Mexico’s mining industry dates back as far as the Aztec empire and the ancient Maya civilisation. The search for minerals like gold by Spanish immigrants gave rise to major population centres like Guanajuato, Taxco and Zacatecas.
But despite Mexico’s long tradition of mining and continued industrial potential – just 25% of the country has been explored for minerals and oil to date – the sector is currently in an uncertain place, as new government policies, social unrest, insecurity and challenging access to finance undermine investment.
According to a report published in May by Camimex, Mexico’s mining industry chamber, investment in the sector hit a 12-year low last year with foreign and local companies spending roughly $383m on exploration, compared to $612m the year before.
“Mexico is losing its attractiveness as a mining jurisdiction globally,” chamber president Fernando Alanís told the local daily newspaper, La Jornada.
A turbulent market
It is not the first time Mexico’s mining industry has faced challenges in recent years. The global fall in commodity prices in 2012 caused problems across the sector and also impacted several neighbouring Latin American countries.
Analysis by Oxford Business Group, a global research and advisory company found that
“while the value of commodity exports across the region more than doubled between 2004 and 2011….estimates suggest commodity export revenues in Latin America fell from a peak of $550bn in 2011 to $480bn in 2014.”
Changes to royalty fees on metals made the situation worse for miners. In 2014, expecting an increase in royalties to around three to four percent, miners were instead hit with a 7.5% hike at a time when they were “already operating at much thinner margins,” said Oxford Business Group.
These challenges were felt most deeply in the exploration field. By December 2015, 154 projects – most at the exploration stage – were on hold according to figures from Camimex, with budgets for greenfield exploration falling from a high of $1.17bn in 2012 to just $483m in 2016.
In response, a number of leading international mining firms such as Alamos Gold, AuRico, Timmins Gold and Newstrike CapitalGold, decided to merge. As commodity prices recovered, optimism in Mexico’s mining sector – and elsewhere around the globe – began to return. Exploration budgets increased in 2017 and 2018, as did hope of new ventures and investment.
Last year, analysis by BMI Research – a London-based research firm – predicted that Mexico’s mining industry was set to enjoy one of the fastest recoveries in Latin America due to the “strong price performance of its key commodities, gold, silver and zinc, along with a strong pipeline of projects.”
A new president
But uncertainty has since increased, particularly following the landslide election of Andrés Manuel López Obrador as Mexico’s new President. The firebrand leftist – who opposes neoliberalism and corruption – has promised to better scrutinise the environmental impact of mining companies and their treatment of indigenous populations.
Among the changes proposed in a new draft law are measures to allow the Mexican Secretariat of Economy to declare an area affected by social conflicts unsuitable for mining operations, and conduct social impact studies before awarding any kind of mining concession.
The presentation of the bill by Senator Angélica García last November caused shares in Mexican mining companies including Grupo México and Industrias Peñoles to fall sharply and raised wider “concerns in the sector due to new local consent requirements for project approvals and increased government powers to cancel concessions,” says Johanna Marris, Latin America research analyst at IHS Markit.
Though the draft bill was rejected by Mexico’s Senate in March and appears unlikely to be revisited in the coming months, risks of contract cancellation and project delays due to environmental or local community-related concerns “remain higher under President Lopez Obrador’s administration than previous governments,” says Marris.
“He is likely to prioritise environmental and local community concerns over private sector interests,” she adds. “This, at the same time, is likely to incentivise increased community protests and legal action against mining activities during Lopez Obrador’s government term.”
Marris says investor confidence has been further damaged by “contradictory” statements on the mining sector between López Obrador, his ministers and ruling party Morena legislators – as well as between state and federal government officials.
The analyst also points towards a Supreme Court ruling in February in favour of the state of Zacatecas’ right to introduce environment-related taxes on the mining industry. This had been challenged under the previous administration and may now “open the way for similar initiatives in other states.”
“More broadly, López Obrador has undermined Mexico’s overall investment environment through his use of referendums to determine the future of projects, the reversal of existing pro-business measures such as the Special Economic Zones initiative and the weakening of regulatory agencies,” says Marris.
The rise of López Obrador adds to other longer-standing issues facing the Mexican mining sector – most notably, criminality. Some of the world’s most violent cities can be found in Mexico, and mining companies regularly face extortion and theft by organised criminal groups that operate across the country.
In Guerrero, a coastal state in southern Mexico, three employees of the Vancouver-based Goldcorp were kidnapped and killed in 2015. The same year, armed men stole an estimated $8.5m worth of gold concentrate from a mine in Sinaloa, northern Mexico. Workers staging strikes at mining sites have also been killed.
How quickly this can be resolved remains to be seen. A recent report by the Florida-based consultancy firm Americas Market Intelligence said corrupt police forces are unlikely to help and that mines should be as self-sufficient as possible.
“Directing an in-house security apparatus requires sound management and a constant feed of local intelligence that identifies both opponents and allies of the mine and monitors problems before they escalate into violence,” the report said.