); essentially based on the mining-geological cartography, geochemical and geophysical program to identify and take an inventory of mineral deposits in Mexico.

Quality Deposits
Businessmen find a number of advantages when investing in Mexico. According to Xavier García de Quevedo, CEO of Minera México and COO of Southern Copper Corp., “the first advantage is the quality of the deposits. There is enormous unexplored mining potential and current found deposits have been of high quality. Two years ago Mexico ranked as the best location for exploration in terms of the country’s investment risk for mining.

García de Quevedo, previously chairman of the Mining Chamber of Mexico, draws attention to the competitive advantages of a country “with a very strong mining tradition. Over the years, Mexico has developed genuine expertise in mining, with great technical and growth potential.”

But there are other factors too, such as Mexico’s “total openness to foreign investment, that encourages any company from around the world to come and explore Mexico,” adds García de Quevedo. Here he mentions that mining attracted almost 17% of all foreign direct investment in Mexico in 2009. This only accounts for the metallic and non-metallic segments, without including the iron and steel, cement and glass industries.

The importance and cost of the workforce are just as important, and highly competitive internationally, as well as productivity, which has increased significantly in recent years.

Government Support
Trading partners trust in Mexico and its industry’s capacity to respond to global demand for large-scale production and this is reflected in Mexico’s leading role in key market segments of the mining industry.

The country is the second largest producer of silver, bismuth and fluorite; the third of celestite; the fourth of wollastonite and diatomite; the fifth of lead; the sixth of cadmium and molybdenum; the seventh of zinc, salt and graphite; the eighth of manganese and baryte and the twelfth of feldspar, gold and copper.

These rankings not only reflect Mexico’s competitive advantages but they also speak volumes about other essential aspects of mining - the country’s infrastructure to ease foreign trade transactions, using road, highway, railway or shipping networks, and the straightforward mechanisms for companies to avoid doubletaxation and to exchange information on supply and demand. The Behre Dolbear report, published in 2010, places Mexico in the first place among 25 countries due to its fiscal regime.

Today’s Outlook
Due to these advantages, although not entirely immune to the effects of the global economic recession in 2009, Mexico’s mining industry showed signs of robustness and even growth.

Figures from the Ministry of Economy show that in 2009 private investment in the mining and metal industries increased to 2.73 billion usd, adding up to a total of 8.54 billion usd injected into the sector between 2007 and 2009. Of the total invested capital, 70% came from national companies with foreign capital.

In December 2009, 692 exploration projects were registered in Mexico. Of this total figure, 64% were gold and silver related projects, 18% polymetallic projects (copper, zinc, silver and lead), 13% copper related projects and the remainder was spread out between several mineral exploration projects.

Also, the Mexican mining sector posted a solid trade surplus. As of June 2009, its exports totaled almost 4 billion usd and its imports around 2 billion usd.

In terms of employment, at the end of 2009 Mexico’s mining industry employed 270,000 workers. Mining was one of the first Mexican industrial sectors to show signs of recovery after the international downturn, generating 4,613 new jobs since August 2009.

Mining in Mexico has seen a year-on-year increase since 2006, at an average annual growth rate of 4.8% from 2006 to 2008. The sector registered an accumulated growth of 23.4% up until September 2009.

Supporting Investment
Mexico was therefore able to remain as a leading investment destination in 2009 and one of strongest potentials for mining in the world.

Analysis by prestigious international firms ranked Mexico in first place for exploration in Latin America and fourth in the world. The Behre Dolbear report, published in 2010, placed Mexico as the world’s fourth-best investment destination for mining among a 25-country-list and in first place regarding the fiscal regime.

To assist investors, the Mexican Geological Survey has not only improved Internet access to its geological maps, as well as to inventories of minerals in the states and geochemical and geophysical research, but also the Ministry of Economy provides a follow up right from the promotion phase until providing accompaniment during the extraction or exploration phase, even afterwards, to review its performance and a successful conclusion.

The government also provides all information on providers in the sector, on land ownership and the licenses and requirements for handling concessions, to guarantee legal certainty.

The Ministry of Economy’s Mining Promotion Trust (FIFOMI) is another key player. In 2009 it helped capitalize micro, small and medium-sized mining companies as well as the sector’s production chain with loans worth 510 million usd, 20% higher than in 2008, in addition to offering training and technical assistance to more than 8,000 companies.

The government is particularly interested in reactivating those mining districts that are regions with high potential. Exploration schemes are taking place in those areas and sixteen districts are expected to be reactivated between 2009 and 2012.

Work in Progress
This has all combined to create a boom for investors in search of Mexico’s wealth of mineral resources, leading to new research and mining exploration.

In December 2009, 262 Mexican companies backed by foreign capital were operating 692 projects in Mexico. Of this total figure, 74% of companies are based in Canada, 17% in the US and 2% in Australia and the United Kingdom. The remainder is spread out between another ten countries.

During 2009 new exploration projects were undertaken. Among them: Palmarejo and Pinos Altos in Chihuahua, reactivation of the La Testera plant in El Triunfo, Baja California Sur and the San Francisco and Lluvia de Oro mines in Sonora, as well as increasing installed production capacity in La Encantada in Coahuila and La Parrilla and Cerro Las Minitas in Durango.

In 2009, important mining projects consolidated. That was the case with the Dolores mines in Chihuahua, Campo Morado in Guerrero and Peñasquito in Zacatecas. The latter will begin operations in 2010 and along with Pinos Altos it will contribute to increase Mexican gold production by up to 40%.

Other mines starting operations in 2010 are Santa Elena and Luz del Cobre in Sonora, El Águila in Oaxaca, La Pitarrilla in Durango and El Boleo in Baja California Sur, which will start operations in 2011.

But Mexico still has much mineral wealth to offer throughout its huge territory, enough to ensure it remains a favorite for investors with its top-quality deposits and its reliable and profitable business environment.